MacroVoices #452 Darius Dale: No Difference Between Trump & Harris

This is Macro Voices. Podcast. Finance. individuals. And other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics telling it like it is: bullish or bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Serezna Micro Voices episode 452 was produced on October thirty-first, twenty twenty-four. I'm Eric Townsend. Happy Halloween.

Forty two macro founder Darius Dale returns as this week's feature interview guest. Darius says that with regard to financial markets, it almost doesn't matter who wins next week's US presidential election. He'll explain that view before we move on to persistent inflation, why Darius says the US economy will remain strong. Why the Fed wants so badly to engineer a soft landing, and why Darius is convinced that liquidity will continue to rise. We'll also talk about gold and where it's headed.

And I'm Patrick Serezna with the Macro Scoreboard week over week as of the close of Wednesday, October 30th, 2024. The December SP 500 futures up 24 basis points, trading at 5852. While flat, week over week, we are seeing selling on the first reactions to the Mag 7 earnings. We'll take a closer look at that chart and the key technical levels to watch in the post-game segment.

The US dollar indexed down thirty one basis points to one hundred four ten. After a four week bull advance, the dollar is consolidating into the elections. The December WTI crude oil contract down three hundred and five basis points, trading at sixty-eight sixty one.

Big geopolitical gap lower has been closing all week. We'll take a look at that chart in the post game and Eric will have the EIA inventory, the December RBO gasoline down two hundred and forty nine basis points, trading at one ninety six. The December gold contract up one hundred and eighty five basis points, trading at twenty eight oh one. The buying has been relentless in spite of the overbought conditions. Copper up forty six basis points, trading at four thirty five. Uranium, yeah.

Down 309 basis points, trading at$80 even, and the US ten-year treasure yield up eight basis points to$428. The key news to watch. This week is the Friday jobs numbers, and next week we have the US presidential election, the ISM services PMIs, the Bank of England Monetary Policy Summary, and the FOMC statement and press conference.

This week's feature interview guest is Forty Two Macro Founder, Darius Dale. Eric and Darius discuss the election, fiscal policy, inflation, the business cycle and more. Eric's interview with Darius Dale is coming up. as Macro Voices continues right here at macrovoices dot com. Here's your hope. Eric Townsend.

Joining me now is 42 Macro Founder Darius Dale. Darius, as always, has prepared a fantastic slide deck to accompany this interview. It is the full slide deck, which is normally sent out to Darius's paying subscribers. Accordingly, we do need to redact some of those pages, otherwise those paying subscribers would throw a fit.

So you'll notice that only the slides that we discuss in this interview will be visible in the slide deck that you can download. If you want the whole deck, you'll have to follow up with Darius at forty two macro dot com. Darius, great to have you back on the show. Obviously, first topic's gotta be uh we're recording on Tuesday, seven days before election day in the United States. Uh what should we think about that as investors?

Appreciate you having me, Eric. Thanks again for uh thanks for the opportunity, my friend. So uh obviously the markets are starting to run away, the uh probability of a Republican controlled government, uh as you see here on slide eighty five of our latest macro scouting report.

Uh we show the polymarket odds. Now we all know the polymarket is is manipulated by a few whales, but those whales are choosing to manipulate the market in favor of Donald Trump and a Republican sweep for a reason, likely for data driven reasons based on polling, based on early voting results.

Uh and so it's really clear in our from our perspective that the asset markets, both uh factor leadership within the stock market and also uh the broader rates and currencies markets are really moving in in the direction of the implications of of of Donald Trump's uh policy. Okay, so let's talk about uh the headline, the clickbait, I'll admit. Uh, you actually said to me off the air before we recorded

It doesn't matter which candidate wins because they're basically the same. I'm pretty sure that from a sh social perspective a lot of Americans don't see the candidates as the same. What did you mean by that statement?

Yeah, well the reason I say that is because we are in a fourth turning, Eric, as you know. You well know you've had my former colleague and and and one of my mentors, Neil Howe, on the show. Uh we're big believers in his research from a geopolitical standpoint. Uh we ourselves here at Forty Two Macro have done a big deep dive uh empirical study on what happens to the economy.

perspective policy and and asset markets uh and also geopolitics from the perspective of a foreturning so that we can help our clients navigate this otherwise tumultuous period uh as investors.

And one of the key takeaways from a fiscal policy perspective, as we highlight on slide seventy eight, is You know, if you look at the if you study the evolution of of critical fiscal policy time series like the fiscal balance to GDP ratio, cyber debt to GDP ratio, interest expense to GDP ratio, what we notice is that there are consistent and dramatic like deltas that we tend to observe in four turnings as a function of the foreturning itself.

Most notably, we tend to see a sharp deterioration in the sovereign fiscal balance to GDP ratio, particularly as we get later and later in the fourth turning, and a sharp as a function of that, obviously, a sharp acceleration in the sovereign debt to GDP ratio. So those two th dynamics are going to happen irrespective of which party controls Congress or which party takes the White House. And part of the reason for that, if you look at slide eighty one, Eric.

More populism is the highest probability outcome because we understand that the social contract here in the US is broken. If you look at this chart here, the blue line shows labor share of national income, the red line shows corporation share of national income, and both have deviated substantially from their longer term trend.

And if you look at Labor's share of national income, it averaged about you know, fifty-six percent of gross domestic income from nineteen sixty all the way through two thousand, whereas it's currently at fifty-two percent currently if you look at the cobra profits.

as a share of gross domestic income, it averaged about nine percent versus the thirteen percent uh an all-time high that it's currently at, uh, an all-time low in the terms of labor share currently. And so if you think about that, four hundred basis point delta from those averages, that roughly accounts to about one point two trillion dollars.

per annum as it relates to lost income from the private sector in terms of the uh private sector uh employee and debt being siphoned into uh the coffers of corporate America, guys like Elon Musk. This is a regressive

transfer that in our opinion was a function of a series of policies, most notably China's entry into the WTO in 2001 and Mexico's entry uh into NAFTA. And so we understand that this populism that is fueling the rise of populism on both sides of the aisle is likely to culminate in an explosive growth in federal debt.

As we progress deeper into deeper into this fourth turning. And that's why the headline is it doesn't matter who wins the election, we're gonna wind up with significantly more sovereign debt at US sovereign debt as a function of that. If you look at slide eighty two.

We see that Democrats have historically practiced socialism for the poor and Republicans have historically practiced socialism for the rich. And either way, both parties love piling on debt to socialize the income of their constituents. And I would argue not only is the have the Republican Party historically practiced Socialism for the rich. You now have Donald Trump also practicing socialism for the poor.

Uh and so in this chart here we show government social benefits divided by household income. That's just been up and to the right for decades and decades. From a low of six percent in nineteen sixty two with the current eighteen percent share currently. Uh if you look at uh the effect of a corporate tax rate in the blower panel, that has been declining uh down into the right for decades, peaked out at around forty three percent nineteen seventy, and it's currently only eleven percent total.

And so if you think about the the spread between those two lines is the accumulation of public sector debt uh here in the United States. And ultimately that's going to be a problem from our perspective because we ultimately realize that the We're already having this sort of bipartisan surge of populist fiscal policy before the actual fourth turning takes place. I was I'll share you with you one final slide here before we move on. If you look at uh US fiscal policy and forth turnings.

Historically what we found is that the the change in the the sovereign debt to GDP uh sovereign fiscal balance to GDP ratio on slide eighty eight, you see that uh in the Q Civil War returning, we saw the start to trough change in the U.S. sovereign fiscal balance to GDP ratio was nine minus nine hundred and fifty basis points.

So the budget deficit got wider by nine hundred and fifty basis points. Uh in the World War II foreturning, we essentially the budget deficit got wider by, you know, almost twenty-eight percentage points. And right now we're wider by eleven percentage points, a little bit over, almost twelve percentage points currently. And this is before the actual major existential fourth turning crisis occurs.

And that's obviously terrifying in the context of the start to peak change and sovereign debt to GDP ratio that we've already accumulated in this current foreturning. If you look at the Civil War foreturning, the sovereign debt to GDP ratio uh rose 27% percentage points.

in the World War II fourth turning, it rose over a hundred percentage points. And currently we're up about, you know, sixty nine percentage points. And again, this is before the actual fourth turning crisis occurs. So I can't stress this enough. The US is already on a profligate fiscal path that is getting increasingly dangerous as a function of the fourth turning, but also also as a function of the wave of populist fiscal policy that we continue to see from both sides of the aisle.

Okay, Darius, I get it. I totally agree with you that there is a growing trend of populism. I also agree with you that uh more sovereign debt for the reasons that you state is likely. Uh I think the chart uh eighty eight definitely makes a very compelling argument that, yeah, we're in the middle of a fourth turning which uh is defined as a a twenty five year period of

uh of uh not so happy history. Uh I'm also a huge fan of Neil Howe's work. Uh I named a company for returning capital management. I I believe in the theory so much. So needless to say we're on the same page uh there and I think the fact that the the big heavy part of fourth turnings happens right kind of in the ninth inning of the the fourth turning, so to speak, and we're not there yet is a really uh prescient message. But Hang on a second, Darius.

Uh I don't think that this election is really about a Democrat versus Republican partisan election, the way most people have interpreted it, because W there's plenty of uh Republicans that are much more establishment wing. There's plenty of Democrats, uh although s many of them are defecting from the Democrat Party now, who have much more of a populist view.

But I see this election as really the populist side represented by Donald Trump versus the establishment elite uh, you know, historical control of Washington represented by Vice President Harris.

So it seems to me that although I agree with you that there's a trend in the economy that's very much moving towards populism, the policy intentions of these two presidential candidates in terms of what They've said about or at least what historically the Biden administration, the Biden Harris administration has done historically uh since the first time.

Vice President Biden hasn't said that much about her actual intentions. I'm assuming it's the same a as it's been. Uh if you look at that versus former President Trump's intentions th they're really kind of polar opposites, at least in their rhetoric and what they say. Can you really make the claim that you know it's it it it doesn't matter?

Uh yeah absolutely I will. And I won't even make the claim. I'll let the committee for responsible federal budget uh make the claim, which in my opinion, based on our research here at Forty Two Macro. This is the bipartisan think tank uh down in DC as it relates to accurately forecasting the impact of policy on top upon the budget deficit.

Uh, if you go to slide eighty seven where we show uh their analysis that evaluates the various proposals that each candidate has made on the campaign trail all the way through uh September thirtieth of this year, their analysis shows Kamala Harris's proposals is accumulating roughly about An additional$3.5 trillion in US sovereign debt over the 10 year projection period relative to the base.

Uh if you add up all the the various proposals uh from an income and and and spending perspective from the Trump campaign, uh it's about plus seven point five trillion dollars. Uh the chart on the right in this side shows the ultimate impact of those policies from the perspective of the US debt to GDP ratio. Current law, which currently has the US the tax cuts and jobs acts, the Trump tax cuts uh expiring at the end of twenty twenty five. still has the US's debt to GDP ratio.

accelerating to one hundred and twenty five percent in ten years time. Uh if you add on Trump's or Harris's uh policy proposals. The US debt to GDP ratio accelerates to a hundred and thirty three percent uh in ten years time. And ultimately US Donald Trump's uh proposals are likely to cause about a hundred and forty two percent uh debt to GDP ratio in roughly ten years' time. And again

I I can't stress this enough. These numbers are coming from the Committee for a Responsible Federal Budget. It's like the sleepiest white glove institution in D C. You got the former head of the CBO, the former head of the Senate budgeting process, Republican former head of the House budgeting process is Democrat.

It's it's literally the most bipartisan, sleepy think tank down in DC. So I think you do have to take these uh estimates uh at face value in terms of what both candidates are are promising. And Eric, you made a d a point that I I I do want to unpack and push back on a little bit.

uh in the context of the Trump representing the populist wing of the Republican Party and Kamala Hare sort of representing the kind of old guard establishment, you know, elite down in D C, uh in our opinion, we'd we would s slightly disagree with that. Uh if you look at slide eighty three,

Where we we so we went back and we did uh did a deep dive empirical study on the growth of sovereign debt and the monetization of sovereign debt under various presidential administrations, and I was shocked by the conclusion. Genuinely shocked by the conclusion. Because what the conclusions of the data suggest is that in the postwar era, Republican administrations have outpaced Democrat administrations when it comes to burdening the country with debt.

So the the the rhetoric in this country around which party is responsible for our uh you know our profligate fiscal trajectory is wrong. I mean, uh quite frankly, I think it's just lazy and misguided. So if you look at the cumulative growth of US public debt during US presidential administrations in the postwar era, uh after year one, Democrat presidents have presided over, signed into law, six percent public debt growth versus five percent uh for Republican presidents.

After year two, it's ten percent versus twelve percent respectively. After year three, it's twenty-two percent versus twenty-one percent respectively, and then after year four, the Democrat uh median uh is twenty-six percent versus the Republican median is thirty-nine percent. And even if you exclude the year four from the Trump uh presidency, which I view should based on the COVID experience,

that the Republican median is still plus thirty six percent, a thousand basis points higher than the Democrat median in the postwar US economy. So there is a real it risk. of a US fiscal crisis, in our opinion, we don't think Republican tax cuts be are a big enough uh discussion topic out there as it relates to, you know, discussion amongst investor consensus. If you look at slide eighty four, You know, we all know the Democrats spend too much. I don't think anybody can disagree with that.

But we need I'm trying to use my platform to create a better discussion globally, uh in global sovereign debt markets. We have some very big fixed income clients out there and they know who they are. I want to create a very different discussion about

which party's responsible for the debt because the key takeaway is they're both very much responsible for accumulating debt. If you look at the chart on the right here on slide eighty four where we show uh the cumulative debt growth of US public debt during those presidential administrations. Six of the top eight in the post-war US economy are Republican presidents. Six of the top eight.

And so it to my opinion I think investors need to be aware that, you know, even though Donald Trump represents the the now populist wing of the the you know re-energize uh Republican Party, we also need to represent understand the fact that he wasn't the only reason we got here from this perspective and the ultimate risk of a U.S. fiscal crisis that we continue to see elevated risk of here in this four turn.

Darius, I agree emphatically with everything that you just said, especially the ingredients being in place for a US fiscal crisis. Too much debt, it's not sustainable, it can't last forever. Things that can't last forever don't. Okay, I'm on board. We're we're on the same religion. But hang on, I agreed completely with presidential candidate Ross Perot back in nineteen ninety two when he said a US national debt of five trillion dollars is unsustainable.

I think he was right. But guess what? We've gotten away with it for so long that most people have just gotten to the point where they roll their eyes and say, Another guy must be a libertarian talking about fiscal crisis because of too much debt. The debt doesn't matter for a big country the size of the United States. It's been proven by decades and decades of guys like Ross Perobian wrong.

Why wouldn't someone conclude that you're wrong too right now? What's different about now that this unsustainable debt really does lead to the fiscal crisis that so many people have predicted for so many years?

Yeah, great question. Excellent question. And to me, it's all about the timing and and sequencing sequencing of catalysts. What's different about now relative to historical episodes of too much US sovereign debt is the starting point. uh with respect to uh US you know dollar hedgemont.

Uh if you go to slide forty nine where we show the US dollar share of global totals in terms of um your foreign exchange reserves being sixty percent, cross border bank lending at sixty percent, international debt securities at seventy percent. Trade invoicing at 79%, foreign exchange transactions at 88%, and stable coin backing at ninety-nine percent. The world is grossly exposed to the US dollar and the US dollar a hegemony in a way that it no longer wants to be.

Obviously last week we had the BRICS summit in Russia, uh, where the stated objective as a function of the stated objective in in the conclusion of the summit was we want out of this system. Obviously there aren't any real viable alternatives. to move out of the system in mass, but we do know that the system is broken from the perspective of a lot of our peer and adversary economies and that they're going to be looking uh increasingly for viable alternatives over the long term.

And so the key takeaway from our research in this discussion today, Eric, it's not to just sound the alarm bell on a US fiscal crisis. I think we're already in a slow motion fiscal crisis as evidenced by some of the dynamics in the bond market that we'll hit on shortly. But the not to sound the alarm bell on the US fiscal crisis.

To me, it's to sound the alarm bell on how the Fed is going to be forced to deal with this. And so that transitions up to our secondary topic If you go to slide ninety four, again, citing the uh deep dive empirical study that we did on on the fork turning, uh, you know, if you guys want to see the deep dive empirical study, it's about fifty or sixty slides.

uh of hard hitting factual uh data with data going back to, you know, n the eighteen hundreds for all every time series to understand exactly how these dynamics have evolved in in in previous fourth turning episodes, which are generally eighty to a hundred years apart. So it's obviously like not like we have a ton of data, but We have at least a couple of cycles to analyze. And here on Site ninety four, what we find is that You know, the key forth turning monetary policy risk.

are a whole lot of financial repression, Eric, and a whole lot of monetary debasement. And ultimately that's likely to cause a significant acceleration in money supply that ultimately inflates the value of financial assets. So if you look at slide ninety nine We have a strong belief that investors should expect incremental financial repression because banks have ample capacity to lend to the treasury market. If you go back and you look at the

commercial banks, uh treasury and agency security portfolios, uh they're roughly about eighteen percent of total bank assets currently. You gotta go all the way back to uh uh they're they're as high as roughly fifty percent. of total bank assets at the height of the last four turnings. So we know that the regulators, the Fed and and and other international regulators, are going to financially oppress banks into uh holding more treasuries. They're very likely to keep the uh policy rates.

Significantly below what are likely to be elevated rates of inflation as we progress deeper and deeper into this foreturning. We also see on slide 102. Uh that investors should expect monetary debasement because the private sector, which has been increasingly called upon to capitalize the U.S. government, will demand higher yields to capitalize Uncle Sam.

So in this chart we show the Fed's treasury holdings uh as a share of the total marketable treasury debt outstanding. That's the blue line. It's been declining for a couple of years now at only sixteen percent.

With the red line shows commercial banks' treasury holdings have been declining for a couple of years, but bottoming essentially in two thousand twenty-three, and it's been grinding higher since at about fifteen percent of the total. The black line shows foreign official treasury holdings, so go foreign central banks. Uh their share has been declining since two thousand eight, now only at fourteen percent. And so the residual of that, the rest of it is the the global private sector.

Our share has increased from thirty six percent in late twenty twenty one of the marketable treasury market to fifty four percent currently. And in our opinion, this this unadulterated, unabated rise in the share of f US uh public sector financing that has been you know forced upon the you know foisted upon the the the the global private sector uh has really caused a big rally in y in bond yields and a big backup in real interest rates across the curve, not just here in the US uh but globally.

And so the key takeaway is This from a perspective of where we all our starting point of the deterioration we already have observed in the terms of the US public sector balance sheet. that is likely to accelerate dramatically, i.e. the deterioration is likely to accelerate dramatically. We recognize that there's only one institution in the world with a balance sheet large enough

to capitalize the US public sector debt in a fourth turning. And that's the Fed. That's the blue line on this chart here on slide one oh two. We understand that the red line is gonna be hor uh f be forced up uh as a function of regulation. We got Basel Four coming in next year that's essentially gonna change the risk ratings and force the banks incrementally out of the uh credit markets and in incrementally into sovereign debt markets.

That's another form of financial oppression. But ultimately we realize that there will come a time and and probably multiple times over the next five to ten years where the Fed has to dramatically accelerate the growth of its balance sheet. to capitalize uh the US sovereign debt the US sovereign fiscal situation, if not a per in a perpetual manner, uh if we start to see yields run away from us. And the final thing I'll say on this topic is if they don't do it.

The alternative is a collapse in the Treasury market. a collapse in the global repo market, a collapse as a function of that in the global financial markets, and ultimately a collapse in the global economy. And it's our view that these, you know, academic wonks, the Federal Reserve, the ECB, the Bank of England, et cetera, et cetera, et cetera, they don't want collapse.

They want to be credited with saving this and bailing out the system. So if you look at slide one oh three You know, the key takeaway of this slide is that we're all frogs being boiled alive in a pot of monetary debasement and financial repression due to this fourth turning style fiscal dominance that is going to accelerate uh as we progress over the next five to ten years.

So in this chart we show in the top panel ten year treasury term premia. Uh that's you know roughly twenty two basis points wide currently, uh you know essentially no term premia is historically averaged at about 150 basis points.

Uh so if you go back and you add that one hundred fifty basis points of missing term premia from the bond market on the ten year tenor uh is a function in our opinion of the asymmetrically dovish reaction function that we've uh observed out of the Fed over the past ten plus years. You go back and add that term premium back to the bond market, you're talking about a ten year treasury yield that's closer to six percent than it is to closer to four percent.

You're talking about a ten year tips break even rate that's closer to four percent as opposed to the current, you know, two two point three percent, and you're also talking about a positively sloped.

Ten year treasury, a three month ten year treasury yield curve at about a hundred twenty two basis points wide versus the minus twenty six basis points that we currently have. So Because of the asymmetrically dovish reaction function that we're already observing here in this four turning, their the bond market is already exhibiting signs of financial repression.

And it's likely to get worse and worser over the long term, which ultimately means as investors, we need to figure out a way to protect ourselves against that because in my opinion, this is the key structural risk of our time.

Okay, I got it at the thirty-five thousand foot uh high level view. Let's come down to the ten thousand foot level and talk about some of the major macro drivers, macro backdrop issues. Gotta start with inflation. And I'll tell ya, Darius, I I've been fascinated.

by the way people are interpreting current data because As you know, for several years now I have uh held the view that the secular disinflation that began in the nineteen eighties is over, that we're in a new period of secular inflation that is likely to last for for at least a decade and probably more. You know, in the post COVID era the there was this whole team transitory debate.

And and you know, they they had their view, I had my view, we disagreed and we said, We'll see how it works out. Those guys are all taking a victory lap now. They're all saying, Ha ha, told you so, it was transitory, I was right, you got it wrong. And I'm saying, Really? That's how you're interpreting the data? How do you see it, Darius?

Oh that's a great question, Eric, and I I appreciate you uh teeing that up because I think you and I share similar uh views on inflation and have for for quite a while. Uh so if you go to slide uh seven where we uh show our fundamental research summary, these are uh this is a chronological list of our active themes uh that we maintain in these uh monthly macro scattering reports for our clients.

uh here at forty two macro. The first theme, which we authored in January of twenty twenty two, uh, is our sticky inflation theme. And the key takeaway there is that we don't have any confidence that inflation is going to return durably to the feds uh stayed at two percent and de facto two point five percent targets in the absence of a recession. In fact,

Our model has inflation starting to bottom uh here in Q4 and meandering higher over the course of the next year. Uh so in our opinion, that could cause some problems in asset markets, but it's unlikely to cause problems in asset markets. Until the Fed decides to downgrade the labor market and its reaction function, which it may not and may not want to, you know, for several months, if not even several quarters.

So, uh Eric, I think uh one way we could sort of um you know do we can do like a rapid fire or each of these four themes, you know, I I'll hit on the theme, give you a couple of charts and then we can return to this slide to unpack the each of the other themes with one or two charts. Does that make sense?

Makes sense to me. Awesome. So let's uh for with respect to sticky inflation, let's go to slide 67, uh, where we show uh inflation is the most lagging indicator of the business cycle and is unlikely to durably return a trend absent a recession. So we did a, you know, we we're I I guess we're getting increasingly famous for doing deep dive empirical studies. Uh one thing I found is that there's a lot of myth out there from the perspective of

what people think about macro, uh and there's not a lot of factual data. So what we do here at 42 macro is really, really get our hands dirty, roll up our sleeves to uh really truly understand the empirics and the statistical properties of all the time series that we and other investors are focused on. And the reality is There is a real cadence to the business side.

It's called the business cycle for a reason. It doesn't just pop out of nowhere. We don't just drop and into and out of recession every other week. There's a reason why the Bears have been uh so wrong on this recession view for so long is because we have not had the the dynamics in the business cycle to um the leading in the persistent leading innovators of the business cycle have never aligned themselves in a way that suggests

uh recession was going to be a high probability event on a short-term time horizon. But we'll unpack that in our resilient US economy team. Let's get back to inflation. So in this chart here on slide 67, we show the median trailing tenure delta adjusted Z score in months before and after a recession begins in both of these charts. And so essentially what it is, it's the it's the median path that each of these cycles take.

in and around a recession. And so what we found is that, you know, you go back and you study the twelve postwar business cycles that we have in the US economy where we actually have robust data to analyze, what we find is that policy gets restrictive. Right around 15 months ahead of a recession. Then the corporate profit cycle breaks down right around a year ahead of a recession. Then liquidity breaks down right around three quarters.

Ahead of a recession, then growth and the stock market breaks down simultaneously right around two-quarters out of a recession. Employment breaks down right when the recession starts. Credit breaks down a quarter after that. And then finally, four to five quarters after a recession starts, you get inflation breaking down below trend on a durable basis.

Uh you can see it a little bit clearer in the slot chart on the right here on slide sixty seven, uh, where we show growth breaking down again two quarters ahead of a recession, headline inflation and core inflation breaking down about twelve to fifteen months or four to five quarters. after a a recession.

Start so Clearly, if we don't have the persistent leading indicators of the business cycle aligned in a way that suggests a recession is a high probability outcome on a short-term time horizon, then we should not be expecting a durable breakdown in inflation uh anytime soon uh as a function of. In fact, If you look at slide 74, where we show some of the leading indicators of inflation, if you look at core PPI, core PPI actually bottomed at 2%.

Last year. That's important because obviously if you want a mean of 2% from a policy perspective, you can't bottom at 2% and start to re-accelerate higher from that. like we currently are in terms of the blue line on the slide on slide seventy four. And it's actually starting you're starting to see, you know, signs of an elevated bottoming process in core CPI and core PCE, uh, which are the red line and the black lines in this chart. So to me, I think investors need to be very aware that

Inflation may not do what the Fed is expecting it to do and what other investors are currently expecting it to do, as evidenced by uh Bloomberg consensus. I now finally shut up on this inflation topic.

If you look at slide thirty seven, where we show our grid model uh for the United States, we maintain this grid model for every major country uh in the world. Our views on growth have been consistent for two years, two plus years now, uh in the context of our resilient US economy theme, which we'll dovetail into next. Growth has been surprising to the upside. It's likely to continue surprising to the upside. But as it relates to inflation, which is the chart on the bottom right,

We have inflation bottoming here at Q4 and again starting to meander higher over the medium term throughout the duration of our next 12 month forecast horizon. Now, again, we not necessarily think that's going to cause problems in asset markets.

until the Fed starts getting concerned about it again, which may not occur for, you know, several months, several quarters, if not several years. Who knows? This is a Fed that has an asymmetrically doubled reaction function and they may very well want to maintain that.

Let's move on to your second major theme, which was resilient US economy. Uh we offered this theme back in September of twenty twenty-two. We maintain high conviction in that. Uh and the key takeaway is that the U.S. economy remains resilient for a variety of factors.

I'd say the most important factors as it relates to uh the resilience of the US economy. Uh we have a historically strong household sector balance sheet. We've been covering the West Village Montauk effect, which is the elevated stock of savings as a function of the fiscal largest

and monetary largesse that we've seen in the post COVID era is causing a decline in the flow of savings, which means households are now, because they have so much more money on their balance sheet, are spending more money into the economy on a flow basis.

So that continues to dominate. Uh we continue to see elevated uh sort of um income disparity uh in the US economy, uh whereby the cohorts that account for the most amount of consumer spending in the in the US economy are doing quite well from the effect of

asset price inflation, home price inflation, et cetera, et cetera. The corporate sector balance sheet is quite robust as well, that there's no change there. Uh we have limited exposure to the policy rate in terms of the immunization that we've seen in the private sector from the polic the level of the policy rate. And then we have very limited exposure to the volatile manufacturing sector. The manufacturing sector, which is only ten percent of GDP.

uh versus a peak of uh twenty eight percent back in nineteen fifty three and the uh manufacturing shares uh is only fourteen percent of non farm payrolls versus a peak of forty four percent back in nineteen forty three. If you take those numbers and understand that the manufacturing sector is only account is accounted for a median ninety eight percent of net job losses in the twelve postwar US recessions.

You have to understand that because we have such little uh exposure to this from an economic standpoint, it's highly unlikely that we have a a cyclical downturn in the economy because the cyclical part of the economy is such a smaller share of the economy. And so, uh, one final thing I'll say on this, um

the limited probability of a recession over the medium term. Uh you go to slide twenty six where we show that similar analysis that we were talking about, uh going back to slide sixty seven, uh, but we're showing this from the perspective of growth. So the chart on the left again is the how the each of these cycles have historically evolved in and around recession.

The chart on the right now shows the actual current data for each cycle. And what we typically find is we talked about this, policy breaks down, you know, over a year ahead of a recession, followed by profits, followed by liquidity, followed by growth, followed by stocks.

Right now, the only thing that is consistent with, you know, being uh signaling a leading indicator for uh a recession is the fact that policy is quote unquote restrictive right now. And and you can make a case that it may not be, just given the limited exposure to the level of the policy rate that we've reserving uh in this business cycle.

We don't have corporate profit cycle breaking down, we don't have liquidity breaking down, we don't have growth breaking down, we don't have stocks breaking down, so why in the world would investors expect a recession to occur any point in time over the medium term timer? Our answer to that is you shouldn't.

Uh and ultimately, going back to slide thirty seven, investors should expect US growth to continue generally and persistently surprising to the upside over the medium term. So that that's been where we've been for over two years now, and we expect to continue to be right on that view over the medium term.

Darius, the next high conviction call which you made back in November of twenty twenty three was that Fed Chairman Jay Powell wants a soft landing. Yes, yes he does. Uh in our opinion, this is one of the least understood dynamics, uh, but most important dynamics as it relates to uh how financial markets are operating uh at the current juncture and have been since early November of last year when we authored the theme. So if you go to slide twenty four

So a lot of investors spend way too much time listening to each of these different Fed heads talks and chirp, you know, their their it's like a cacophony of words. But the reality is the only person you really need to listen to as it relates to the out the forward outlook for Fed policies is Chairman J. Powell. And Chairman J. Powell is very consistent and has been all year about his desire to implement a soft landing in the US economy. Recall that back in twenty twenty two he wanted pain.

In twenty twenty-three he said, uh, you know, I think we're gonna we're having some progress here. And then in the the Jackson Hole in twenty twenty four, it was very clear, very obvious. In fact, I'll I'll read a few quotes uh from his most recent commentary at the National Association of Business Economics.

Quote, our goal all along has been to restore price stability without the kind of painful rise in unemployment that has frequently accompanied efforts to bring down high inflation. While the task is not complete, we've made a good deal of progress toward that outcome. And then further, Powell uh said the path to a more neutral policy setting is not on a preset course, but the reality is it it certainly does feel like it's on a preset course.

in the context of the Fed's estimates for the neutral rate. Uh Powell goes on further to say we do not believe that we need to see a further cooling in labor market conditions to achieve two percent inflation. And to me that's such an important statement because it ultimately means that the labor market itself is

sacrosanct uh in the Fed's reaction function. We would argue the treasury market is the most important dynamic uh driving the Fed's reaction function, but they're not going to come out and tell you that because that's not their congressional mandate.

Their congressional mandate is price stability and maximum employment. So they're gonna say whatever they have to say in order to maintain, you know, so credibility uh in the eyes of policymakers and and in the eyes of investors. If you go to slide seventy five. Part of the reason we see uh the Fed's asymmetrically dovish reaction function persisting is the fact that the Fed's estimate for neutral is all the way down at three percent.

Right. So obviously the dot plot gets updated every quarter. Uh they survey all the the twenty something, you know, I want to say sixteen to twenty ish policymakers on the FOMC uh with their estimates of neutral. And the median estimate, and and not only median, but the the central tendency of the estimate is clustered around three percent. Well that has meaningful implications because the current policy rate is currently up at five percent.

So right now, instead of looking at the resiliency of the economy that we've been calling for since September of twenty twenty two. or the stickiness of inflation that we've been calling for since January of 2022. They are looking at their estimates of neutral in determining where they want the policy rate to go and how fast they want it to get it there. So in this chart we show the the dot plot, the blue bars in each of these panels for twenty four, twenty five, twenty-six.

Uh in the longer run projections, uh the red line is the current Fed funds future yields for December twenty four, twenty-five, twenty-six, and and twenty-seven. The black line shows the what the Fed's pricing in for uh each of those years. So right now the Fed's dot plot.

is currently uh forecasting another two rate cuts for twenty twenty four, so obviously in November, December of this year, another four rate cuts in twenty twenty-five, another two rate cuts in twenty twenty six before they ultimately reach their uh neutral policy setting. Uh so obviously it's a gradual approach. to getting to neutral, but the key takeaway is that this is a Federal Reserve that despite having above trend GDP growth, above trend pri real final sales growth, above trend inflation,

It's already cutting the policy rate and it's guiding the rate cuts. And oh by the way, going back to June already uh revised its balance sheet policy to get incrementally dovish as well. So You know, we've been here. since November twenty twenty three. We ultimately understand that historically the Fed has maintained an asymmetrically dovish reaction function throughout the entirety of the historical fourth turnings. Obviously the Fed's only been around for for the most recent fourth turning.

But throughout that fourth turning, particularly in the nineteen forties, the Fed had an asymmetrically device reaction function that ultimately amounted to a significant amount of financial repression and monetary debasement and explosive growth in the money supply, which ultimately was extra incredibly bullish.

structurally bullish with things like stocks uh and gold. So investors need to be aware of that. That's the environment that they're operating in from a my US monetary policy perspective. And as we talked about uh uh you know slide forty nine, the US monetary policy really, really matters to the rest of the world.

Going back to page seven. The last three topics we just discussed, sticky inflation, resilient US economy, and Jay Wants a Soft Landing, were all high conviction calls. You've also got a medium conviction call, which you just made last month, which is here comes the liquidity.

That is correct, my friend. And so this uh this theme, here comes the liquidity, is a combination of the theme that we've had uh that we were early on in terms of uh China's liquidity impulse, obviously accelerating massively in September. Uh we've been calling for that since the December of last year, but the additional layer

of that is the what we see as likely uh incredibly robust liquidity imposts from the US in the first part of next year that will be supplemental to what we're observing out of China and other economies around the world. So if you go to slide forty two where we show our global liquidity monitor.

Eric, if you kinda scroll over across the the top of the columns, you can see liquidity proxy there uh for each of these economies, the trends uh in the respective liquidity proxy. And for those who may be new, uh we track global liquidity and we track liquidity in every major economy in the world through the lens of our liquidity proxy, the forty two macro liquidity proxy. So on a global basis, that's the aggregated global central bank balance sheet from all the major economies in the world.

all of their broad money supply aggregated and their FX reserves minus gold aggregated. And then we layer on a bond market volatility overlay to simulate the impact of the repo market upon liquidity dynamic. And what we find is that if you look at the liquidity proxies for each of these major countries that feed into the global liquidity proxy.

You have Australian liquidity currently trending higher. You have Canadian liquidity currently trending higher. You have Chinese liquidity currently trending higher and set to massively accelerate in the coming months.

You have Eurozone liquidity currently trending higher, you have Indian liquidity currently trending higher, you have Japanese liquidity currently trending higher, you have Swiss liquidity currently trending higher, you have UK liquidity currently trending higher, and you have US liquidity now recently inflecting into a a positive trend. So Every major economy in the world has its liquidity proxy accelerating currently. And so investors need to be aware of that as an investor.

And that's likely to actually accelerate from there. So obviously it's it's one thing to say liquidity is going up and liquidity is going down. I think uh every Jamoke on Twitter can tell you uh that. What they cannot tell you is where is it headed over the medium term. And that's where you need to do math to figure that out. So on slide forty three, you know, we found based on our our analysis.

i that you know that what what actually leads global liquidity over the medium term is stocks, it's crypto, it's it's the US dollar, it's FX volatility, it's interest rates, it's fixed income volatility, it's growth, inflation, unemployment. And if you look at slide forty four, the aggregation of these key leading indicators of global liquidity currently signal a significant increase in global liquidity over the medium term. So investors need to be aware of that.

Based on the movement of these d time series, the the the volatility of the the year of your rates of change of these time series, the current movement of those time series, based on their historical correlations, suggests that global liquidity is going to catch up.

in a material fashion over the medium term. So again, we're already currently accelerating in global liquidity terms with a broad based acceleration across most of these economies, most of the major economies in the world that contribute to our global liquidity proxy, and that's likely to accelerate

over the medium term, obviously China being a big uh driver of that. So that's the global liquidity uh proportion. I we believe that US liquidity is likely to accelerate uh significantly as well in the coming months. So if you jump to side fifty seven,

Where we unpack the uh uh most recent two, the Q Q three QRA, uh the quarterly refunding announcement out of the US Treasury. Uh the outlook for US liquidity is mildly positive for Q four. We're talking about a hundred and seventy-five billion dollar decline in privately held net marketable borrowing in Q4. We're talking about a hundred and fifty billion dollar decline in the Treasury General Count balance.

uh here in q four currently projected by the by the treasury. So those things are uh quite positive uh from the perspective of US liquidity. But what I'm most uh concerned about US liquidity from the perspective of being a bull is the outlook for liquidity in Q one.

So if you got the q we got the part one of the US Q four quarterly refunding announcement uh on Monday this week, uh we'll get part two tomorrow on Wednesday. And what we find is that the Treasury is expecting to incrementally crowd out the private sector and drain US equity in Q one. That's on slide fifty eight where we show uh the projections for Q one for the privately held net marketable borrowing estimates.

of eight hundred twenty three billion dollars is two hundred and seventy seven billion relative to what it is in Q four. And then the Treasury General Count end of quarter treasury general count balance for Q one is one hundred fifty billion dollars higher than it is for Q four. Well, wait a minute. I just said the outlook for US liquidity is about to get wildly positive in Q1. And the reason for that is they're not going to be able to do what they're put on the screen here on slot fifty eight.

they will get they will run directly into a debt selling, uh uh the lapse of the expiring debt selling moratorium on January first. That's on slide 59. So on January 1st, the US the so the death selling moratorium that was enacted in June of 2023 ends on January 1st of 2025. On january second of twenty twenty five, the US Treasury will no longer have borrowing authority, which ultimately means if you look at slide sixty.

They're gonna have to spin down that roughly seven hundred billion dollars of Treasury General account in the first few months of twenty twenty-five as we deal with another debt selling, you know, bipartisan debt selling breaksmanship episode.

These things are only gonna get more and more partisan and more and more brinksmanship e for lack of a better word, uh, as we progress deeper in the fourth turning and the rate of growth of US sovereign debts and deficits starts to meaningfully accelerate. So if you look at the last two debt ceiling episodes, Eric. Their Treasury spin down in the 2021 debt selling was$805 billion in a span of three and a half months.

The Treasury spin down in the twenty twenty three uh debt selling uh breaksmanship nego uh uh negotiation uh period was about five hundred and sixty billion dollars worth of spin down. So that's about a mean of roughly just shy of seven hundred billion dollars, which is the first. Janet Yellen being the dutiful student of f economic financial market history that she is, and obviously being the one who presided over these two sp GA spin down uh episodes.

Uh she understands that I need about seven hundred billion dollars. to get through the members of Senate, uh which you need sixty votes in the Senate to legislate a death selling increase to get through their bickering for the first few months uh of twenty twenty five. And so ultimately that means they it's a very positive dynamic. From US liquidity as well. So we have global liquidity currently accelerating. It's expected to accelerate meaningfully over the medium term as a function of

uh it catching up to where the leading indicators of global liquidity as as determined by our math suggest it should be. And then ultimately we're going to get on top of that. s roughly seven hundred billion dollars of spin down by the TGA as a function of debt selling brinksmanship in the first part of next year. So when you go back to slide seven, Eric, and you uh go look at our fundamental uh research themes and and kind of just say'em out loud in order.

You got sticky inflation, resilient US economy. Jay wants a soft landing. Here comes the liquidity. Most of that stuff is positive. And the three, the last three are positive. The one that is negative doesn't really matter yet because the Fed doesn't care about inflation right now.

They may be forced to care about inflation at some point to save face and save cr for credibility's sake to maintain some credibility and in inflation pricing in the bond market, but ultimately that we don't see that dynamic as a near term risk. We see that dynamic as probably a risk that we have to deal with. as investors starting in Q two of next year, particularly on the other side of that T G A spin down where US liquidity could get start to get really onerous. So

Uh, you know, we're expecting a global refinancing air pocket to develop sometime in 2025. And that should have some negative implications for asset markets, uh, as evidenced by uh slide forty. But ultimately, we think the next, you know, it's called four to five months, uh five to six months.

'Cause should be quite positive, should continue to be uh quite positive for risk assets uh and for things like gold. I want to come back to some of the asset classes that you mentioned in just a minute. Well, let's just stay on liquidity because obviously it's so important. What makes markets go up and down is when people and buy and sell stuff, not not macroeconomics. So the availability of the money to buy and sell stuff is is really what matters at the end of the day.

I wanna push back just a little bit though and come back to this election theme because I I get what you're saying. You gotta do the math. I very much appreciate how data driven you are and and the the depth and just uh i incredible quality of your analysis. But look

This is not your average presidential election. The views are so extreme that President Trump's strongest critics are literally out on the public stage predicting that there will be internment camps where you know, World War Two style where the Biden supporters or Harris supporters will be locked up and re educated.

uh and President Trump is gonna declare martial law. And there's b people on the other side of this who are saying, look, Vice President Harris is so incompetent that she's going to lead us into a a global thermonuclear war and then botch the the uh the handling of that so badly that the whole world is vaporized.

People really believe these extreme views, and I think that does carry over into investor sentiment. I see lots of people who are normally very data-driven whose own personal politics are very much influencing their market views.

Doesn't that mean that when somebody finds out next week that their candidate didn't win, that the consequence is there's going to be uh you know, half of the investors uh to the extent that they're politics influence their view, are going to conclude that the sky is falling, the world's coming to an end, and that's going to maybe take some of that liquidity out of the system.

Hundred percent. But but I think that's already been positioned for to a reasonable degree uh if you look at the volatility risk premium and things like the stock US equity market or things like the US Treasury market. Right now, investors are positioned for all hell breaking loose on the other side of the election. So clearly the risk from our perspective is upside risk as a function of those vanna flows and those charm flows decaying uh from those options decaying. And even if you did have

all hell break loose from a political perspective. We still think you've got to buy that dip in the context of those themes that we continue to go back to on slide seven. In our opinion, the election, the noise around the election and how people will feel about their candidate losing and may even take to the streets. uh as a function of their candidate losing, to me that's the tree. The forest was the is the fact that the US economy remains resilient and is likely to continue

surprising economic consensus expectations to the upside over the medium term. The forest is the fact that the most important institution and person in the world want to engineer a soft landing in the US economy and are maintaining an asymmetrically dovish reaction function, not just to achieve that objective, but also to help capitalize the US government in an era of explosive growth and sovereign debt. And finally, the forest is the fact that

US global liquidity is currently trending higher. It's expected to accelerate marketly in the coming months. And US liquidity is probably going to accelerate marketly starting in the first quarter of next year. So I would be buying that dip from a fundamental research perspective. And if we're wrong on that fundamental research view, then guess what, Eric? We've been talking for what, 45 minutes, 50 minutes? Zero percent, zero.

A cumulative zero of those words has anything to do with the recommendations we make to our clients for this in terms of managing risk in their portfolio. one hundred percent of the recommendations that we make to our clients are a function of our systematic trend following processes. Uh the most cogent evidence of that process is on slide fourteen. Where we show our market regime back to

So uh I think I may have mentioned this a few times ago, Eric, on the program, but you know, we now cast the market regime. I think the best thing we do for investors is help them listen to the market and respond to what the market is trying to price in.

And so in in sort of forty-two macro nomenclature, that just means we now cast a marker regime and then we provide them exact specific recommendations on exactly how to position for those marker regimes for the duration of the marker regime, of which there are usually two to three meaningful pivots per year. Um so you're talking about three to four months of on average in terms of the market regime's persistence.

So on slide fourteen where we show our market regime back tests or for stocks for crypto. We have this maintained for every asset class uh and sub asset class in the world. But just as a key takeaway. The SP 500, 97% of the SP 500's return since January of 1997 has come since when our market regime now casting process has indicated we're in a risk-on regime, i.e., Goldilocks or reflation.

Only three percent of the S P five hundred's cumulative performance since January of nineteen ninety-eight has come when our market regime now casting process has indicated we're in a risk off for. So if all you did was listen to 42 macro research say risk on or risk off, you would do a lot better as an investor, I guarantee you. Uh if you look at the crypto market, the performance is even more extreme. 109%.

Of the Bitcoin's cumulative performance since the inception of the asset class has come when our market regime now casting process has indicated we're in a risk on market regime versus minus nine percent has come when we're in a risk off market regime. So our market regime now casting process trades Bitcoin better than it trades itself. And so the key takeaway is Eric. If we're wrong on these fundamental Fundamental research views.

Then our our our our systematic processes, most notably our KISS perfolio construction process, that's slide 10, and our discretionary risk management overlay, which we use to help institutional investors stay on the right side of market risk. Those processes will rotate us out of a risk on market regime.

into a risk off market regime and as a function of that take down our our our exposure to the various asset classes that we feature in our KISS per follow construction process and it'll change the proper trade recommendations on slide twelve associated with the various uh factors uh within the equity, fixed income uh and global macro markets are.

Well that's a perfect setup'cause now I want to come back to gold. Uh boy. Everything we've been talking about's gotta be just super bullish for gold. But at the same time I I really wanna talk about what your indicators are telling you in terms of that the you know, trend following signals and so forth, because On almost any technical analysis level, in almost all time frames, gold is already flashing overbought to extreme overbought.

it's very hard for a technical analyst to justify adding to a gold position here as much as I think the uh the fundamentals continue to keep getting better for the precious metals. Uh how do you reconcile that? What should somebody who feels like they're under allocated to gold do here? Uh I keep waiting for deeper dips in order to add to my position and the deeper dips don't seem to be coming.

Well this is an er that's a great question, Eric, because we are in an era where both the cyclical macrodynamics in the economy and the structural backdrop from a fiscal monetary perspective are combining to produce good outcomes in the gold price.

This is arguably the best environment for gold in my career outside of 2011. Uh so in our opinion, we think the gold there's this meaningful upside in gold over the medium term if we're proven to be right on those views and rewarded by that, uh by those rewarded by the markets for those views.

So the reason we have confidence in maintaining a maximum position in gold right now, as indicated on slide uh eleven in our KISS before construction process, and just as an aside, let me before I even finish that, unpack that thought. our kids before construction process, we use this to help our retail investor clients stay on the right side of market risk, which is, you know, complicated nomenclature for just basically saying retiring on time and comfortably.

We use this through ETF process to to keep them, you know, invested in bull markets and ultimately on the sideline in bear markets. And gold is a core feature of that process. gold right now is at max it's a hundred percent of them's maximum exposure of thirty percent as a function of the top down and bottom up risk management overlays that we show on slide nine. And I'll make sure all these slides are free uh to to review uh in the in the presentation.

So going back to gold, gold is currently bullish from the perspective of our volatility adjusted momentum signal, which what is a core feature of the bottom upper manager overlay there on slide nine. Historically, eighty nine percent of gold's positive performance has come when our VAM signal has been bullish on gold.

So if all you did was just be long gold when forty-two macro says it's bullish VAMS, you make eighty-nine percent of the total return you could possibly make in the price of bullion. And so that's why we have a lot of confidence in maintaining the position until the market vis-a-vis our VAM signal or vis-a-vis our market regime now casting process tells us to do something different on GOAT.

If you're an institutional investor and you're listening to this conversation, turn to slide 12 in our discretionary risk management overlay. You look at the bottom right, you see gold, long max position. It has spin a long some version of a long max position for the better part of a year now.

our discretionary risk management overlay pivoted forty two macro clients to the long side of gold back in October of twenty twenty three and has maintained a either long half or long max position, primarily a long max position since then. And so obviously gold's up 35, 40% since then. And we see continued upside from here as a context of those fundamental research views. But again, if we're wrong on those fundamental research views,

Our risk management systems, which are trend following in nature, will cause discret Doctor Mo here and KISS, going back to slide eleven, to take down risk appropriately enough with plenty enough time to avoid the worst of a deep correction or crash. And we're super proud of that.

Darius, we have been teasing our audience for this whole interview with your partially redacted slide deck. This is a a working process that you evolve uh you know, keep updating this. How often do your paying subscribers get the update to this entire slide deck? What do you send them in between those updates? And for anybody who is interested in your paid service, uh both on the retail side and on the institutional side, where do they go to find out more about it?

You're too kind, Eric. I appreciate as always the opportunity to come connect with your audience. I've learned a tremendous amount from listening to every Macro Voice this episode for the past five, six, seven years. So I just want to say thank you for everything that you've done uh for institutional finance, my friend. Uh if investors wanna learn more about you know, so let me answer the first question, which is.

How often are these presentations updated? We update this presentation every month right after the set the jobs report. And then we accompany this presentation with a, you know, sort of about an hour, hour and fifteen minute long webcast. Um obviously the presentation isn't the same every month. Obviously the the research will evolve uh between months, but the generally speaking this this comes out every month right after the jobs report. Then

Throughout the month, every day we write our lead-off morning note, which is our Bayesian inference process that connects us from the prior monthly macro scouting report to the next. Monthly macro scouting report. And then every week on Saturday, we have a sort of a semi-deep dive that's sort of an amalgamation of that week's leadoff morning notes.

uh that comes accompanied with roughly 45 minute uh webcast, we be talking through the charts. So it's a very robust process. It's a Bayesian inference process. you know, we liken ourselves to this is what you would see if you were sitting on a desk, trading desk at a global macro hedge fund. They're just not making the charts as pretty and they're just not selling it to uh the public.

And so we wanted to take, you know, do what we can to democratize this kind of research, not just so that our retail investor clients can see what it is that we do, but so that, you know, hedge funds and family offices that don't have the kind of budgets like some of our big clients do can actually access this kind of material uh as well. So uh definitely come check us out if you've you've been impressed.

uh at 42macro.com. If you uh been partially impressed and and aren't quite ready to keep the tires on 42 macro research, go to 42 macro backslash macro class M-A-C-R-O-C-L-A-S-S. You can take our three part macro course.

uh where we walk through exactly how we derive a lot of these uh institutional processes and what to focus on as an investor, how to forecast the business cycle, how to forecast the liquidity cycle, what types of indicators should you be looking for that are actually actionable and accurate.

across market cycles in terms of making the saving money in financial markets. So uh definitely I highly recommend everyone uh check that that course out. I I don't care if you're a PM, a CIO, or regular retail investor, you're gonna learn a lot from that course. Well, congratulations on a terrific year, my friend. I know you've made some terrific calls. Patrick Seresna and I will be back as Macro Voices continues right here at macrovoices.com. Now back to your hosts. Patrick Serezna.

Eric, it was great to have Darius back on the show. Now let's get to that chart deck. Listeners, you're gonna find the download link for the postgame chart deck in your research roundup email. If you don't have a research roundup email, it means you have not yet registered at macrovoices.com. Just go to our homepage, macrovoices.com, and click on the red button over Darius' picture saying looking for the downloads.

Now Eric, let's cover crude oil starting with the EIA inventory. EIA printed a drawdown of half a million barrels of crude oil this week, Cushing Oklahoma building a desperately needed six hundred and eighty one thousand barrels. Gasoline drawing down two point seven million barrels, distillets drawing down a million barrels for a net petroleum drawdown of a fairly significant four point two million barrels.

US production holding unchanged at that new high record level of thirteen point five million barrels. Hats off to the US oil patch. I don't really have much to say this week, uh the same as last week. Barring any inside information. I don't really see any attractive directional traits here. I'm flatten my account and focused on gold and uranium where the action is. Well, Eric, at least for me, crude oil is a little bit interesting. Uh when we had uh that um geopolitical event in the Middle East.

Um it obviously caused oil to react three, four dollars lower almost instantaneously. Uh but Since then, the crude oil market has been consolidating and actually backfilling that move. Now, while the primary trend is down below all uh trend lines, below all moving averages, uh the sequence of lower highs and lower lows is there, there's clear distribution still here. But

It didn't open the floodgate to a huge new round of selling. And in many ways I view that um because the market is pricing in a uh greater probability of a Republican sweep that much of the most bearish scenarios and crude oil have in many ways already been priced in. It'll be interesting to see whether or not a surprise in the elections can actually be a catalyst for potentially strengthening oil conditions. Now uh that's speculation. We're gonna have to see how the price action settles.

But I do think that there's a reasonable chance that these uh lows from September and October can still act as a very key support, uh cr uh creating the base or the floor for uh crude oil prices. Now Eric, let's move on to equities. Uh what are your thoughts?

Well everyone's focused on what I believe is a false binary outcome expectation for the election. Either Trump or Harris is gonna win and that's who the new president's gonna be. In either of those scenarios where there is a clear win, no big dispute, uh I think Darius is probably gonna be proven right that the market will hold these levels and perhaps rally from here. without any real big downside risk event. Although a Harris win uh surprise is probably bearish at least in the short term.

But few people are talking about other outcomes, which I think frankly are probably even more likely than those two simple scenarios. Those include a results being delayed and the outcome being unknown for a week or more because of bickering between the parties about how the votes are being counted. Or a Trump win and then an immediate lawfare response like the

uh aiming to disqualify him from taking office as has already been telegraphed by some Democrats. Or there's a Trump or Harris win that results in an immediate backlash from the other party's supporters. leading to significant unrest and spooking markets, or a Trump win and then, heaven forbid, an assassination before the inauguration. I think the big downside risks are those unanticipated scenarios. And while I have no idea how to guess which one of them might actually happen.

My sense is that the market is underpricing the risk that the outcome is not going to be as simple as who won hands down, end of story, everybody agrees who the president is. Now, in the last few days, it seems like President Trump's lead in the polls is making that uncertain outcome a little bit less likely. So maybe it's gonna be a Trump sweep Uh we'll see what happens, but I still think there's room for a contentious outcome to this election where nobody knows what's happening.

We're doing our best to get ready for election coverage next week. We'll be recording our feature interview after the uh election results hopefully will be announced. We're recording on Wednesday. That's the best we can do in order to get the show out to you. So hopefully we'll have some good election coverage next week.

Well Eric, what I will agree with you on is the fact that the uh Republican victory is the m scenario that is being most priced into the market and the one scenario that I think that the market has the least

reaction to is if they get what they've been pricing in. And if we had the opposite where there was a democratic sweep, uh that could almost certainly spur some uh uh selling initially as the market's not been anticipating it would be an unwind of a lot of the trades that uh people have been anticipating to be the winners under a a Trump administration. Now let's talk about the S P five hundred itself. Uh we uh are in the middle of getting those uh mag seven earnings so far.

Uh we have uh and first reactions are uh Microsoft and Meta going lower while Google did go higher. We're recording this before Apple and Amazon. So we're gonna really find out whether that continues to shift sentiment as well. We don't have the jobs numbers out yet. So there are certainly things that could cause the markets to have some short term pressures. I wanna specifically highlight some key technical levels. I think that uh this correction ev uh on a uh reaction to let's say

further weak uh earnings uh could see us drop all the way down towards twenty seven hundred. But the likelihood that we have some big floodgate open before the elections below twenty seven hundred uh would have to uh be driven by some sort of an outlier that uh uh was introduced to the market. Uh overall I think that any sell off uh down to those levels uh would uh spur a a reaction, trading the market back to a place where it will settle in uh waiting for the election result.

But what is particularly noteworthy uh is on uh page four where I have the breadth of the market. This is uh the SP 500 percentage of stocks above their 50-day moving averages. What was particularly important about the summer rally going into October was that the breath kept widening and we had the uh S P five hundred equal weight rallying. We had eighty, eighty five percent of stocks uh in bold trend. It was actually a very healthy advance.

Over the last week during uh the uh pig in the python moment of earnings releases. the breadth of the market uh materially turned down. We went from the eighties all the way towards fifty percent. um the breadth of the market suddenly has disappeared. And uh the only way I see this being countered would be if we had a very strong mag seven that could potentially buck the trend. But at least from a breath perspective, uh this um uh doesn't support

uh a market that is actually poised to go higher here on the short term, we may very well be seeing some bigger topping formations. What's particularly interesting as well on page five where I have the Nasdaq chart. The NASDAQ has failed to beat its summer highs like the SP 500 has. It in fact is doing a direct double-top retest. with some of these mag sevens missing and the breath deteriorating, it's entirely possible uh that the Nasdaq is going to have key overhead resistance.

and we'll be watching whether this becomes where uh place where there's a bigger topping formation. I know there's a lot of people that are talking about the surge in liquidity But it certainly has not yet reflected in these uh uh indices like this breaking to fresh new highs. And that also can be uh uh confirmed by looking at the Russell small cap. Obviously the Russell. should be a net benefactor if uh uh Trump uh ended up winning the election. And it'll be very interesting to see.

whether or not uh that actually spurs follow through or whether these small caps have actually already priced much of that in and the reaction could be negative if they didn't get the anticipated outcome.

With that, Eric, let's move on to the dollar. What are you seeing here? We're starting to see signs of what might be a topping pattern just above one hundred four, which has been a key technical level on the Dixie for years, but this could also be just a short consolidation before breaking through that level to the upside.

Wednesday's close just below one hundred four on the December contract was an important signal that we might be starting to roll over here, but it's still a little bit too early to tell. Yeah, well the dollar generally has been very indecisive. When you really step back and look at the two year trade range between one hundred to one hundred six, we are trading essentially right in the dead center of a two year trade range without

any clear indication of a new bull trend developing. Now there are individual currency pairs like the US CAD uh that has essentially uh moved to the top end of its ranges and look uh like the US dollar could break out against it. Those are some of them kind of individual storylines. But when you're looking at the Euro and the Yen, we're stuck in the middle of uh of key ranges without

uh any real catalyst until the elections uh for a uh a continuation pattern to kick in. Now Eric, let's talk about gold.

Patrick, I remain super bullish gold in the long term, but as I discussed with Darius in the feature interview, we're already flashing extreme overbought here. I think a continued rally to twenty nine hundred is likely on a Trump win. time or even in the run up before the election, but we're long overdue for a meaningful correction, and later in November, after the election, but before the December contract expires, it seems like a ripe time to me for that correction to occur.

Now that said, if post-election euphoria carries gold above three thousand, then that psychological round number could beget even more buying and even more price upside. But at some point, we very much need to see a meaningful correction in order to consolidate and heal from the overbought technical conditions that we have now and to pave the way for a healthy bull market to continue from here. Well, Eric, in the bigger picture over the next uh many years I'm uh super bullish gold as well.

I am increasingly uh concerned about the uh uh how far gold has gone on the short term. I uh uh s suspect at some stage a consolidation will begin. That doesn't have to be uh deeply bearish where suddenly, you know, we wipe out five hundred dollars an ounce, but it would be a prolonged period, maybe even into year end.

where gold uh s uh starts consolidating sideways and even has short bursts of distribution, uh kicking in some stop losses and or uh knocking out traders who were just riding momentum. Uh at this stage I haven't sold any of my gold positioning, but I am uh fully hedged in and so I have that protection uh while I'm riding this position higher. Uh l finally, Eric, let's just touch on uranium. Uh what are your thoughts here?

September sixth was almost certainly the low for this nine month long deep correction in uranium mining shares. Now obviously another Chernobyl or Fukushima sized accident could change sentiment overnight. But short of that, I think the bottom is in. Then we saw a giant forty percent plus rally off those lows, and now the market is correcting from that over exuberance.

I see two ways to interpret the technicals here. The first is to look at the oscillators such as slow stochastics, RSI, and so forth, which are all still pointed sharply down on most of the daily charts, but they're nearing oversold levels. suggesting that the correction is almost over and probably here and now it's time to start scaling in to buy this dip over the next several trading days.

The counter argument would be that there's still plenty of gaps left on the charts well below the current market. So maybe we need a deeper correction to fill those gaps before the bull market resumes. And on some of the charts, those gaps are still quite a ways below the current price. So more downside is entirely possible without invalidating the bottom call.

So those are my two potential views. I'm really not sure which one is right. Patrick, you're the technician in the house, so I'm curious to get your take on those two scenarios. Which one do you think is more likely?

Well, Eric, in terms of uranium, a little I'm a little bit more torn because uh I really was anticipating spot prices at uranium to start confirming the exuberance that we've seen in the equities. Now uh from a uh purely technical perspective, this consolidation in uh uranium equities uh will uh lead to this buy on dip.

uh and it should uh offer an opportunity to turn up. But it would in my mind uh be validated much uh more if we finally saw spot prices of uranium start to contribute to this with us trading at the eighty dollar level on the U three oh eight spot prices. We just simply haven't seen uh uranium itself contribute to uh all of the the momentum that the uranium stocks have been building. Finally, Eric, I wanted to just uh uh touch on that.

chart on the 10 year treasury yield because clearly we had a a very dovish market positioning going into the September FOMC meeting. And here we are going into the FOMC meeting a few days after the elections. And uh we're going uh at uh the exact opposite end, which is suddenly we uh attacked on sixty, seventy basis points of interest rates.

going into s and seeing whether or not Powell uh will uh maintain his current path. Uh it'll be very interesting to see just like when September the FOMC acted like a pivot for a trend, will this FOMC meeting as well spur some continuation and or uh turn back down in the uh ten year yield uh on the markets?

Folks, if you enjoy Patrick's chart decks, you can get them every single day of the week with a free trial of Big Picture Trading. The details are on the last pages of the slide deck or just go to big picturrading.com. Patrick, tell'em what they can expect to find in this week's research roundup.

Well in this week's research roundup, you're gonna find the transcript for today's interview as well as the slide deck that Darius shared during the interview and the chart book we just discussed here in the post game, including a link to a number of articles that we found interesting. So you're going to find this link and so much more in this week's research roundup. That does it for this week's episode. We appreciate all the feedback and support we get from our listeners.

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