YouSaid · the spoken record

Darius Dale

lines on the record: 74
first: 2023-01-19
most recent: 2023-01-19
sittings or episodes: 1
sources: podcast

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“I think the market's going to continue to get a lot of pushback from the Fed, which is why I highlighted the March FOMC and the June FOMC as potential catalyst for a reversal in this transitory Goldilocks narrative. Because again, in the absence of the updated summary of economic projections for the market to confirm that, hey, look, they mean business with their unemployment rate, their growth forecasts, et cetera, there's a Fed that's not going to pivot, then the market can do what it wants in terms of anchoring on China reopening and stimulus, anchoring on the Goldilocks data that we're getting out of the US and global economy at the current juncture. But one thing I will say is, you know, we haven't talked about our left-tail risk scenario, which I think is somewhat credible. It's less credible now than I think it was prior to seeing the Chinese stimulus headlines over this weekend, which is if we're wrong and the US economy has less resilience than we believe.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, no. One, it has to be a deeper session that is deeper than their expectations. Because, again, I believe this is a Federal Reserve Board committee that is implicitly forecasting a recession to begin in 2023 via the projected deltas in core PCE and the unemployment rate. And so in our opinion, I think the market is going to continue to get a lot of pushback from the Fed and ultimately get the reconciliation process that we've consistently seen over the past nine to 12 months. Fed always wins. This is why there's an argument, a saying out there that says, don't fight the Fed. I think you can, at the best, as an investor, try to frontrun the Fed by using analyzing and forecasting the data that they have their eyes glued to, not data that you think is cool or is a cool chart. That's what I think we specialize in 42 macro is figuring out what these people care about and then forecasting that accurately on a consistent basis. And so in our opinion.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“And so implicitly, the Fed knows that, hey, we probably need a recession to achieve our inflation mandate. But to me, I think that's less relevant in terms of their likely reluctance to pivot in the second half of this year when the going actually gets tough economically domestically. The unemployment rate forecast call for the U3 rate, the headline unemployment rate, to spike to 4.6% from 3.5% in December. That's 110 basis point rise. And we've never seen 110 basis point rise in the unemployment rate over a 12-month timeframe without a recession. So in my opinion, I think this very cohesive unit of the FOMC are implicitly forecasting a recession, which means when we start seeing recessionary-like conditions, the markets are not going to get what they want out of the Fed when that happens. And that's going to create some real significant problems in the middle of the year to say the least. Starting in the middle, in my opinion.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“I'll give you two statistics, Jack. Two of my favorite statistics, I'll start with the December summary of economic projections where the Fed introduced its latest forecast for core PCE and the unemployment rate. And so at the December SE, or sorry, at the December FOMC within that SEP, the Summary of Economic Projections, the Fed called for Core PCE to decelerate to 3.5% by the end of this year, December 2023. From that time, it was at 4.7%. We've never in the history of the Core PCE time series dating back to 1950, late 1950s, seen 120 basis point deceleration in core PCE without a recession.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“Of this year and going to 80-90%, which means we're just going deeper and deeper into the regime. And so that's when I believe that recessionary process really starts to take hold, ultimately landing us in recession by Q4 of this year at the latest Q1 of next year. But going back to that cohesion and the dot plot, that lack of dispersion, to me, it signals that there's not going to be a lot of debate amongst committee members and amongst committee members throughout the year when the going actually gets tough, when the unemployment rate actually starts to rise. When PMIs and services PMIs are actually consistently in the 40s and GDP is tracking at zero to slightly negative, when those data points are really starting to come out, the Fed is not going to sit there and go, oh my God, I got to start cutting interest rates and I got to start doing QE. They're going to say I told you so.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, no, I mean, just go back to December FOMC, the September 14th. I mean, it was very clear and consistent that, hey, look, we understand that inflation is coming down. I mean, I'm paraphrasing, obviously. Yeah, understand that inflation's coming down. But look, the labor market is very inconsistent with our inflation mandate. And so not only would the Powell echo that in the press conference, we've heard subsequent members of the FOMC come out and reiterate that. And we also heard it from the Fed minutes. And one final thing in that Fed pivot scenario in December that I think is underreported across financial media, which is the cohesion of the dot plot, in my opinion, supports our view that when the going actually gets tough economically, which we believe by the second half of this year, we'll be on that real path towards recession. Right now, we're kind of in this muddle down through period before we really start for the gradient really starts to accelerate to the downside. Our model, our grid model, has the probability of deflation rising starting in the”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“Because if we stop at 2%, we're going to reaccelerate in the subsequent inflation cycle, and two is not going to be the mean. Two's going to be the lower boundary. So the Fed has to consistently think about inflation in subsequent business cycles as well. So number two, with respect to the Fed's mandate, which I would argue may be even more important than number one, which is the Fed upgraded the labor market and its reaction function and downgraded inflation. So it's effectively the Fed pivoted from the thing that is causing the markets to be most excited about a Fed pivot to a thing that should cause the markets to be least excited about a Fed pivot because it's the thing that history shows is least likely”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“To substantially more evidence. In my opinion, I think one, these are actual legal terms. Don't forget, Paul's a lawyer from Carlisle. And so in my opinion, I think that is a direct signal that, hey, look, we don't just need measures of inflation. Let's go back to our median CPI friend, right? It's at 5.5% through Mathaniualized. Trim mean CPI came in at 4.7% through Mathanualized in the month of December. These numbers are going to be below the Fed funds rate in one to two meetings. I think the clear and convincing evidence, Cherry Standard would have said, okay, that's enough. The Fed can get to the sidelines, dock the boat and just watch this inflation process continue from there substantially more evidence, in my opinion, suggests that the Fed is probably looking for measures of compounded inflation through month annualize, month over month annualize, really three-month annualized and longer durations than that to tell them that we are actually going back to and potentially through 2%. Because don't forget, we can't just stop at 2%.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“Going back to the U.S. economy, what we're going to get obviously forfeit meetings between now and June, but my opinion, I think we have to be very, very as investors, very keen to be focused on the March and the June FOMC. March is on the 22nd and June is on the 14th. And the reason I say that is because as long as we're in this transitory Goldilocks type environment, the risk to asset markets is a Fed that just says, I don't care, right? You know, I don't care. Screw your Godilocks. You know, I'm concerned about the labor market. And oh, by the way, just a quick tangent. The Fed pivoted in December. It hasn't been priced in. Ooh, it got priced in a little bit in December, but since then, obviously, it's been become less of an issue because, you know, the markets are obviously focused on other dynamics, namely China and disinflation. But the Fed pivoted in December in two ways that I think are really important for every investor to understand. One, they upgraded their evidentiary standard from clearing convincing evidence.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“Now is this transitory Goldilocks phase. I don't believe that transitory Goldilocks phase has legs into the second half of the year because there's a variety of catalysts that I think are very much likely to cause asset markets to sort of kind of pivot from focusing on that. Let's start with”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“In wage growth, in the tightness of the labor market after recession. So as long as we're not in a recession, you should expect the Fed to continue to anchor on labor, which it signaled that it would continue to anchor on labor and ultimately deliver more tight policy than we expect. And in respect to the second half of the year, obviously, if the recession starts later, that means that Fed's not going to have any data from a labor market standpoint to cause it to pivot and actually start supplying the market with liquidity. So we think 2023 is going to be a year in which the Fed is likely to disappoint investors, both to the upside and rate hikes and also to the downside and rate cuts relative to what's currently priced in. So that's our modal outcome perspective. That is, in our opinion, the number one driver of asset markets on a medium-term duration, you know, kind of one to three quarters forward. So that's kind of in the center of the distribution. What's on the right tail of the distribution, which I think the markets are very clearly responding to.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“2023. And so that process of gradually decelerating and building up momentum to the downside is going to take a while. And as long as that process takes a while, you're going to continue to have a tight labor market that is creating inflationary pressure vis- ⁇-vis wages. And so that's something that, in our opinion, is likely to cause the Fed to tighten more relative to expectations, both in the first half of the year with actual rate hikes, but it's also going to tighten relative to expectation in the second half of the year relative to not cutting rates relative to what the market is currently priced in. Don't forget, markets are already, if you look at Fed funds futures, markets are effectively calling for the Fed to get to 5% in March and holding there through November and then enacting 50 basis points of rate cuts and back-to-back meetings to close out the year. I think we could easily go to 550 if not 6% on the Fed funds rate in this process because history shows you tend not to see significant deceleration, significant breakdowns.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so before we even get to asset allocation and our thought processes on portfolio construction, which I believe we specialize in at 42 macro, I think we also have to consider the full distribution of probable economic outcomes because it's not just this transitory Goldilocks that we have to contend with. As you know, you've seen our research. We always help investors understand that full distribution of outcomes vis- ⁇-vis our modal outcome scenario, our right tail risk scenario, and our left tail risk scenario, and we're constantly using data to help investors understand, hey, what's the probability of those tails and are we seeding share of the tails from the modal outcome or are we seeing share from one tail to the other tail? And ultimately that's how we think about constructing portfolios to take advantage of those changes and probabilities. With respect to the modal outcome, it's our bias that it's been our bias for an extended period of time now, which is the U.S. economy is unlikely to go into recession at least until the second half of this year, probably not until Q4.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. And the reason for that, again, I think it's twofold. One, the starting point. You go back to late December or even late September, early October, which is really, in my opinion, where a lot of this stuff inflected from an international standpoint, positioning was extremely bearish. In fact, if you look at positioning now across most assets that would be risk assets or anything in the long duration space, investors are still leaning very short of risk parity type strategies. And so I think what you're seeing now is the combination of better than expected news on the economic front in terms of faster decelerations and inflation than expected and not necessarily today, but obviously the last couple of footprints. And then better economic activity than expected. Oh, by the way, the world's second largest economy is waking up and stimulating. That is new news that investors were not positioned for and ultimately have been forced to price in if only because of short cover.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, great question. So we'll start by saying just in terms of thinking about market risk in Bodilox or in any other four group regimes that we track, Goldilocks, you typically see is that reward it tends to be positively correlated to risk and has a positive upward slope, meaning the more risk you take from a volatility and covariance perspective vis- ⁇-vis our backtest, we backtested everything that ticks.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so it's transitory not going to last. Yeah, I mean, if we're in Goldilocks and so we say we're in Goldilocks now, I think what's important is like, is it going to be Goldilocks in the future and for how long? Because if it's Goldilocks and it's going to get more Goldilocks for the next year, easy, simple asset allocation, right? If you're a subscriber 42 macro, buy stocks and the riskier the stocks, the better, the riskier, the higher beta, the better. Let's buy Bitcoin. Let's buy Ethereum. Solana, why not? All the risky stuff go long in Goldilocks. So is that your asset allocation? And if not, why not?”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“Standpoint from a growth data standpoint, you know, going back to November, December, we already saw the leading indicators in Europe really bottom out at the height of their energy crisis. And a lot of things have really inflected to the positive side. So right now, we are in this transitory period where the markets were forced from lower levels and risk assets, higher levels and interest rates to acknowledge the fact that things got a lot better relative to where they were, let's say, in November, using that as an anchor in terms of economic data. But that's not, in our opinion, it's not going to last.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“The Fed is focused on because the labor market, the tightness of the labor market, in my opinion, is they're kind of driving their mandate at this particular juncture. That number is at 6.1% three-month annualized. And obviously three-month annualized CBI is somewhere got a one handle on it. So there's a lot of real income growth that is being generated, particularly in the U.S. economy now. And then you look abroad, obviously China ripping off the band-aid with zero COVID, adding stimulus to that mix is going to create a positive growth impulse there. Jury Stott in terms of how big the growth impulse there, we've seen China bill out the global economy in 2008, 2009. We see to do it again in 2012, 2013. We saw 2016, 2017, saw it in 2020 as well. Will it be a program as big as those or will it be something more moderate, more tevid? I don't think we know the answer to that, but we do know the Delta is positive. And then lastly, that's obviously going to be quite positive for Europe, which itself was already improving from a sequential.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“Again, not from my perspective. So you've probably heard me on different podcasts, different shows, et cetera. Certainly, you know, you obviously get our research. But, you know, it's been, we've always found at the table that the fact that the U.S. economy in particular has a lot of resiliency to it. Look no further than the labor market to understand that level of resiliency. I'll throw a couple statistics at you just coming down today. We had jobless claims declined to $205,000 initial claims. That's a secular low continuing claims. It's been inflected to the downside, actually, in December. And now we're tracking at 1.6 million down from like 1.75 million a couple weeks ago. So we're now actually seeing incremental strength in the labor market vis- ⁇-vis the lens of jobless claims, a variety of other metrics continue to show strength, whether you look at real consumption, real PCE growth, tracking at 3% on a three-month annualized basis. You think about nominal employee compensation, which is my opinion, the number one thing.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“Down from levels that look like 9, 10% in recent months. And so it's obviously given the market two thumbs up to believe in this sort of, you know, when my friend Bob Elliott over at Limited Funds, him and I had a discussion yesterday, he termed it the transitory Goldilocks, which ultimately we believe this is exactly what markets have moved to start pricing in really since kind of late December.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“Ongoing disinflationary trend in the US economy. If I can throw one statistic at you, because there's obviously a lot of statistics within the CPR report, but in my opinion, in terms of the CPI, we get two sort of separate sets of statistics each time we get the CPI in the morning. I would argue the most important statistic in the morning at 8.30 is a core services experiment of shelter. And that number decelerated from 3.2% to 1.2% on a three-month annualized basis, and that's the slowest print we've seen since June 20th. We also saw some pretty significant movement to the downside in measures of underlying inflation, albeit to levels that are very inconsistent still with the Fed's mandate. These are the numbers that you get throughout the day from the Cleveland Fed, Atlanta Fed, et cetera. Median CPI just anchoring on that, for instance, decelerated 110 basis points to 5.5% on a three-month annualized basis. Obviously, well north of anything that's comfortable for the Fed's perspective, but these are numbers that are coming.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“That band-aid, but in my important that the reopening is not necessarily the biggest catalyst coming out of China to me, the biggest catalyst coming out of China is the fact that it appears very likely that the PBOC, the fiscal authorities in China are actually readying a meaningful stimulus package to be thrust into the Chinese economy as soon as Q1. We've got a lot of guidance out of the PBOC. I want to say Goshun King over the weekend that effectively said, hey, look, we're going to be targeting consumption, we're going to be targeting investment, we're going to make it easy for small businesses and private companies to get access to capital markets. We're going to take our heavy hand off the big tech industry. So they're effectively doing what they need to do to generate capital flows into the Chinese economy and ultimately allow their reopening process to grow on more sustainable footing. So that's number one. This is the world's second largest economy. It's going to be a big deal, at least in the first part of the year. Number two, with respect to the data, obviously we got CPI data earlier today that we're confirming of the all.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“Ooh, that's a load of questions. So I'll give you our take on it. So as you know, at 42 macro, we run our systematic process, what we call our grid model. That's a quantitative process that tries to forecast where the economy is from a regime segmentation perspective. And it was always going to be the case that once you got into December and really through the springtime of this year, April, May, or sorry, March or April, that the probability of achieving Goldilocks and not just the U.S. economy, but the global economy was actually quite elevated in the range of 25 to 35 percent pick your economy. That's up from basically 0% in the preceding kind of six to 12 months. So we are now in an area where the markets are apt to look around for Godilik's type signaling. And that's exactly what we're getting, both from an economic and policy standpoint. I'll start on the policy side. Nothing bigger, in my opinion, than the inflection in the Chinese policy, both of respect to zero COVID, basically ripping off.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT
“Hey, Jack, it's a pleasure to be here, man. You put out one of my favorite podcasts out there. You're one of the hardest working people in our industry, man. I just want to say we appreciate you.”
2023-01-19 · Forward Guidance · “Transitory Goldilocks” Is Here | Darius Dale · IDENTIFIED FROM THE TRANSCRIPT