0:07

This is Macro Voices, the

0:09

free weekly financial podcast targeting

0:11

professional finance, high net worth

0:13

individuals, family offices and other

0:16

sophisticated investors. Macro Voices is

0:18

all about the brightest minds

0:20

in the world of finance

0:22

and macroeconomics telling it like

0:24

it is. Bullish or bearish.

0:27

No holds barred. Now, here

0:29

are your hosts. Eric Townsend

0:31

and Patrick Sorezna. Macro

0:35

Voices episode 468 was produced

0:37

on February 20th 2025. I'm

0:39

Eric Townsend. 42 macro founder

0:41

Darius Dale returns as this

0:44

week's feature interview guest. Darius

0:46

is a regular macro voices

0:48

listener and he requested that

0:50

we start his interview this

0:52

week with Darius's reactions to

0:54

last week's interview with Jim

0:56

Bianco. Darius thanks Jim's on

0:59

to something important with the

1:01

Maralago Accord hypothesis and I

1:03

agree. Then we'll dive into the

1:05

data-intensive slide deck that Darius is

1:07

best known for and talk about

1:09

everything from sticky inflation to the

1:11

growth outlook. And I'm Patrick Sarazna

1:13

with the macro scoreboard week over

1:16

week as of the close of

1:18

Wednesday, February 19th, 2025. The S&P

1:20

500 index up 152 basis points

1:22

trading at 6144. Market trading along

1:25

all-time highs asking the question if

1:27

next week we see a bullish

1:29

breakout. We will take a closer

1:31

look at that chart and the

1:34

key technical levels to watch in

1:36

the post game segment. The US

1:38

dollar index down 67 basis points

1:40

trading out 10716. remains in consolidation

1:43

but the bigger question is

1:45

the bull market still intact

1:47

or are we seeing a

1:50

top? The April WTO contract

1:52

up 121 basis points trading

1:54

at 7210 the April Arbob

1:57

gasoline up 43 basis points

1:59

trading $232, the April

2:01

gold contract, up 27 basis

2:04

points, trading at 2936, working

2:06

all-time new highs each week,

2:08

asking the question, will we

2:11

see 3,000 soon? Copper, down

2:13

298 basis point, trading at

2:15

456, uranium. down 397 basis

2:18

points to 6530. The US

2:20

10-year Treasury-old down 10 basis

2:23

points training at 452. And

2:25

the key news to watch

2:27

this Friday is the flash

2:30

manufacturing and services PMIs. And

2:32

next week we have invidious

2:34

earnings, the consumer confidence numbers,

2:37

and the core PCE price

2:39

index. This week's feature interview

2:41

guest is 42 macro founder

2:44

Darius Dale. Eric and Darius

2:46

discuss economic risks, inflation and

2:49

tail risks of government policy.

2:51

Eric's interview with Darius is

2:53

coming up as Macro Voices

2:56

right here at Macro voices.com.

3:04

And now with this week's

3:06

special guest, here's your host,

3:09

Eric Townsend. Joining

3:12

me now is 42 macro founder Darius

3:14

Dale for any new listeners who aren't

3:16

familiar with Darius's work He's known for

3:19

his absolutely fantastic charts and graphs and

3:21

Extremely long and detailed chart books just

3:23

so you know what to expect in

3:25

the download that you find linked in

3:27

your research roundup email It will be

3:29

a great big slide deck of oh

3:31

boy. What is it 160 or so

3:33

slides? You'll see that many of them

3:35

are great That's necessarily out of respect

3:38

for Darius is paying subscribers. They don't

3:40

want all of his information given away

3:42

for free So only the slides that

3:44

we discuss in today's interview will be

3:46

visible Please forgive the fact that the

3:48

rest have to be great out Darius.

3:50

It's great to get you back on

3:52

the show before we even dive into

3:54

your famous slide deck. You mentioned off

3:56

the air that you really enjoyed my

3:59

interview last week with our mutual friend

4:01

Jim Bianco from Bianco Research. Let's talk

4:03

a little bit about what if Jim's

4:05

right. And because President Trump is definitely

4:07

an agent for change and we're in

4:09

a fourth turning, something you and I

4:11

have discussed before, a time when the

4:13

major rules of the game and the

4:15

major institutions that define the game tend

4:18

to get changed. What if... President Trump

4:20

actually were to bring about a whole

4:22

new monetary regime where what changes is

4:24

the way that the US finances its

4:26

foreign debt is instead of paying interest

4:28

they start paying essentially protection services with

4:30

the military to other governments that would

4:32

fundamentally change the balance of flows the

4:34

all the things that we're used to

4:37

following tick reports and so forth I

4:39

think the analysis does it get thrown

4:41

out the window or how How do

4:43

you deal with the idea that something

4:45

that big might happen? And how does

4:47

it affect your process? Oh, great question.

4:49

And I just want to say, thanks

4:51

again for having me. Always a real

4:53

pleasure to be here. Really, it did

4:56

really enjoy Jim's presentation last week. I

4:58

thought he, you know, you guys asked

5:00

and answered some really important questions, you

5:02

know, as it relates to, you know,

5:04

where we are in this great time.

5:06

I mean, you and I've talked about

5:08

over the last few years about... how

5:10

we are currently in a four turning

5:12

and what that's likely to entail from

5:15

the respect of economic risks, monetary policy

5:17

risks, fiscal policy risks, geopolitical risks, etc.

5:19

And as it relates to, you know,

5:21

some of the ideas that Jim floated

5:23

with respect to changing the geopolitical world

5:25

order, you know, I think that's something

5:27

that we need to have a serious

5:29

conversation about because, to your point, you

5:31

know, it could potentially have a significant

5:34

influence over how, you know, the US

5:36

treasury market gets capitalized and ultimately how

5:38

that impacts. broader asset markets. Eric, I

5:40

know you're familiar with our investing doing

5:42

a four turning study, you know, a

5:44

couple of years ago, in the summer

5:46

of 2023, we performed a deep dive

5:48

empirical study spanning, you know, dozens, if

5:50

not hundreds of time series to identify

5:53

exactly what we should expect as investors

5:55

throughout the duration of this four turning.

5:57

You know, we don't have time to

5:59

explain the four turning, but you know,

6:01

for those maybe unfamiliar, it's a time

6:03

of great institutional and geopolitical change and

6:05

understanding that we're going to have a

6:07

lot of... great institutional geopolitical change, we

6:09

need to have a thoughtful framework for

6:12

how some of that change is likely

6:14

to evolve. So we broke down our,

6:16

you know, our investing to the four

6:18

turning regime analysis into sort of four

6:20

different categories. There's number one fiscal policy

6:22

risk, as to me, I think that's

6:24

the most important dynamic that could change

6:26

in this four turning is the size

6:28

of the US government, how it ultimately

6:31

gets capitalized and who ultimately puts that

6:33

bill. So if you look at slide

6:35

107 in this presentation, are investing in

6:37

a foreign regime analysis, specifically the fiscal

6:39

policy section. What we know is that

6:41

historically in four turnings we typically see

6:43

explosive growth in sovereign deficits, explosive growth

6:45

in sovereign debt, the size of the

6:47

government, the size of the government, and

6:50

ultimately we see explosive growth in sovereign

6:52

debt the size of the government, and

6:54

ultimately we see explosive growth in the

6:56

cost of finance the government. And so

6:58

this is the baseline. This is what

7:00

you should be expecting as an investor

7:02

in a foreturn turning. When we jump

7:04

to monetary policy risk on slide 120,

7:06

where we summarize the key risk there,

7:09

it's financial repression and monetary debasement, right?

7:11

It's the central bank, it's the monetary

7:13

authority using its balance sheet to step

7:15

in as a lender of last resort

7:17

to the explosive growth in sovereign debts

7:19

and deficits. With respect to economic risk,

7:21

slide 130, where we summarize our analysis

7:23

on the economic side, you know, historically

7:25

speaking, we've seen structural up trends in

7:28

nominal GDP. inflation, wage growth, and asset

7:30

price inflation for turnings. So I know

7:32

we're talking about a lot of change

7:34

here, but Historically, these four turning dynamics

7:36

have seen faster rates of asset price

7:38

inflation primarily as a function of the

7:40

monetary authority's response to fiscal dominance. And

7:42

then finally, on slide 143, where we

7:44

summarize the four turning geopolitical risks, you

7:47

know, the key risks in the four

7:49

turning from a geopolitical standpoint are a

7:51

structural downturn in income and quality from

7:53

a, albeit extremely high level, you typically

7:55

see declining birth rates, increased trade protectionism,

7:57

and total war. And so these are

7:59

the kinds of risks that we see

8:01

on the table here as it relates

8:03

to the balance of this four turning

8:06

which my former colleague and one of

8:08

my mentors know how believes is likely

8:10

to persist into the late 2020s or

8:12

early 2030s. And so going back to

8:14

Jim's, because your discussion with Jim there,

8:16

you know, there's a lot of stuff

8:18

that's about to hit the tape over

8:20

the next four to eight years. And

8:22

I think it's very important for us

8:25

as investors to have a framework to

8:27

do with the stuff. Darius, you work

8:29

from a systematic macro framework that's driven

8:31

by growth and inflation and what those

8:33

two variables are doing is kind of

8:35

the starting point for everything else. With

8:37

respect to growth, I think we pretty

8:39

much discussed your bullish views on the

8:41

economy and so forth in your last

8:44

interview pretty thoroughly, but with respect to

8:46

inflation, I really want to focus on

8:48

that in today's interview because you've been

8:50

talking about sticky inflation as I have

8:52

for a long time, a lot of

8:54

people kind of rolled their eyes. They

8:56

were really convinced that we had that

8:58

wrong, inflation was headed back to 2%.

9:00

It was all transitory story and it

9:02

was coming out of the system. I

9:05

think maybe people are a little more

9:07

receptive to the possibility that inflation really

9:09

is sticky. So why don't we start

9:11

with why you think it's sticky, why

9:13

we're not headed back to 2% and

9:15

what you do see on the horizon

9:17

for inflation? Yeah, great question, Eric. A

9:19

little minor correction in terms of the

9:21

preamble there. You said we were from

9:24

a macro framework that's focused primarily on

9:26

growth and inflation, and I would expand

9:28

that. Growth and inflation are important cycles

9:30

that we track in the context of

9:32

our systematic research process, but we adjust

9:34

as important in our opinion, our monetary

9:36

policy. fiscal policy and our tracking of

9:38

liquidity. I think we're among the world's

9:40

experts in tracking liquidity variables and forecasting

9:43

them. But the number one thing we

9:45

do for our clients is we show

9:47

on slide five when we introduce our

9:49

macro risk management process is we help

9:51

them identify and position for the market

9:53

management process is we help them identify

9:55

and position for the market regime. That

9:57

the most important thing we do and

9:59

the best thing we do for our

10:02

clients here at 42 macro is trend

10:04

following and now casting the market regime

10:06

and having client's position for that. where

10:08

we are in terms of our kiss

10:10

before the construction process on slide 11.

10:12

That's a three ETF process, three ETF

10:14

solution that dows up and dows down

10:16

client exposures to the equity gold and

10:18

Bitcoin markets. On side 12, that's a

10:21

retail investor oriented product. On slide 12,

10:23

we have our discretion and risk management

10:25

overlay which takes our market regime now

10:27

casting signal and creates proper trade recommendations

10:29

across 70 different factors. you know, looking

10:31

at U.S. equities, U.S. equity factors, global

10:33

equities, fixed income sectors, currencies, commodities, and

10:35

crypto. And so, you know, that's, it

10:37

might be, and that's what our process

10:40

is focused on. And everything we also

10:42

talk about today, particularly when I'm in

10:44

these, you know, I kind of outside

10:46

of our payroll, most of the stuff

10:48

I talk about outside of our paywall,

10:50

has nothing to do with how our

10:52

clients are positioned or should be, trend

10:54

following signals are likely to evolve. So

10:56

I just want to make sure that

10:59

we have at that point home before

11:01

we kind of get too deep into

11:03

the presentation. On the inflation side, I

11:05

think it's a really important topic and,

11:07

you know, this is probably where we're

11:09

most divergent from consensus, you know, here.

11:11

In fact, if you look at slide

11:13

42, where we show our grid model

11:15

for core PC inflation has at bottoming

11:18

in Q1. and starting to trend higher

11:20

throughout 2025, you know, with the trend

11:22

really starting to accelerate kind of in

11:24

mid to late Q2. That's very conner

11:26

to Bloomberg consensus, which is Wall Street

11:28

economist consensus, which is calling for core

11:30

PC to meander lower. throughout the year

11:32

kind of on this very tardy, you

11:34

know, path back to 2% inflation. So

11:37

let me answer the question that you

11:39

asked Eric about why we think inflation

11:41

is likely to remain sticky. Recall that

11:43

we've been of the view that inflation

11:45

is going to be sticky. We've been

11:47

of the view that inflation is going

11:49

to be sticky. We've always thought the

11:51

equilibrium inflation rate in this particular business

11:53

cycle was higher than it much higher

11:56

than it had been in recent business

11:58

cycles. And so this concept, this kind

12:00

of wonky academic concept of trying to

12:02

try to get back to get back

12:04

to two percent inflation. may turn out

12:06

to be a grave policy mistake if

12:08

the Fed does not, you know, respond

12:10

to some of these pressures in our

12:12

opinion with a little bit more lax

12:15

monetary policy. So on slide 65, so

12:17

we, I'm going to say, performed an

12:19

empirical deep dive study several times today

12:21

probably because that's kind of what we

12:23

do here, 42 macro on the on

12:25

the econometric side. and one of the

12:27

empirical deep dive studies we performed over

12:29

the past couple of years is our

12:31

business cycle analysis of which it taught

12:34

us a lot of different things about

12:36

the US business cycle from an empirical

12:38

standpoint. One of the more important things

12:40

we learned from that study of which

12:42

we analyzed hundreds of economic indicators to

12:44

identify which indicators were leading, lagging, and

12:46

coincident indicators of the broader business cycle,

12:48

one of the most important things we

12:50

determined from that study which looked at

12:53

all 12 of the post-war US business

12:55

cycles. is that we determine that inflation

12:57

is the most lagging indicator within the

12:59

business cycle. It's the most lagging cycle

13:01

of the eight cycles that comprise the

13:03

business cycle as you can see there

13:05

on the slide 65. The chart on

13:07

the left inflation breaks down drewably below

13:09

trend you know 12 to 15 months

13:12

on average after recession on a median

13:14

basis after recession again this immediate path

13:16

that the each of those 12 cycles

13:18

is taken you know three years before

13:20

and three years after recession has started

13:22

with zero being the recession. you can

13:24

see it a little bit clearer on

13:26

the chart on the right where we

13:28

just show growth, headline inflation, and corn

13:31

inflation. And you can see the stickiness

13:33

of inflation persisting well into a recession.

13:35

Well, okay, so if you understand that,

13:37

okay, inflation is a sticky process, it

13:39

typically doesn't break down through a blow

13:41

trend until well into a recession. Let's

13:43

talk about. about, well, are we going

13:45

to have a recession or not? Well,

13:47

if you look at slide 35, where

13:50

we show the same chart on the

13:52

left, but the chart on the right

13:54

on slide 35 shows the current data

13:56

for each of those cycles that are

13:58

represented by the chart on the left.

14:00

And what we find by the each

14:02

of those cycles that are represented by

14:04

the chart on the left. And what

14:06

we find is that the chart on

14:08

the chart on the left. And what

14:11

we find is that the chart on

14:13

the chart on the chart on the

14:15

left. Then growth breaks down simultaneously with

14:17

stocks around two quarters out of recession,

14:19

employment breaks down, dribbly below trend right

14:21

around when the recession starts, which makes

14:23

sense, that's when they be ours. Looking

14:25

at credit breaks down, delinquencies in charge

14:27

us, break out, break out, break out,

14:30

break out, break out, break out, our

14:32

delinquencies in charge of us, break out,

14:34

this is the charts, the charts, the

14:36

charts, the charts, the charts, the break

14:38

out, this is the charts, the charts,

14:40

the charts, 12, 12, 12, 12 to

14:42

15 months, 12, 12, 12, 12, 12,

14:44

12, 15 months, 12, 12, 12, 12,

14:46

12, 15 months, 12, 12, 12, 15

14:49

months, 12, 12, 12, 12, 15 months,

14:51

15 months, 15 months, 12, 15 months,

14:53

12, 12, 12, 15 months, 12, 12,

14:55

12, 12, 15 months, 12, 12, 12,

14:57

12, 12, 12, 15 months, 12, 12,

14:59

12, of these cycles, you know, breaking

15:01

down in that cascading fashion that we

15:03

historically have seen, so we should not

15:05

anticipate a recession as a high probability

15:08

outcome over medium-term timerizing. And that takes

15:10

me back to where we started with

15:12

inflation. If we don't have an inflation

15:14

over medium-term timerizing, then we should not

15:16

expect, if you go to slide 66,

15:18

headline CBI to break down durability below

15:20

trim without a recession. On side 68,

15:22

we should not expect PC inflation to

15:24

break down, durably below trend without a

15:27

recession. On side 69, you should not

15:29

expect underlying inflation to break down, durably

15:31

below trend without a recession. And that's

15:33

exactly what you're seeing in each of

15:35

these time series. It's looking like we're

15:37

bottoming at the prior trends and starting

15:39

to meander sideways and or take up

15:41

higher in a lot of these indicators

15:43

and in my opinion that's supportive of

15:46

our long return thesis on inflation. So

15:48

just to be clear you're not saying

15:50

that you're expecting a recession because that's

15:52

the predicate in order for those things

15:54

to happen you're saying because you don't

15:56

expect a recession, you don't think those

15:58

things are likely to happen. Correct, yeah,

16:00

we do not expect a recession. I

16:02

recall that we authored the Brazilian U.S.

16:05

economy theme back in the summer of

16:07

2022 when everyone was concerned about a

16:09

recession. We maintained that theme. We now

16:11

see growth slowing, but it's not, it's

16:13

unlikely to slow to a level that

16:15

would even get anyone concerned about a

16:17

recession. I mean, we could talk about

16:19

growth, but I think our views on

16:21

growth are pretty aligned with consensus. Certainly

16:24

if you look at our forecasts, I

16:26

don't think we have were too divergent

16:28

there. A lot of what happened, a

16:30

lot of what's happened since the summer

16:32

of 2022 is consensus and both Wall

16:34

Street and investor consensus having to catch

16:36

up to where we were on the

16:38

economy side of things. Now that they

16:40

have caught up to where we were,

16:43

I don't think that's much of a

16:45

market risk from here. Where we see

16:47

market risk is really on the inflation

16:49

side. So on slide 70, number one,

16:51

the housing market is structurally tight, and

16:53

so investors have to be careful not

16:55

to straight line the improvement in housing

16:57

PC inflation. Like if you look at

16:59

the household formation to existing home inventory

17:02

ratio, that's currently 1.3. It's essentially a

17:04

double where it trended at prior to

17:06

COVID, in the 2015 and 2019 trend.

17:08

So we have this really structurally tight

17:10

housing market on a structurally low level

17:12

of turnover, as you can see there

17:14

in the bottom panel on that chart

17:16

on side 70. So in our opinion.

17:18

the housing supply shortage has not been

17:21

fixed. And so as a function of

17:23

that, a lot of the disinflation we've

17:25

seen in the housing and shelter, CPI

17:27

type statistics, in my opinion, is really

17:29

just a lag of some of the

17:31

dis- of the tightness coming out of

17:33

the market, but we're likely to stabilize

17:35

at a much tighter level that causes

17:37

inflation to stabilize at a much higher

17:40

level by the time it's all said

17:42

and done, we'll kind of look backwards

17:44

on 2025. The Fed has done a

17:46

poor job of reining in liquidity since

17:48

the regional banking crisis, but maybe that

17:50

was the plan all along. So if

17:52

you just look at the Fed balance

17:54

sheet contracting, the Fed's balance sheet has

17:56

not, you know, drained liquidity. from a

17:59

money supply perspective. In fact, money supply

18:01

kind of bottom during the regional banking

18:03

crisis when the Fed started, you know,

18:05

implementing its alphabet soup of liquidity provision

18:07

instruments facilities and then the Treasury started

18:09

to, you know, concentrate issuance on the

18:11

short end of the curve to start

18:13

to, you know, free up some of

18:15

that trap liquidity and the Fed's reverse

18:18

repo facility almost two plus trillion dollars

18:20

have come out of the reverse people

18:22

facility since then. And so, you know,

18:24

we've seen liquidity broadly. you know actually

18:26

start to trend higher again despite the

18:28

fact quote-unquote shrinking its balance sheet with

18:30

quote-unquote quantitative tightening but we know they're not

18:32

actually selling bonds to the market. Number three

18:34

on side 72 domestic credit growth is now

18:36

trending higher and global credit growth is on

18:38

the precipice of an uptrack. you know we

18:41

got the January senior loan officer survey data

18:43

the other week and that was consistent with

18:45

you know a positive trend and in credit

18:47

growth here in the United States you know

18:50

we continue to see you know percentage respondents

18:52

you know tightening policy ease at the margins

18:54

we're seeing more demand for loans so things

18:56

like that continue to give us signal that

18:59

you know the kind of the credit machine

19:01

here in the United States is alive and

19:03

well and then I would say the fourth thing to

19:05

me is One of the most important

19:07

dynamics that I don't see here

19:10

enough people talking about because it's

19:12

hard to quantify, but it's

19:14

important for us to at least attempt

19:16

to quantify, which is what happens

19:19

when we turn off the positive labor

19:21

supply shop? So on slide 73, you

19:23

know, we had millions of illegal migrants

19:25

entered the country. I want to say

19:28

if you look at the, you know,

19:30

the duration of Biden's presidency, which is

19:32

essentially in all time. all-time high nominal

19:35

rate over a 12 and 48 month

19:37

time frame. So there was a lot

19:39

of you know sort of low-cost labor

19:42

supply entering into our labor market which

19:44

have the impact of deflating wage growth

19:46

pretty substantially. If you look at slide

19:48

74 where we show the private sector

19:51

employment cost index that peaked at

19:53

about 6% in the middle of

19:55

2022 and it decelerated 300 basis

19:57

points to 2.9% and 3Q 2023.

20:00

we've sort of been a quarter or two

20:02

since Biden kind of tightened the screws on

20:04

the border. Obviously, Trump took it a step

20:06

further with his executive orders last month. Now

20:08

that we're sort of on the other side

20:10

of all that, we're now starting to see

20:12

private sector employment costs and unit labor costs

20:15

re-accelerate. We're now at 3.4% quarter of

20:17

a quarter SAR in terms of private

20:19

sector employment costs. A unit labor costs backed

20:21

up from basically 1% to, you know,

20:23

3% currently. And so unless you have a

20:25

big boom in productivity growth, which it's hard to

20:27

forecast, you know, I'm not smart enough to forecast,

20:29

I'm only anybody smart enough to forecast productivity growth

20:32

to be quite honest, but unless you have a

20:34

big boom in productivity growth, the tightening of the

20:36

labor market from a lack of incremental supply is

20:38

going to cause wage growth to stabilize at a

20:41

much higher level than the prior trend, which ultimately

20:43

is likely to cause inflation to stabilize in a

20:45

much higher level than the prior trend. And this

20:47

is a much higher level than the prior trend

20:50

than the prior trend. So on the chart

20:52

on slide 75 we show the the

20:54

corporate profitability model which is nominal GDP

20:56

the growth rate of nominal GDP minus

20:58

the spread between unit labor cost inflation

21:00

and productivity growth and as you can

21:02

see that that metric tracks the corporate

21:05

profits like a glove and has since

21:07

you know the late the early late

21:09

1940s and so what we find is

21:11

that now that unit labor cost inflation

21:13

is starting to accelerate and we have

21:15

top line growth slowing because not a

21:17

little GDP's growth is slowing. You now

21:19

have more pressure on corporate margins than

21:22

you had, let's say last year when

21:24

inflation was persistently decelerating and companies didn't

21:26

feel the need or the urge to

21:28

pass on prices. So now that dynamics

21:30

reverse. So you have companies that are

21:32

going to just feel more confident or

21:34

more out of necessity to protect margins.

21:37

They're going to start to feel pressure

21:39

to raise prices. And then finally, slide

21:41

76, where we show leading indicators are

21:43

supporting our hawkish next 12-month outlook for

21:45

inflation. If you look at core PPI,

21:48

which a lot of the core PPI indicators

21:50

find their way into the core PCE, but

21:52

ultimately the core PC is lagged as its

21:54

core CPI because of the shelter components, the

21:56

blue line bottomed at a level that is

21:58

wildly inconsistent with 2%. inflation in this particular

22:01

cycle and by the way the blue line was

22:03

leading the deceleration in the red and black lines

22:05

by you know a year and a half and

22:07

it's been accelerating an up trend for about a

22:09

year plus now and so it's our belief that

22:11

the red line and the black line in

22:13

this chart which are again core CPI and

22:15

core PC inflator are going to bottom at

22:18

levels that are wildly consistent with 2% inflation

22:20

and start to either meander sideways or trend

22:22

higher over the medium term. So in our opinion

22:24

there's five reasons fundamental standpoint from

22:26

a first principle standpoint why inflation

22:28

is likely to firm up at a level

22:31

that is inconsistent with the feds you know

22:33

my opinion at this point ridiculous 2% inflation

22:35

target and if they don't do anything about

22:37

that inflation target or you know just allow

22:39

themselves more time to get to 2% inflation

22:41

which is the choice they've made thus far

22:43

we're going to have problems in asset markets

22:45

because it also means that they're not going

22:48

to be able to be able to you

22:50

know, use their balance sheet to perform the

22:52

necessary monetary debasement of financial oppression that is

22:54

required by the central by the monetary authority

22:56

in a fiscally dominant regime which four turning

22:58

calls for. Okay, so your call has been

23:00

for sticky inflation. The word sticky just

23:03

means it's not going away, but it

23:05

doesn't imply anything about whether it's getting

23:07

a lot bigger from here. So is

23:09

your call that inflation is just going

23:11

to stabilize around the current level? Or

23:13

do you think that it's just bottoming

23:16

and about to trend significantly higher? And

23:18

if so, how much higher is significantly

23:20

higher? Yeah, great question. So on

23:22

slide 78, where we show the

23:24

key takeaway from this kind of

23:26

aspect of our sticky inflation theme.

23:29

We have our forecast for core

23:31

PC inflation down there on the

23:33

bottom right of the chart so

23:35

the black line is the realized

23:37

data. The blue line is our

23:39

forecast and the red line are

23:41

the Bloomberg consensus forecast which are

23:43

Wall Street economist consensus and as

23:46

you can see we have core

23:48

PC inflation bottoming in January 2.6%

23:50

training sideways roughly it's at 2.7%

23:53

for February through April climbing to

23:55

2.8% in May. So we're not calling

23:57

for a substantial re-acceleration and

24:00

inflation, we're just calling for inflation

24:02

to bottom and Q1 and start

24:04

to move in the wrong direction throughout

24:06

the balance of 2025 as those, you

24:08

know, five factors really start to culminate

24:10

and push inflation pressure higher in the

24:12

system. And one thing I will say on

24:14

this on this own type or topic of inflation,

24:16

to me, what I think is it's kind of

24:19

missing from the, you know, when we listen

24:21

and one of the things I love about,

24:23

you know, programs like macro voices and you

24:25

are among the first in the first in

24:27

the world, you know, which, which, which, which

24:29

is, which is, quality of discussion that's being

24:31

had away from mainstream financial

24:34

media is significantly higher

24:36

at this point. Because you have guys like

24:38

myself coming on and talking and unpacking slide

24:40

decks for 30, 45 minutes as opposed to

24:42

these, you know, one to two minute sound

24:44

bites of this and that. And you can't

24:47

get to, you know, unpacking slide 77 like

24:49

we're about to where we show our secular

24:51

inflation model. And so this is what

24:53

I think is missing. from the mainstream narrative

24:56

around inflation and it's obviously missing from the

24:58

Fed's narrative because they very clearly don't agree

25:00

with this which is our model suggests the equilibrium

25:02

rate of core PC inflation is in the high

25:04

twos and low threes and it has ever since

25:07

we built the model in January of 2020 you

25:09

know there's been some variance throughout the way

25:11

we refresh this model every time we get an

25:13

important data point for our clients but you know

25:15

on the low end of the variance has been

25:17

about you know kind of two six to seven

25:20

on the high end of the variance is

25:22

somewhere around three two or three two or three

25:24

two And so for three years, our model is

25:26

consistently said, when you're looking at, you know, roughly

25:28

20 indicators that have all been proven by academic

25:31

research to be cointegrated or correlated with inflation,

25:33

they're all suggesting that there is

25:35

a significantly higher level of inflation. There

25:38

is a significantly higher level of inflation

25:40

pressure in the U.S. economy. And by

25:42

the way, the equilibrium level of inflation,

25:45

and by the equilibrium level, core piece

25:47

of the prior cycle, was around 1.6,

25:49

where you look at the factors that

25:52

are weighteded, you know, de globalization is

25:54

contributing a modest amount of inflationary pressure.

25:56

Demographics is contributing a modest amount of

25:59

disinflationary pressure. Fiscal Policy is contributing a

26:01

modest amount of inflationary pressure. Housing supplies

26:03

is contributing a meaningful amount of inflationary

26:05

pressure, or of inflationary pressure, productivity is

26:07

contributing a modest amount of disinflationary pressure.

26:09

Testologies contributing a meaningful amount of disinflationary

26:11

pressure, but on the offsetting that are

26:13

wages. which are contributing a meaningful amount

26:16

of dis- or inflationary pressure rather, and

26:18

then our, what we call our West

26:20

Village Montauk effect, which is just a

26:22

supply of, you know, spendable cash that's

26:24

on household sector balance sheets is at

26:26

this, you know, record high, both in

26:28

nominal and as a share of total

26:30

assets, and that's contributing a, you know,

26:33

just a gargantuan amount of inflation. relative

26:35

to the starting point prior to the

26:37

pandemic. So in our opinion, until the

26:39

Fed acknowledges that, you know, we are

26:41

living in a two and a half

26:43

to three percent trend core PC type

26:45

world, perhaps even maybe a touch higher,

26:47

Jan was saying it's somewhere between three

26:50

or four, our model saying it's high

26:52

two's low threes, until the Fed acknowledges

26:54

that they're not going to be able

26:56

to meaningfully expand their balance sheet in

26:58

ways that I think will, you know,

27:00

ultimately, you know, kind of extend the

27:02

business cycle and ultimately appease the treasury

27:04

market and keep the financial stability concerns

27:07

from creeping back into the treasury market

27:09

like what we saw back in the

27:11

regional banking crisis. Darius, one more inflation

27:13

question before we move on. It seems

27:15

to me, given your outlook, one of

27:17

three scenarios has to play out. Let's

27:19

start with scenario two. That's the one

27:22

where the Fed says, okay, we gotta

27:24

get to 2%. We're gonna do whatever

27:26

it takes. We're gonna change policy in

27:28

order to get there, because what we're

27:30

doing isn't working. What would they do

27:32

and what would the consequence of that

27:34

be for markets? Well, look, I mean,

27:36

that's going to be, that's the scenario

27:39

where we talked, put radiacs back on

27:41

the table, right? Right now, if you

27:43

look at slide 45, where we show

27:45

the Fed's dot pot relative to market-based

27:47

estimates of the Fed funds rate and,

27:49

you know, over various time horizons, we

27:51

see that, you know, the Fed, the

27:53

median of FOMC member thinks the neutral

27:56

rate is 3% and there are 150

27:58

basis points currently above neutral with a

28:00

bias to ease. That would be very

28:02

wrong in a scenario where the Fed

28:04

ultimately decides it has to do more

28:06

because that's a two-step process where they

28:08

have to revise up their as a

28:10

longer run estimate of the neutral rate

28:13

to something that's a lot closer to

28:15

where we currently are and then potentially

28:17

think about making policy more restrictive. And

28:19

so that two-step process in our opinion

28:21

is to potentially cause some serious problems

28:23

in the bond market and broader asset

28:25

markets because what you're going to do

28:27

in that process is ultimately increase the

28:30

risk of the increase the probability of

28:32

a hard increase the probability of a

28:34

hard landing and also cost you know

28:36

more you know paying in the fixed

28:38

income markets and the fixed income volatility

28:40

would be a negative for liquidity. Okay

28:42

and scenario number three is the one

28:44

where the Fed capitulates and says okay

28:47

we didn't really mean for markets. Oh

28:49

boy, that's so bullish. And again, that

28:51

is our long-term expectation. You know, we've

28:53

been up to view that ever since

28:55

we've performed our investing during a four

28:57

attorney regime analysis in the summer of

28:59

2023. Again, one of the key conclusions

29:01

is that the monetary authority will be

29:04

dragged along for the ride, whether they

29:06

kick in a screaming or not, to

29:08

capitalize Uncle Sam and in this throughout

29:10

the duration of this fourth 30 regime.

29:12

In fact, if you go to slide

29:14

127, where we show... various cohorts of

29:16

the market or treasury market from an

29:18

investor standpoint. We see that, you know,

29:21

the Fed has been reducing its share,

29:23

or, you know, the Fed has been,

29:25

you know, allowing treasuries to roll off

29:27

its balance sheet. And so as a

29:29

function of that, it's been reducing its

29:31

share. Now it's about 15% of the

29:33

marketable treasury market, commercial banks, you know,

29:35

up until, you know, essentially, the, like

29:38

Q23, they've been losing share as well.

29:40

They've been losing share as well. They've

29:42

been shrinking their share of the marketable

29:44

charging market significantly since peaking out in

29:46

middle of 2008. They peat at around

29:48

40% out there about 14%. percent currently

29:50

and so offsetting that is us the

29:52

private sector you know various investor cohorts

29:55

agents we're all kind of lumped together

29:57

one bucket here you know we've grown

29:59

our share of the marketable treasury market

30:01

from 36% to 56% and so ultimately

30:03

what you know what's happened in the

30:05

last you know a few years particularly

30:07

from 2022 to the highs and yields

30:09

that we saw in the summer of

30:12

2023 was the market repricing because ultimately

30:14

we were replacing a lot of these

30:16

economically insensitive buyers sensitive buyers you know,

30:18

people who are buying for either policy

30:20

purposes or for regulatory purposes like Basel

30:22

3 dot Frank etc. We're replacing those

30:24

inset price and sensitive buyers with price

30:26

sensitive buyers, investors that want ex ante

30:29

units of return for taking risk in

30:31

their portfolios. And as a function of

30:33

that, we've seen a significant repricing of

30:35

yields, etc. in the treasury market. And

30:37

so it's our view that if the

30:39

Fed comes around to where we've been

30:41

since January of 2022, which is you

30:43

got to get that inflation target higher.

30:46

If they get that inflation target higher,

30:48

it's going to allow them to alleviate

30:50

that pressure that we see on the

30:52

treasury market from the pink line in

30:54

this Toronto 127 going higher, which is

30:56

us, the private sector, now owning by

30:58

far the line chair of market treasury

31:00

securities at 56% of the total. And

31:03

one final thing I'll say is that

31:05

you know, on site 128, you know,

31:07

investors should expect incremental financial repression because

31:09

commercial banks have apple capacity to lend

31:11

to the treasury market. in our opinion,

31:13

where we think this is headed, it

31:15

might not be headed there in 2025,

31:17

but ultimately the Fed will capitulate to

31:20

our view that, you know, the equilibrium

31:22

core PC inflation rate is much higher

31:24

in this business cycle and they're going

31:26

to have to just acknowledge that and

31:28

move on. Quite frankly, the inflation rate

31:30

is much higher in this business cycle

31:32

and they're going to have to just

31:34

acknowledge that and move on quite frankly,

31:37

commercial banks own about 50% of commercial

31:39

bank assets were in treasury securities. Right

31:41

now it's only about 19. So there's

31:43

a lot more upside there from the

31:45

prefeds, in terms of the Fed's balance

31:47

sheet, and in terms of how the

31:49

Fed and other governmental agencies can regulate

31:52

commercial banks into the treasury market to

31:54

take some pressure off of us investors.

31:56

Because ultimately they need to take pressure

31:58

off of us investors, Eric. One final

32:00

try to show you on this on

32:02

topic, which is, slide 102, where we

32:04

show term premium, and the top panel

32:06

there at about 33 basis points wide.

32:09

well shy of the long run mean

32:11

of about 150 basis points. I mean

32:13

when you subtract the deviation from the

32:15

long run mean of term premium from

32:17

the current level of the treasury, a

32:19

yield to just see you know what

32:21

a normalized treasury yield would be if

32:23

you had a quote-unquote normal level of

32:26

term premium. You're talking about a treasury

32:28

yield today that has a fair value

32:30

of 5.68% on the 10-year up from

32:32

4.54% right now. You know that if

32:34

you have that and didn't have any

32:36

change to real interest rates. Then you're

32:38

talking about, you know, inflation break even

32:40

price in of about 3.6% as opposed

32:43

to the current 2.46%. In our opinion,

32:45

that's what the bond market should look

32:47

like as a function of the structural

32:49

shift in, you know, the investor, participation

32:51

in the bond market in the bond

32:53

market in terms of that changing ratios

32:55

in terms of who owns what and

32:57

the treasury bond market. We should have

33:00

a much higher level of term premium.

33:02

There's a variety of reasons why term

33:04

premium should be wider right now, but

33:06

among them. is the fact that we

33:08

have higher inflation, higher inflation volatility, positive

33:10

excess inflation relative to the Fed's target,

33:12

which means ultimately they're unable to gobble

33:14

up as many bonds as they were

33:17

able to in the prior cycle. You

33:19

know, there's a lot of reasons why

33:21

we should have a quote unquote normal

33:23

level of term premium. I can make

33:25

the case from a statistical standpoint that

33:27

we should probably have a slightly higher

33:29

than normal level of term premium. So

33:31

in our opinion, the bond market is

33:34

mispriced. process, you know, kind of goes

33:36

smoothly to get it back to a

33:38

normal level of price is the Fed

33:40

and how they influence commercial banks with

33:42

regulation. Let's go all the way back

33:44

to pay. 7 in the deck where

33:46

you summarize your fundamental research outlook views.

33:48

We've talked about the first three of

33:51

them either in this interview or in

33:53

previous interviews, but you've got a new

33:55

one that you added in November of

33:57

24. I think that was after our

33:59

last interview. You call the triple Ss.

34:01

What is triple S stand for and

34:03

what's the outlook? Yeah, great question Eric.

34:05

So triple S is really an acknowledgement

34:08

that, you know, from the starting point

34:10

of very asymmetric bullish positioning when you

34:12

look at some of the structural bullish

34:14

positioning indicators in our positioning model. We

34:16

have this sort of crowded asymmetric bullish

34:18

positioning, but we also have a lot

34:20

of change coming down the pike. And

34:22

those two things historically have been incongruent.

34:25

You know, historically, whenever you've had a

34:27

lot of, you know, that crowded bullish

34:29

positioning was built for a reason. And

34:31

so anytime you interject a lot of

34:33

change from a fiscal regulatory trade policy

34:35

perspective, the risk is the ways in

34:37

which that crowded police positioning can unwind.

34:39

And so on one side, if you

34:42

think about President Trump's economic agenda, there's

34:44

sort of five main cohorts of tenets

34:46

of that agenda. On the negative side,

34:48

that may result in a negative supply

34:50

shock in the economy and asset markets,

34:52

you have the tariff policy, and then

34:54

you have securing the border, which we've

34:56

briefly alluded to. On the positive side,

34:59

you have tax cuts, deregulation, and the

35:01

Doge budget cuts, you know, which it

35:03

contributed to a positive supply shock in

35:05

the economy, particularly from the perspective of

35:07

capital. And so those things are positive

35:09

at the margin. And so, you know,

35:11

when you think about kind of how

35:13

is it all net out, one, I

35:16

don't think we know, I don't think

35:18

anybody in the administration understands how it's

35:20

all going to net out because Congress

35:22

is going to play a significant factor

35:24

in determining all that. But ultimately, how

35:26

it all nets out could potentially cause

35:28

some problems or asset markets, not to

35:30

mention the sequence of it all as

35:33

well. You could get the negative stuff

35:35

first. In fact, we have already gotten

35:37

a lot of the negative stuff first,

35:39

right? We've gotten the tariff headlines. President

35:41

Trump has floated another terror line this

35:43

afternoon on autos and pharmaceutical imports and

35:45

semiconductors. a lot of the negativity first

35:47

front loaded and ultimately the positive stuff.

35:50

You think about tax cuts, deregulation and

35:52

doge budget cuts, you know, that stuff

35:54

could come, you know, quite late in

35:56

the process, which could, you know, potentially

35:58

create like an air pocket and asset

36:00

markets until we ultimately get kind of

36:02

get to President Trump saves us, saves

36:04

the market with the elixir of his

36:07

policy. So that's sort of the key

36:09

takeaway for the theme. There's a... a

36:11

few aspects of the theme that I

36:13

think are worthy of discussing that we

36:15

kind of gotten critical updates on recently.

36:17

So on one side I will start

36:19

by saying the reciprocal trade policy or

36:22

reciprocal tariff policy in our opinion reduces

36:24

the risk that we get a too

36:26

strong US dollar as a function of

36:28

those tariffs. Historically speaking what we've seen

36:30

and what we've observed just from you

36:32

know academic studies is that countries that

36:34

get tariffs levied upon them tend to

36:36

offset tariffs to a significant degree in

36:39

the currency market. particularly China. If you

36:41

go back and you look at the

36:43

last couple of, you know, trade spats

36:45

we have with China, we've seen the

36:47

Chinese Yuan devalue by, you know, let's

36:49

call 12 to 15% in those two

36:51

instances. And what we've seen historically is

36:53

that we've seen a lot of sympathy

36:56

evaluation in major currencies to match the

36:58

incremental competitiveness that's gained from, you know,

37:00

Yuan devaluation. And so ultimately you wind

37:02

up with this U. U.S. dollar that

37:04

gets way too strong is a direct

37:06

headwind for global liquidity as we show

37:08

on slide 80. On slide 80, we

37:10

see the other year view rate of

37:13

change of our global liquidity proxy, which

37:15

is the aggregated sum of the 10

37:17

major economy central banks. They're brought money

37:19

supply from their economies and then their

37:21

fee ID effects reserves. And then we

37:23

show that on a year rate change

37:25

basis in the black line and the

37:27

chart on the left is the US

37:30

dollars real effective exchange rate on a

37:32

year rate of change basis. As you

37:34

can see, very inversely correlated to liquidity.

37:36

Historically speaking, the dollar's been highly correlated

37:38

with currency volatility. So that's one dynamic

37:40

that could be an issue. And the

37:42

reason that's an issue is because on

37:44

side 79, we know global liquidity is

37:47

a key driver of asset markets. So

37:49

on the chart on the right, these

37:51

charts show that the black lines in

37:53

the charts on 79 are the same

37:55

black lines on the chart on 70

37:57

on slide 80. It's out of the

37:59

over year rate of change of our

38:01

global liquidity proxy. And the blue line

38:04

in the chart on the left is

38:06

the year year rate of change of

38:08

the global equity market capitalization. And then

38:10

the Bitcoin orange line on the chart

38:12

on the chart on the left is

38:14

the year of year rate of change

38:16

of the global equity market capitalization. And

38:18

then the rate of change of asset

38:21

markets, incredibly correlated. If we got a

38:23

dollar that just got too strong as

38:25

a function of tariffs, that would be

38:27

a big issue. But in our opinion,

38:29

the reciprocal tariff strategy, to the extent

38:31

he can stick to it, I'm not

38:33

sure he can. But if he sticks

38:35

to it, yeah, I think that would

38:38

reduce a little bit of pressure from

38:40

the system. Another thing that could reduce

38:42

a little bit of pressure from the

38:44

system in terms of the sequence of

38:46

it all, is the fact that Treasury

38:48

Secretary Scott Besson, who I've known for

38:50

many years as a long time client,

38:52

is a long time client, very bright

38:55

man, very bright man, is going to

38:57

do, is going to do some great.

38:59

One of these, he's already made a

39:01

very smart choice in terms of keeping

39:03

issuance on the quarterly refunding side, pretty

39:05

stable. You know, recall that he was

39:07

hypercritical of outgoing Treasury, Janet Yellen's net

39:09

financing policy in terms of concentrating issuance

39:12

on the bill, in the bill, in

39:14

the bill market, which I believe she

39:16

did for two reasons. One, to kind

39:18

of make sure the regional banking crisis

39:20

then turned to a global financial crisis,

39:22

and two, to free up a lot

39:24

of that excess liquidity, Right, but that

39:26

money was there because it was looking

39:29

for short duration instruments and there were

39:31

not enough of them. And so ultimately,

39:33

you know, the young satisfied that demand,

39:35

that market demand for short duration instruments,

39:37

and it was kind of a win-win

39:39

for both the economy and asset markets.

39:41

And so Treasure's got to accident when

39:43

he now that he's in the seat,

39:46

I think he recognizes what I just

39:48

said and is ultimately decided to at

39:50

least for now, or at least quote

39:52

unquote for the next several quarters for

39:54

the next several quarters. For now, things

39:56

should be pretty good in terms of

39:58

the Treasury's net impact on liquidity in

40:00

asset markets. Right now you have over

40:03

$800 billion of money in the Treasury.

40:05

general account balance that's likely to get

40:07

spent into the economy. I would say

40:09

upwards of $500 billion of that is

40:11

likely to get spent into the economy

40:13

and asset markets over the next, let's

40:15

call it three to five months. just

40:17

depending on how long it takes them

40:20

to get the debt limit lifted and

40:22

or punted in terms of the reconciliation

40:24

process. If they go to one bill

40:26

solution, it's going to take longer than

40:28

a two bill solution, but it seems

40:30

like the House is full speed ahead

40:32

on a one bill solution. So that's

40:34

great on one bill solution, but it

40:37

seems like the House is full speed

40:39

ahead on a one bill solution. So

40:41

that's great for asset markets because ultimately

40:43

it means we're going to issue eight

40:45

hundred and sixteen billion dollars of net...

40:47

new borrowing here in Q1. That's $816

40:49

billion. That's not going to capitalize the

40:52

US government now. It can either say

40:54

where it was in asset markets or

40:56

go capitalize, you know, go further out

40:58

on the risk spectrum and capitalize, you

41:00

know, risk assets. So those are all

41:02

positive dynamics that are likely, you know,

41:04

get worse as we move forward in

41:06

time, but at least for the next

41:09

quarter or two, those things are supportive.

41:11

On the, I wouldn't say negative side

41:13

and done. We've been on this view,

41:15

we've had this view, kind of going

41:17

back to where we started, the conversation,

41:19

Eric, that US fiscal policy is on

41:21

a very unsustainable path. And in our

41:23

opinion, that's very part and parcel with

41:26

the four turning. If you look at

41:28

slide 98, where we show the trailing

41:30

five-year moving average of US nominal GDP,

41:32

that's the blue line in the top

41:34

panel, at 6.4% currently. That's really five-five

41:36

year average of the sovereign, the budget

41:38

deficit, the GDP ratio is 8. And

41:40

so, you know, if you see, you

41:43

know, basically once we went into the

41:45

fourth turning and with the GFC, since

41:47

then we've largely been tracking at a

41:49

positive spread in terms of our, you

41:51

know, trailing five-year budget deficit GDP ratio

41:53

relative to our trailing five-year nominal GDP.

41:55

So we're accumulating debt at a very,

41:57

very sustainably fast rate. And again, this

42:00

is very consistent. with how the economy

42:02

and asset or the economy has evolved,

42:04

fiscal policy has evolved, and historical for

42:06

turning episodes. Again, deciding that, that study

42:08

that we highlighted at the beginning of

42:10

this discussion with data going all the

42:12

back to 1800. So any of those,

42:14

if someone wants to kind of get

42:17

their hands on that study, just sign

42:19

up and buy the presentation. It's not

42:21

very expensive, but the thing I would

42:23

say on this is that I think

42:25

there's a big risk that the dode

42:27

process disappoints asset markets. Right now, it's

42:29

a positive for asset markets because right

42:31

now we have this kind of un,

42:34

you know, we don't really know how

42:36

much the bite of the, how big

42:38

of a bite of the apple they're

42:40

going to take as it relates to

42:42

potential deficit reduction in this process. In

42:44

our opinion, Doe is likely to be

42:46

very disappointing with respect to deficit reduction

42:48

because ultimately there's a couple of things

42:51

that are causing that. One is political.

42:53

They've ring-fenced very large categories from the

42:55

Doats process when you think about Medicare,

42:57

national defense, Social Security, and obviously net

42:59

interest. They're kind of powerless to do

43:01

anything about. And then you're also layering

43:03

on the extension and expansion of the

43:05

Trump task cuts. So even though we're

43:08

on record saying that Doge is likely

43:10

to achieve somewhere between $500 billion and

43:12

a trillion dollars in cuts just as

43:14

a function of that that that process,

43:16

it's unlikely to have a real significant

43:18

impact on the deficit when you factor

43:20

in the reduction. routes up to a

43:22

baseline of current law, the reduction in

43:25

revenues, and ultimately the fact that we're

43:27

ring fencing. And on the ring fencing,

43:29

and I'll shut up after this, but

43:31

I gotta make this point. When you

43:33

ring fence two-thirds of the federal budget

43:35

from the Dodge process, you're going to

43:37

wind up with a result that is

43:39

disappointing. If you think about those four

43:42

categories, again, Medicare, national defense, net interest,

43:44

and Social Security, Eric, those categories are

43:46

roughly about five trillion dollars on a

43:48

calendar annualized year-to-date basis. Again, we have

43:50

one month of data, but in terms

43:52

of about 2025, but it's about $5

43:54

trillion. It's two-thirds of the federal budget,

43:56

14% of nominal GDP. And those four

43:59

categories on an aggregate basis have compounded

44:01

at plus 15% on a trailing three-year

44:03

CAGR basis. Again, these categories, this is

44:05

two-thirds of the federal budget, compounding at

44:07

plus 15% on a trailing three-year CAGR

44:09

basis. And we know it's going to

44:11

continue to go up. Medicare and Social

44:13

Security are going to continue to rise

44:16

if you look at the chart on

44:18

the right, slide 100. The US's old

44:20

age dependency dependency ratio is going to

44:22

go from, let's call it 85% to...

44:24

you know, 110% over the next decade

44:26

or so, I'm sorry, from 95% to

44:28

115% over the next decade or so.

44:30

So we know Medicare and Social Security

44:33

are going to continue to go up.

44:35

We know net interest has to go

44:37

up. You know, we're talking about refinancing

44:39

around $9.5 trillion just over the next

44:41

12 months into a higher interest rate

44:43

regime. That will cost us about $125,

44:45

$130, $130 billion of additional net interest

44:47

expense. And then National Defense, they've already

44:50

outlined that they want to raise that

44:52

they want to raise that by $200

44:54

to $200 to $300 to $300 to

44:56

$300 billion dollars. two-thirds of the fiscal,

44:58

the federal deficit, two-thirds of the federal

45:00

budget are compounding it on a trailing

45:02

three-year Kager basis, a plus 15 percent,

45:04

and that number may actually go up.

45:07

So, Doe is going to have to

45:09

take a gigantic chainsaw to everything else,

45:11

in my opinion. I don't think it's

45:13

politically palatable for them to do that

45:15

because you're talking about pissing off a

45:17

lot of lawmakers down in DC, even

45:19

on the Republican side, especially in the

45:22

Senate. as a function of a perceived

45:24

significant widening of the deficit relative to

45:26

current expectations that they're going to at

45:28

least try to get our fiscal house

45:30

in. Let's talk a little bit more

45:32

about the left and right tail risks

45:34

that I think are presented by uncertainty

45:36

risk in the outcome of this Doge

45:39

process because the way I see it,

45:41

it's very clear that President Trump and

45:43

Elon Musk are reaching for really big

45:45

headlines. They're in a PR war with

45:47

their political opponents where they're saying, look,

45:49

millions of people in the social security

45:51

system who are over 140 years old

45:53

and supposedly eligible for benefits. You know,

45:56

this is massive corruption. It has to

45:58

be fixed. And they've got a number

46:00

of other things that they're pushing. Massive

46:02

fraud in the USAID system and other

46:04

NGOs and so forth. I could see

46:06

this going one direction, which is those...

46:08

Exposase on major government corruption and misuse

46:10

of taxpayer money leads to huge populist

46:13

support and the Doge thing really takes

46:15

on a life of its own and

46:17

gets bigger. I could also see President

46:19

Trump's political opponents being successful in the

46:21

judicial system and potentially the Supreme Court

46:23

just says okay. We're slamming the gavel

46:25

down. Elon is not a legitimate elected

46:27

official. He has no authority to do

46:30

any of this. We're shutting Doge down

46:32

by order of the Supreme Court, you

46:34

know, no more. Take those two extreme

46:36

outcomes of either Doge gets much bigger

46:38

from here or Doge gets shut down.

46:40

What are the market implications? Because I

46:42

think either of those outcomes is possible.

46:44

Yeah, great cost. And I think the

46:47

probability that Doge gets more popular from

46:49

here is greater than the probability that

46:51

it gets less popular. Like again, I

46:53

feel like I took a lot of

46:55

heat back in December when we first

46:57

made the call that, hey, they're not

46:59

going to get anywhere near $2 trillion

47:01

with expenditure production. Here's all the reasons

47:04

why. You got a very horny contingent

47:06

of Elon Musk fanboys on Twitter, so

47:08

it took some meat on that. But

47:10

it looks like we're going to be

47:12

right on to be right on that.

47:14

to prevent the risk of a U.S.

47:16

fiscal crisis here in this fore turning

47:18

and the potential loss of our exorbitant

47:21

privilege, which in my opinion I think

47:23

would very much lead to World War

47:25

III because we're not going to lay

47:27

down and give that up. No country

47:29

has ever laid down and gave up

47:31

exorbitant privilege. So in our opinion, I

47:33

think it's a very necessary process. I

47:35

applaud Elon for what he's trying to

47:38

do. Ultimately, this is a more of

47:40

a political process statement. Our analysis is

47:42

political. We understand that you're not going

47:44

to be able to cut the remaining

47:46

third of the federal budget by 30

47:48

plus percent in order to just stabilize

47:50

the growth rate of expenditures, which is

47:52

what needs to happen. That's not going

47:55

to be it. No one in Congress

47:57

is going to allow that to happen.

47:59

So we're going to cut around the

48:01

margins and perhaps pretty meaningfully, but again,

48:03

it's not going to result in a

48:05

significant deficit reduction. Because again, not only

48:07

are you not, not only are you

48:09

cutting less than the growth rate of

48:12

the main categories that are causing the

48:14

budget deficit, you're also allowing for the

48:16

extension and expansion of Trump tax cuts

48:18

to, you know, to reduce revenues relative

48:20

to the baseline of current law, which

48:22

adds additional deficits from the perspective of

48:24

treasury bond market supply, they're going to

48:26

try to use this process where they

48:29

can benchmark the reconciliation program or process

48:31

to current policy as opposed to current

48:33

law. current law has the Trump tax

48:35

cuts expiring at the end of this

48:37

year. Current policy obviously does not. So

48:39

the headline figure in terms of the

48:41

deficit impact would be lower, but the

48:43

incremental treasury supply will be the same.

48:46

And so that's the risk is that

48:48

the bond market is smart enough not

48:50

to fall for that accounting gimmick. On

48:52

the other side, Eric, you're saying that

48:54

the the the Democrats or the Trump's

48:56

political opponents would make enough stink in

48:58

the courts to cause the Doge process

49:00

to disappear. push back enough in court

49:03

to kind of you know to cause

49:05

Elon to get out of DC and

49:07

go back and do what he was

49:09

doing prior. But I ultimately do think

49:11

that again they're not going to be

49:13

able to cut enough of the rest

49:15

of the federal budget to really achieve

49:17

significant deficit reduction in the context of

49:20

extending and expanding the Trump tax cuts

49:22

and in the context of our friend

49:24

Luke Roman's you know sort of net

49:26

true interest expense metric compounding and plus

49:28

15% per year. So I think the

49:30

probability of the court's situation is lower

49:32

than the probability that this gets very

49:34

popular But either outcome is, in my

49:37

opinion, I think the highest probability outcome

49:39

is that Doge cuts $500 billion to

49:41

a trillion of deficit or out of

49:43

the federal expenditures. We replaced... that with

49:45

more revenue reduction and ultimately, you know,

49:47

the categories that Doge really isn't able

49:49

to take a big chainsaw to continue

49:52

to compound at double-digit rates. Well, Darius,

49:54

I can't thank you enough for another

49:56

terrific interview before we let you go.

49:58

Tell us a little more about what

50:00

you do at 42 Macro, what services

50:02

are on offer, how people can find

50:04

out more and follow your work. Yeah,

50:06

I appreciate you, Eric. Always a pleasure

50:09

to be here. across Global Wall Street

50:11

and our retail investor clients. So we

50:13

built solutions to help them both stay

50:15

on the right side of market risk

50:17

as we talked about earlier at the

50:19

beginning of this presentation. On side 11,

50:21

side 10 and 11, where we show

50:23

our case before construction process, that's the

50:26

solution that we built for retail investors

50:28

to stay on the right side of

50:30

market risk. We have thousands of very

50:32

happy retail investor clients that have participated

50:34

in these raging markets over the past

50:36

couple of years, in part. of our

50:38

bullish fundamental views. And then on side

50:40

12, we're sure our discretionary risk management

50:43

overlay, aka Dr. Mo, our institutional clients

50:45

and our sophisticated retail trade of clients,

50:47

use this as a market timing and

50:49

position sizing guy for their factor longshore

50:51

bets. And so I would say again,

50:53

as I said at the beginning of

50:55

this talk, the most important thing that

50:57

we do that we are among the

51:00

world's best at is now casting the

51:02

market regime and sending out very timely

51:04

signals for when the market regime changes

51:06

from risk on. to risk off from

51:08

risk on with the inflationary bias, to

51:10

risk on with the disinflationary bias, to

51:12

risk off with an inflationary bias, or

51:14

to risk on with an inflationary bias.

51:17

And then that's when this this this

51:19

model here this doctor mode table will

51:21

start to change its proper trade recommendations

51:23

for the various factors that you know

51:25

any institutional investor or retail trader could

51:27

be longer short at any given time.

51:29

And so what we're ultimately trying to

51:31

do is make sure our clients are

51:34

constantly compoundinging returns and staying on the

51:36

right side of market risk. as opposed

51:38

to what I think a lot of

51:40

other investors are doing. used to do,

51:42

which worked for a while, but I

51:44

certainly don't think it's working for most

51:46

people in this post-covate environment, which is

51:48

predict something and put on a position

51:51

and hope that the prediction comes true.

51:53

There's a better way to invest. You

51:55

can actually just now cast what's happening

51:57

in the markets and participate in what's

51:59

happening in what's happening in the markets

52:01

and what's happening in the markets with

52:03

systems like our case before the infrastructure

52:05

process and our discretionary risk management overlay.

52:08

So folks want to stay on the

52:10

right side of the right side of

52:12

market risk irrespective of market risk, irrespective

52:14

of market risk, irrespective of market risk,

52:16

irrespective of what we think, irrespective of

52:18

what we think, irrespective of what we

52:20

think, irrespective of what we think, irrespective

52:22

of what we think about growth, Check

52:25

my track record on this program. I

52:27

think we have some of the best

52:29

views on that stuff as anyone, but

52:31

in my opinion, I don't think that's

52:33

relevant for investing. I think what's relevant

52:35

for investing is making sure that you're

52:37

responding to the market and ultimately participating

52:39

with the markets trying to pricing. So

52:42

come check us out of 42 macro

52:44

if that sounds good to you. Patrick

52:46

Serena and I will be back as

52:48

Macro Voices right here at Macro voices.com.

52:54

Now back to your

52:56

hosts Eric Townsend and

52:58

Patrick Sorezna Eric,

53:00

it was great to have Darius back

53:02

on the show now. Let's get to

53:04

that chart deck. Listeners, you're going to

53:07

find the download link for the post

53:09

game chart deck in your research roundup

53:11

email. If you don't have a research

53:13

roundup email, that means you have not

53:15

yet registered at macrovoices.com. Just go to

53:17

our home page macrovoices.com and click on

53:19

the red button over Darius' picture saying

53:22

looking for the downloads. Okay, Eric, what

53:24

are your thoughts on equity markets here?

53:26

Well, once again, we're flirting with all-time

53:28

highs, and I think it's just more

53:30

confirmation that Trump's policies are gaining traction

53:32

in popularity with the American people, despite

53:35

the media's constitutional crisis tantrums, which, as

53:37

far as I can tell, the public

53:39

is finally starting to wake up to

53:41

for the nonsense that they truly are.

53:43

Okay Eric, well on page two I

53:45

have the chart of the S&P 500

53:47

and we can see it's trading along

53:50

52 week highs. The big question, does

53:52

it break out? I think there's lots

53:54

of room for it to break out.

53:56

The bigger question is, is it a

53:58

sustainable breakout? And in my mind... there

54:00

are only two things that can happen

54:02

that is going to make the breakout

54:05

sustainable. Otherwise it will be a fake-out

54:07

breakout that maybe we have a quick

54:09

punch to 62 to 6300 on the

54:11

upside and immediately it fades all the

54:13

way back down. So one of the

54:15

first things is that it would need

54:17

to have a widening of market breadth.

54:20

On page three I have just a

54:22

percentage of stocks trading above their 50-day

54:24

moving average in the S&P 500 and

54:26

we've been pinned in this 50 to

54:28

60% rain. for a month now. Basically

54:31

when you look at something

54:33

like the equal weight S&P

54:35

500 is nowhere near. it's

54:37

high the way the S&P

54:39

500 self is. And so

54:41

we would need a broadening

54:43

of the market in order

54:45

for this have to have

54:47

a sustainable move where we'd

54:49

go into 80, 85% of

54:51

the stock market participating and

54:53

that broadening of the market

54:55

sees a sustainable bull advance

54:57

I could see, let's see,

54:59

64, 6,600. The alternative. to the

55:01

widening of the breath. On page

55:04

four, I have the magnificent 7etF,

55:06

which is talking about the mag

55:08

stocks. And they simply have been

55:10

huge laggards over the last two

55:13

months. They simply have not broken

55:15

out, not had any momentum, and

55:17

many of them are rolling over.

55:19

And so if you don't have

55:21

a broadening of the whole market,

55:24

then you need the mags sevens

55:26

to regain their leadership. And if

55:28

one of these two doesn't happen,

55:30

doesn't happen. then you can't trust

55:33

an S&P breakout. And in my

55:35

mind, the S&P will potentially here

55:37

spark out a quick breakout that

55:39

gets the attention of the media,

55:41

but if we don't see the

55:44

underpinning conditions confirming that, then I

55:46

would be fading that breakout. If

55:48

we did see that fade happen

55:50

where it wasn't confirmed, what would

55:52

be the first warning signs? Well,

55:55

if a breakout fades and gets

55:57

down to like the 6,000 level

55:59

on... the S&P and a quick 5%

56:01

market correction. If we see that kind

56:04

of damage done, then I would start

56:06

to speculate that the first quarter high

56:08

is not only in, but then that

56:10

there actually is room for a bigger

56:12

or deeper market correction. Now before we

56:15

talk market correction, I want to first

56:17

see that the bulls fail to hold

56:19

these gains. And so right now we're

56:21

going to give the bulls the benefit

56:23

of the doubt. They just need to

56:26

prove that this thing is real if

56:28

we don't see that. I will quickly

56:30

flip to the short side. Okay,

56:32

let's move on to the dollar

56:34

here. Eric, what's your thoughts?

56:36

The prior consolidation range was 107

56:38

to 110. We saw a multi-day

56:40

breakdown below that range this week,

56:43

but we just closed over 107

56:45

on Wednesday. So the question now

56:47

is whether we re-enter the consolidation

56:49

zone and stay above 107, or

56:51

if the cell off is going

56:54

to continue below 106.5, which is

56:56

the low we put in just

56:58

a couple of days ago. Patrick,

57:00

I'm leaning toward a continued cell

57:02

off on continued speculation about the

57:04

Maralago Accord thesis. which Jim Bianco

57:07

described in last week's macro voices, and

57:09

which Zero Hedge has since picked up

57:11

and begun reporting on. Actually, they're reporting

57:13

on the Gold Revaluation Hypothesis. They haven't

57:16

quite got to the Zolton Bonds yet,

57:18

but I'm sure they'll get that story

57:20

too. From a technical analysis perspective, it's

57:22

still early to call a new down

57:25

trend in the dollar, but I have

57:27

a feeling that's where we're headed. Well

57:29

Eric there are an increasingly large amount

57:31

of people starting to talk about the

57:33

idea that the US dollar top could

57:36

be in based on the fact that

57:38

the administration wants a weaker dollar. I'm

57:40

not so sure I'm ready to flip

57:43

to that camp yet. As far as

57:45

I'm concerned we had an extraordinary bull

57:47

run on the upside of the dollar

57:49

and as seen on that chart and

57:52

we broke out of that two-year trade

57:54

range bullishly on the upside and we're

57:56

now approaching what were the previous high

57:59

where they potentially can act as support.

58:01

With the FIBR traceman zones down

58:03

here I think a dollar could

58:05

easily still consolidate one or two

58:07

more points down to 105 to

58:09

107 range and still turn around

58:11

and be bullish. And so to

58:13

me I want to first see

58:15

whether supports come in here and

58:17

whether bulls can sustain a rally

58:19

on the other side. If we

58:21

see that the dollar rallies start

58:23

getting heavy, fail to follow through

58:25

and start rolling over, I'll start

58:28

entertaining a more bearish thesis then,

58:30

but right now I'm giving the bulls

58:32

the benefit of the doubt that they're

58:34

going to hold the line somewhere in

58:36

here and we're going to see a

58:38

meaningful rally back up towards the highs.

58:40

All right, Eric, let's move on to crude

58:42

oil. Well, we saw a brief test

58:44

of that critical 100-day moving average

58:46

at 70 Spot 11 on WTO,

58:48

which I emphasized in last week's

58:51

podcast that was followed by a

58:53

nice bounce all the way up

58:55

to the 200-day moving average at

58:57

72 Spot 66. And now we're

58:59

retracing back to the downside. It's

59:01

not clear how far we're going

59:03

to go. But keep in mind,

59:05

the entire Arab world is in

59:07

shock over President Trump's messaging about

59:09

annexing Gaza. So there's definitely room

59:11

for an upside price spike induced

59:14

by geopolitics if the

59:16

ceasefire doesn't hold. Well Eric

59:18

I'm in the camp where I do

59:21

believe that the low end of crude

59:23

oil has been established and we have

59:25

now gravitated toward the bottom end of

59:27

that range. Is there a few more

59:30

dollars downside risks to oil that could

59:32

potentially materialize? Sure, but generally I think

59:34

that we're at a level where there

59:36

is still asymmetry where I don't think

59:39

that there's a room for a big

59:41

breakdown in oil and ultimately just some

59:43

new catalyst has to be introduced that

59:45

potentially could start up a move to

59:47

towards the top end of its range. Now

59:50

I'm not super bullish oil where I think,

59:52

you know, in the next year or two,

59:54

we're gonna see 100 or 120 on the

59:56

upside, but could we see us gravitate back

59:58

into the mid 80s to the. the top

1:00:00

end of the range we've seen over

1:00:02

the last couple years. I think that's

1:00:05

entirely plausible. So while we haven't seen

1:00:07

a bold breakout here, that is really

1:00:09

showing the next move, I do think

1:00:11

that we are at very key support

1:00:13

lines that are likely to hold. Now

1:00:16

let's talk gold. Well, as I explained

1:00:18

last week, the technical setup was

1:00:20

ripe for the market to roll

1:00:22

over and it was a good

1:00:25

setup for maybe a multi-hundred dollar

1:00:27

correction because we were massively, massively

1:00:29

overbought. Well, that's exactly what started

1:00:31

to happen on Friday. We painted

1:00:34

a massive red candle dumping $80

1:00:36

in a single day. Boy, it

1:00:38

sure looked like that market was

1:00:40

rolling over and maybe headed several

1:00:42

hundred dollars lower. But I traded

1:00:45

emails with Jim Bianco over the

1:00:47

weekend, and based on Jim's gold

1:00:49

revaluation hypothesis expressed in last week's

1:00:51

podcast, Jim and I both agreed

1:00:53

that this dip was likely to

1:00:56

be bought sooner than later. And

1:00:58

that's exactly what happened from the

1:01:00

Sunday Futures Open. Right out of

1:01:02

the gate, there was a very,

1:01:04

very brief spike down for a

1:01:06

new undercut low below. Friday is

1:01:09

low, but that didn't last and

1:01:11

from there the retracement higher was

1:01:13

underway within minutes. And by Tuesday

1:01:15

afternoon we were once again flirting

1:01:17

with all-time highs. So despite that

1:01:20

the technical still very much suggest

1:01:22

that we're still overbought here, maybe

1:01:24

not extreme overbought like we were

1:01:27

on Thursday, there's definitely room for

1:01:29

a ongoing correction several hundred dollars

1:01:32

lower. But the thing is... All

1:01:34

of these dips keep getting bought

1:01:36

faster than anyone expects. Bottom line,

1:01:39

I'm leaning toward an upside breakout

1:01:41

to new all-time highs and above

1:01:43

the price channel that began in

1:01:46

October 23. I think that's more

1:01:48

likely at this point than the

1:01:50

technicals would seem to admit. There

1:01:53

are two reasons for my extreme

1:01:55

bullishness here. Number one, these dips

1:01:57

just keep getting bought faster than...

1:02:00

make sense in a normal market

1:02:02

is if there's something more going

1:02:04

on behind the scenes in this

1:02:06

picture. And number two, the rapidly

1:02:08

growing popularity of the gold revaluation

1:02:11

hypothesis that you heard about first

1:02:13

from Jim Bianco on last week's

1:02:15

macro voices podcast. Now all of

1:02:17

that said, even if we

1:02:19

did get a $200 downside

1:02:21

correction from here, which is

1:02:23

still possible, that wouldn't invalidate

1:02:25

the uptrend. Channel support is

1:02:27

just above 2,700 now, so

1:02:29

it would take sustained action

1:02:31

below that level to invalidate

1:02:33

the uptrend. Yeah Eric that completely

1:02:35

all makes sense we are we

1:02:37

are very overbought on the short

1:02:39

term some of my upper target

1:02:41

zones are in this 3,000 to

1:02:43

3,050 area on the upside and

1:02:45

at some point here we are

1:02:47

going to bump our head on

1:02:49

the upper end of gold and

1:02:52

begin some sort of mean reversion

1:02:54

and correction and like you were

1:02:56

suggesting even a $200 pullback which

1:02:58

is actually quite typical in gold

1:03:00

wouldn't be a break of the

1:03:02

primary uptrend it would simply be

1:03:04

a... consolidation of the advance and

1:03:06

could be the base from which

1:03:08

continuation patterns will occur in the

1:03:10

second quarter of the year. At

1:03:12

this moment, it's hard to justify

1:03:14

this as a new tactical entry

1:03:16

level of gold, but at this

1:03:19

point the trend is primarily your

1:03:21

friend if we continue to have

1:03:23

higher highs sequentially each day. You

1:03:25

want to respect this upper trend

1:03:27

recognizing though feels very eighth ninth

1:03:29

inning of this part of the

1:03:31

advance and at some point gold

1:03:33

will go through a profit-taking cycle

1:03:35

of some sort but that wouldn't be

1:03:38

something that would shake me out of

1:03:40

the trade. And finally Eric let's just

1:03:42

touch on uranium. What do you think

1:03:44

here of the way that it's behaving?

1:03:46

Well, it's been another week

1:03:49

of mostly bullish nuclear news

1:03:51

flow and another week of

1:03:53

spot uranium and uranium miners

1:03:56

plumbing new cycle lows, defying

1:03:58

the bullish fundamentals. The uranium

1:04:00

market seems to be puking

1:04:02

over President Trump's nuclear disarmament

1:04:04

comments when he suggested that

1:04:07

both Russia and the United

1:04:09

States don't need as many

1:04:11

nuclear warheads as they both

1:04:13

have. That led to what

1:04:15

I think is completely misplaced

1:04:17

speculation about maybe a version

1:04:19

two of the megatons to

1:04:21

megawatts program, which dramatically reduced

1:04:23

the excess inventory of high-enriched

1:04:25

uranium that Russia was holding.

1:04:27

back in the 1990s. Look,

1:04:29

it's a completely different situation

1:04:31

now. That was at the

1:04:34

end of the Cold War

1:04:36

that the original megatons to

1:04:38

megawatts was negotiated. At that

1:04:40

time, Russia and the United

1:04:43

States both had tens of

1:04:45

thousands more warheads than they

1:04:47

do today. Also, that was

1:04:49

not really about disarming and

1:04:52

dismantling warheads the way most

1:04:54

people think it was. What

1:04:56

the megatons to megawatts program

1:04:58

was actually about was Russia's

1:05:01

agreement to sell 500 tons

1:05:03

of surplus high-enriched uranium. It

1:05:05

wasn't that they disassembled 20,000

1:05:07

warheads worth of surplus high-enriched

1:05:09

uranium, about 500 metric tons.

1:05:11

of high-enriched uranium that they

1:05:13

had in surplus and sold

1:05:16

that to the United States.

1:05:18

Now if something like that

1:05:20

were to happen again, which

1:05:22

is frankly unlikely in the

1:05:24

first place, if it did

1:05:26

happen, then it would be

1:05:29

a smaller number. It wouldn't be

1:05:31

500 tons because I... I think

1:05:33

they've got more than that, but

1:05:35

they don't have anything close to

1:05:37

what they used to. Whatever did

1:05:39

happen, it would make exactly zero

1:05:41

sense for anyone to even think

1:05:44

about down blending it all the

1:05:46

way to low-enriched uranium. What we

1:05:48

need right now is halu. That's

1:05:50

the high-test uranium fuel for the

1:05:52

new generation of reactors that are

1:05:54

just starting to be built. From

1:05:56

an economic standpoint, it makes no

1:05:58

sense to down- blend all the

1:06:01

way down from high enriched uranium

1:06:03

to low enriched uranium when it

1:06:05

makes so much more sense to

1:06:07

stop not quite a little more

1:06:09

than a halfway down that path

1:06:11

at halo which is about 19

1:06:13

and three quarters percent enriched as

1:06:15

opposed to five percent enriched low

1:06:17

enriched uranium. The point is, if

1:06:19

there was any kind of megatons

1:06:21

to megawatts 2.0, it would be

1:06:23

to make halo, that would go

1:06:25

into reactors that haven't even been

1:06:27

built yet, and that are not

1:06:29

part of the equation for evaluating

1:06:31

the current market and all

1:06:33

of the deficits that people

1:06:35

have projected. In other words,

1:06:37

it's just not going to

1:06:39

matter. The bottom line for

1:06:41

actual uranium consumption is that

1:06:43

we're going to consume as

1:06:45

much U 308 as we

1:06:47

have capacity to convert and

1:06:49

enrich. That's what is throttling

1:06:51

U 308 demand right now

1:06:53

is limited capacity for enrichment

1:06:55

and conversion. If they were

1:06:57

to down blend a bunch

1:06:59

of HEU in order to make

1:07:02

HALU, which doesn't make any sense,

1:07:04

it still wouldn't change the fact

1:07:06

that we need more. LEU and

1:07:08

therefore they're going to continue to

1:07:11

convert and enrich as much as

1:07:13

we have conversion and enrichment capacity

1:07:15

for. So it's not going to

1:07:18

affect you 308 demand even if

1:07:20

it happened and frankly I don't

1:07:22

think it's going to happen. But

1:07:24

the retail freak-out that occurred in

1:07:27

reaction to those comments definitely underscores

1:07:29

the fragility of this market. On

1:07:31

Wednesday, UNM dumped to Extreme Oversold

1:07:34

all the way down to an

1:07:36

18-RSI, while URA dumped to Oversold

1:07:38

with a 31-RSI, just teetering on

1:07:41

Extreme Oversold there. Both of those

1:07:43

are still pointed down, suggesting even

1:07:45

lower numbers may still be to

1:07:48

come into next week. So it's

1:07:50

definitely time to be buying here,

1:07:52

not selling. Remember folks, the idea

1:07:54

is to buy low and sell

1:07:57

high. We're definitely into oversold if

1:07:59

not. extreme oversold. territory here on

1:08:01

most of these issues. But I

1:08:03

still have reservations about all the

1:08:05

experts that are making the call

1:08:08

saying, okay, the retail capitulation is

1:08:10

now in. That means that it's

1:08:12

definitely time to make your big

1:08:14

buy because it's not going any

1:08:16

lower than here. Look, there's so

1:08:18

much retail participation in this market

1:08:20

because institutional investors were locked out

1:08:22

of uranium for ESG mandate reasons

1:08:24

and have only just begun to

1:08:26

dip their toe in this market.

1:08:28

So it's completely dominated dominant. by

1:08:31

retail investors who are famous for

1:08:33

doing the stupidest things at the

1:08:35

stupidest times. So if we continue

1:08:37

to get news flow, as much

1:08:40

as I don't think there's going

1:08:42

to be a meaningful megatons to

1:08:44

megawatts 2.0, that doesn't mean President

1:08:46

Trump is not going to say

1:08:49

we're going to have some massive

1:08:51

megatons to megawatts. program that's

1:08:53

going to, it's going to be

1:08:55

fabulous, it's going to be tremendous.

1:08:57

If you start saying things like

1:08:59

that, I think it's going to

1:09:01

freak retail investors out and you

1:09:03

could see a full-scale capitulation at

1:09:05

that point. That would be the

1:09:07

time to really start buying handover

1:09:09

fist. Now it's only time to

1:09:11

be buying handover hand in my

1:09:14

opinion. I think the handover fist

1:09:16

buying opportunity might still be to

1:09:18

come. We'll see what happens. At

1:09:20

the end of the day though...

1:09:22

One of two things must happen

1:09:24

here, must happen. Either all these

1:09:26

new nuclear plant builds and all

1:09:29

the nuclear plant restarts and all

1:09:31

the nuclear plant life extensions that

1:09:33

have been announced in the last

1:09:36

few weeks and months. Either they

1:09:38

all get scrapped and that whole

1:09:40

plan gets completely totally reversed and

1:09:43

that would probably take World War

1:09:45

III in order to reverse all

1:09:47

of those things. Or they're eventually...

1:09:50

Not sure when, but eventually going

1:09:52

to have to start buying fuel

1:09:54

for all those reactors. Both the

1:09:56

old ones that are coming back

1:09:58

online that were not... budgeted fuel

1:10:00

for as well as the new ones

1:10:02

that are being built. So it's one

1:10:05

or the other either all of this

1:10:07

entire nuclear renaissance news flow that we've

1:10:09

been hearing gets completely totally reversed despite

1:10:12

the fact that Chris Wright and President

1:10:14

Trump and JD Vance and everybody else

1:10:16

are all saying that the U.S. government

1:10:19

is now completely behind it. It all

1:10:21

gets scrapped and the whole thing goes

1:10:23

in the other direction or sooner or

1:10:26

later they've got to buy uranium. Now

1:10:28

that doesn't mean we can't have

1:10:30

a retail capitulation freak out between

1:10:33

now and then. Maybe there's going

1:10:35

to be even... better buying opportunities

1:10:37

but right now the buying opportunities

1:10:40

are strong if you're not positioned

1:10:42

at all in uranium it's a

1:10:44

great time to be buying. On

1:10:46

page 8 I have the Sprop

1:10:49

Physical Uranium Trust chart up and

1:10:51

the chart just looks awful in

1:10:53

a sense that it's being regularly

1:10:55

distributed here lower highs lower lows

1:10:58

on the downside and and just

1:11:00

being unloaded. overall I do actually

1:11:02

think there's a very important target

1:11:04

zone right here in this 20

1:11:07

to 21 dollar range where we

1:11:09

could see that selling at least

1:11:11

subside but whether or not we

1:11:13

find start finding support lines or

1:11:15

bases it's very likely here that this

1:11:18

is going to go deep into March

1:11:20

in consolidation of some sort before there's

1:11:22

room for a bullish turn up while

1:11:24

I do think that the bull thesis

1:11:27

in uranium is still very much in

1:11:29

the bigger puzzle to solve is when

1:11:31

will we start seeing bullying again in

1:11:34

this space and that currently is not

1:11:36

evident and you have to at least

1:11:38

anticipate a few more weeks if not

1:11:40

a month of basing to have to

1:11:43

establish a key turn point of where

1:11:45

this can technically start to turn up.

1:11:47

Folks if you enjoy Patrick's chart decks

1:11:50

you can get them every single day of

1:11:52

the week with a free trial of big

1:11:54

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pages of the slide deck or just go

1:11:59

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1:12:01

tell them what they can expect to find

1:12:03

in this week's research roundup. Well in this

1:12:05

week's research roundup you're going to find the

1:12:07

transcript for today's interview as well as

1:12:09

Darius a slide deck and the chart

1:12:11

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1:12:13

post game including a link to a

1:12:15

number of articles that we found interesting

1:12:17

you're going to find this and so

1:12:19

much more in this week's Research Roundup.

1:12:21

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