MacroVoices #468 Darius Dale: Changing World Order
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This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices, and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics telling it like it is, bullish or bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Ceresna.

Macro Voices episode 468 was produced on February 20th, 2025. I'm Eric Townsend. 42 Macro founder Darius Dale returns as this week's feature interview guest. Darius is a regular Macro Voices listener, and he requested that we start his interview this week with Darius's reactions to last week's interview with Jim Bianco. Darius thinks Jim's on to something important with the Mar-a-Lago Accord hypothesis, and I agree.

Then we'll dive into the data intensive slide deck that Darius is best known for and talk about everything from sticky inflation to the growth outlook. And I'm Patrick Ceresna with the Macro Scoreboard week over week. As of the close of Wednesday, February 19th, 2025, the S&P 500 index up 152 basis points trading at 6144. Market trading along all time highs, asking the question if next week we see a bullish breakout.

We will take a closer look at that chart and the key technical levels to watch in the postgame segment. The U.S. dollar index down 67 basis points, trading at 107.16, remains in consolidation. But the bigger question, is the bull market still intact or are we seeing a top?

The April WTI crude oil contract up 121 basis points, trading at 72.10. The April RBOB gasoline up 43 basis points, trading at 232. The April gold contract up 27 basis points, trading at 29.36. Working all-time new highs each week. Asking the question, will we see 3,000 soon?

Copper down 298 basis points, trading at 456. Uranium down 397 basis points to 6530. The U.S. 10-year Treasury yield down 10 basis points, trading at 452. And the key news to watch this Friday is the Flash Manufacturing and Services PMIs. And next week we have NVIDIA's earnings, the Consumer Confidence Numbers, and the Core PCE Price Index.

This week's feature interview guest is 42 Macro founder Darius Dale. Eric and Darius discuss economic risks, inflation, and tail risks of government policy. Eric's interview with Darius is coming up as Macro Voices continues right here at MacroVoices.com. And now with this week's special guest, here's your host, Eric Townsend.

Joining me now is 42 Macro founder Darius Dale. For any new listeners who aren't familiar with Darius's work, he's known for his absolutely fantastic charts and graphs and extremely long and detailed chart books.

Just so you know what to expect in the download that you'll find linked in your Research Roundup email, it will be a great big slide deck of, oh boy, what is it, 160 or so slides. You'll see that many of them are grayed out. That's necessarily out of respect for Darius's

paying subscribers. They don't want all of his information given away for free. So only the slides that we discuss in today's interview will be visible. Please forgive the fact that the rest have to be grayed out. Darius, it's great to get you back on the show. Before we even dive into your famous slide deck, you mentioned off the air that you really enjoyed my interview last week with our mutual friend Jim Bianco from Bianca Research. Let's talk a little bit about

What if Jim's right? And because President Trump is definitely an agent for change and we're in a fourth turning, something you and I have discussed before, a time when the major rules of the game and the major institutions that define the game tend to get changed. What if President Trump is right?

President Trump actually were to bring about a whole new monetary regime where what changes is the way that the U.S. finances its foreign debt is instead of paying interest, they start paying essentially protection services with the military to other governments. That would fundamentally change the balance of flows, all the things that we're used to following, tick reports and so forth. I

I think the analysis, does it get thrown out the window or how do you deal with the idea that something that big might happen and how does it affect your process? Oh, great question. And I just want to say thanks again for having me. Always a real pleasure to be here. Really, it did really enjoy Jim's presentation last week. I thought, you know, you guys asked and answered some really important questions, you know, as it relates to, you know, where we are in this great time. I mean, as you and I talked about over the last few years about, you know,

how we are currently in a fourth turning and what that's likely to entail from the perspective of economic risks, monetary policy risks, fiscal policy risks, geopolitical risks, etc. And as it relates to, you know, some of the ideas that Jim floated with respect to changing the geopolitical world order, you know, I think that's something that we need to have a serious conversation about because as to your point, Eric, you know, it could potentially have a significant influence over

how, you know, the U.S. treasury market gets capitalized and ultimately how that impacts broader asset markets. Eric, I know you're familiar with our investing doing a fourth turning study. You know, a couple of years ago in the summer of 2023, we performed a deep dive empirical study spanning, you know, dozens, if not hundreds of time series to identify exactly what we should expect as investors throughout the duration of this fourth turning. You know, we don't have time to explain the fourth turning, but, you know, for those who may be

So it's a time of great institutional and geopolitical change. And understanding that we're going to have a lot of great institutional geopolitical change, we need to have a thoughtful framework for how some of that change is likely to evolve. So we broke down our, you know, our investing to the fourth turning regime analysis into sort of four different categories. There's number one fiscal policy risk is to me, I think that's the most important dynamic that could change in this fourth turning is

the size of the U.S. government, how it ultimately gets capitalized and who ultimately fits that bill. So if you look at slide 107 in this presentation where we summarize our investing during a four-turn regime analysis, specifically the fiscal policy section, what we know is that, you know, historically in four turnings, we typically see explosive growth in sovereign deficits, explosive growth in sovereign debt, the size of the government. And ultimately we see explosive growth in the cost to finance the government. And

And so this is the baseline. This is what you should be expecting as an investor in a forturning. By the way, this has already happened since the forturning catalyzed itself back in 2008. And so I think we're just, you know, kind of on that path. When we jump to monetary policy risk on slide 120, where we summarize the key risks there, it's financial repression and monetary debasement.

It's the central bank, it's the monetary authority using its balance sheet to step in as a lender of last resort to the explosive growth in Bitcoin.

sovereign debts and deficits. With respect to economic risks, where we summarize our analysis on the economic side, historically speaking, we've seen structural uptrends in nominal GDP, inflation, wage growth, and asset price inflation in four turnings. So I know we're talking about a lot of change here, but historically these four turning dynamics have seen faster rates of asset price inflation, primarily as a function of the monetary authority's response to fiscal dominance. And then finally,

On slide 143, where we summarize the foreturning geopolitical risks, you know, the key risks in a foreturning from a geopolitical standpoint are a structural downtrend in income inequality from a, albeit extremely high level. You typically see declining birth rates, increased trade protectionism and total war. And so these are the kinds of risks that we see on the table here as it relates to the balance of this foreturning, which my former colleague and one of my mentors, Neil Howe, believes is likely to persist into the late 2020s or early 2030s.

And so going back to Jim's, because you're discussing with Jim, Eric, you know, there's a lot of stuff that's about to hit the tape over the next four to eight years. And I think it's very important for us as investors to have a framework to deal with this stuff.

Darius, you work from a systematic macro framework that's driven by growth and inflation. And what those two variables are doing is kind of the starting point for everything else. With respect to growth, I think we pretty much discussed your bullish views on the economy and so forth in your last interview pretty thoroughly. But with respect to inflation, I really want to focus on that

in today's interview because you know you've been talking about sticky inflation as i have for a long time a lot of people kind of rolled their eyes they were really convinced that we had that wrong inflation was headed back to two percent it was all transitory story and it was it was

coming out of the system. I think maybe people are a little more receptive to the possibility that inflation really is sticky. So why don't we start with why you think it's sticky, why we're not headed back to 2% and what you do see on the horizon for inflation? Yeah, great question, Eric. A little minor correction in terms of the preamble there. You said we work from a macro framework that's focused primarily on growth and inflation. And I would expand that. Growth and inflation are important cycles that we track in the context of our

you know, systematic research process. But we just as important in our opinion, our monetary policy, fiscal policy, and our tracking of liquidity. I think we're, you know, among the world's experts in tracking liquidity variables and forecasting them. But the number one thing we do for our clients, as we show on slide five, when we introduce our macro risk management process, is we help them identify and position for the market regime.

The most important thing we do and the best thing we do for our clients here at 42 Macro is trend following and now casting the market regime and having clients position for that in asset allocation and portfolio construction terms. On the asset allocation side, you can see where we are in terms of our KIS portfolio construction process on slide 11. That's a three ETF process, three ETF solution that dials up and dials down client exposures to the equity, gold and Bitcoin markets. On slide 12,

So that's a retail investor oriented product. On slide 12, we have our discretionary risk management overlay, which takes our market regime now casting signal and creates proper trade recommendations across 70 different factors.

You know, looking at U.S. equities, U.S. equity factors, global equities, fixed income sectors, currencies, commodities and crypto. And so, you know, that's in my opinion, that that's what our process is focused on. And everything else we talk about today, particularly when I'm in these interviews, you know, kind of outside of our paywall. Most of the stuff I talk about outside of our paywall has nothing to do with how our clients are positioned or should be positioned.

It's really just to talk about the full distribution of probable economic outcomes so that, you know, clients and non-clients can have some sort of anticipation of how those trend following signals are likely to evolve. So I just want to make sure that we hammer that point home before we kind of get too deep into the presentation.

On the inflation side, I think it's a really important topic. And, you know, this is probably where we're most divergent from consensus, you know, here. And in fact, if you look at slide 42, where we show our grid model for the U.S., you can see where our model for core PC inflation has a bottoming in Q1 and starting to trend higher throughout 2025, you know, with the trend really starting to accelerate kind of in mid to late Q2.

That's very counter to Bloomberg consensus, which is Wall Street economist consensus, which is calling for core PCE to meander lower throughout the year, kind of on this very tardy, you know, path back to 2% inflation.

So let me answer the question that you asked, Eric, about why we think inflation is likely to remain sticky. Recall that we've been of the view that inflation is going to be sticky. We've always thought the equilibrium inflation rate in this particular business cycle was higher than it much higher than it had been in recent business cycles. And so this concept, this kind of wonky academic concept of trying to get back to 2% inflation, in our opinion, that's a policy mistake.

may turn out to be a grave policy mistake if the Fed does not respond to some of these pressures, in our opinion, with a little bit more lax monetary policy. So on slide 65...

So I'm going to say I performed an empirical deep dive study several times today, probably because that's kind of what we do here at 42 Macro on the econometric side. And one of the empirical deep dive studies we performed over the past couple of years is our business cycle analysis, of which it taught us a lot of different things about the U.S. business cycle from an empirical standpoint. One of the more important things we learned from that study, of which we analyzed hundreds of

economic indicators to identify which indicators were leading, lagging, and coincident indicators of the broader business cycle. One of the most important things we determined from that study, which looked at all 12 of the post-war U.S. business cycles, is that we determined that inflation is the most lagging indicator within the business cycle. It's the most lagging cycle of the eight cycles that comprise the business cycle, as you can see there on slide 65 on the chart on the left. Inflation breaks down durably below trend in

You know, 12 to 15 months on average after a recession on a median basis after recession. Again, it's a median path that the each of those 12 cycles is taken, you know, three years before and three years after recession has started with zero being the recession. You can see it a little bit clearer on the chart on the right where we just show growth, headline inflation and core inflation. And you can see the stickiness of inflation persisting well into a recession.

Well, okay. So if you understand that, okay, inflation is a sticky process, it typically doesn't break down to a below trend until well into a recession. Let's talk about, well, are we going to have a recession or not? Well, if you look at slide 35, where we show the same chart on the left, but the chart on the right on slide 35 shows the current data for each of those cycles that are represented by the chart on the left. And what we find is that

The chart on the right does not resemble the chart on the left, right? Historically, what we've seen is policy tends to get restrictive 12, you know, it's called 15, 18 months out of recession. Then the corporate profits break down durably below trend around a year ahead of a recession. Then liquidity breaks down about three quarters out of a recession. Then growth breaks down simultaneously with stocks around two quarters out of recession. Employment breaks down durably below trend right around when the recession starts, which makes sense. That's what the ABR is looking at. Credit breaks down, breaks down or decreases.

The link was these in charge of us break out. This is the charts Delta adjusted. They break down durably below trend, say a quarter after recession. And then again, inflation being the most lagging indicator, the business cycle breaks down durably below trend 12 to 15 months after recession. And so when you look at the chart on the right, you see, OK, we don't have the leading indicators of these cycles breaking down in that cascading fashion that we historically have seen. So we should not anticipate a recession as a high probability outcome over medium term time horizon.

And that takes me back to where we started with inflation. If we don't have an inflation over medium term timer Heisen, then we should not expect, if you go to slide 66, headline CBI to break down durably below trend without a recession. On slide 67, we should not expect core CBI to break down durably below trend without a recession. On slide 68, we should not expect PC inflation to break down durably below trend without a recession. On slide 69, you should not expect underlying inflation

inflation to break down durably below trend without a recession. And that's exactly what you're seeing in each of these time series. It's looking like we're bottoming at the prior trends and starting to meander sideways and or take up higher in a lot of these indicators. And in my opinion, that's, you know, that's that's supportive of our long return thesis on inflation.

So just to be clear, you're not saying that you're expecting a recession because that's the predicate in order for those things to happen. You're saying because you don't expect a recession, you don't think those things are likely to happen.

Correct. Yeah, we do not expect a recession. I recall that we authored the resilient U.S. economy theme back in the summer of 2022 when everyone was concerned about a recession. We maintain that theme. We now see growth slowing, but it's not it's unlikely to slow to a level that would even get anyone concerned about a recession. I mean, we could talk about growth, but I think our views on growth are pretty aligned with consensus.

Certainly, if you look at our forecast, I don't think we have we're too divergent there. A lot of what happened, a lot of what's happened since the summer of 2022 is consensus and both Wall Street and investor consensus having to catch up to where we were on the economy side of things. Now that they have caught up to where we were, I don't think that's much of a market risk.

from here, where we see market risk is really on the inflation side. And I got, you know, five reasons why we think inflation is likely to prove sticky here when we look into, you know, the balance of 2025. So on slide 70, number one, the housing market is structurally tight and

And so investors have to be careful not to straight line the improvement in housing PC inflation. Like if you look at the household formation to existing home inventory ratio, that's currently 1.3. It's essentially a double where it trended at prior to COVID in the 2015 and 2019 trends. So we have this really structurally tight housing market on a structurally low level of turnover, as you can see there in the bottom panel on that chart on slide 70. So in our opinion, the housing supply shortage has not been fixed.

And so as a function of that, a lot of the disinflation we've seen in the housing and shelter CPI type statistics, in my opinion, is really just a lag of some of the tightness coming out of the market. But we're likely to stabilize at a much tighter level that causes inflation to stabilize at a much higher level by the time it's all said and done. We'll kind of look backwards on 2025. On number two, the Fed is on slide 71.

The Fed has done a poor job of reining in liquidity since the regional banking crisis, but maybe that was the plan all along. So if you just look at the Fed balance sheet contracting, the Fed's balance sheet has not, you know, drained liquidity from a money supply perspective. In fact, money supply kind of bottomed during the regional banking crisis when the Fed started, you know, implementing its alphabet soup of liquidity provision instruments, facilities, and

And then the treasury started to, you know, concentrate issuance on the short end of the curve to start to, you know, free up some of that trap liquidity in the Fed's reverse repo facility. Almost two plus trillion dollars have come out of the reverse repo facility since then. And so, you know, we've seen liquidity broadly, you know, actually start to trend higher again, despite the Fed, quote unquote, shrinking its balance sheet with, quote

quote unquote quantitative tightening, but we know they're not actually selling bonds to the market. Number three, on slide 72, domestic credit growth is now trending higher and global credit growth is on the precipice of an uptrend.

You know, we got the January senior loan officer survey data the other week, and that was consistent with, you know, a positive trend in credit growth here in the United States. You know, we continue to see, you know, percentage respondents, you know, tightening policy ease at the margins. We're seeing more demand for loans. So things like that continue to give a signal that, you know, the kind of the credit machine here in the United States is alive and well. And then I would say that the fourth thing

to me, is one of the most important dynamics that I don't see or hear enough people talking about because it's hard to quantify. But it's important for us to at least attempt to quantify, which is what happens when we turn off the positive labor supply shot? So on slide 73,

You know, we had millions of illegal migrants into the country. I want to say if you look at the duration of Biden's presidency on a 48 month basis, we grew the labor supply by 11 million bodies, which is essentially an all time to all time high nominal rate over a 48 month time frame.

So there was a lot of, you know, sort of low cost labor supply entering into our labor market, which had the impact of deflating wage growth pretty substantially. If you look at slide 74, where we show the private sector employment cost index, that peaked at about 6% in the middle of 2022, and it decelerated 300 basis points to 2.9%.

And 3Q 2023. Now that we've sort of been a quarter or two since Biden kind of tightened the screws in the border, obviously Trump took it a step further with his executive orders last month. Now that we're sort of on the other side of all that, we're now starting to see private sector employment costs and unit labor costs reaccelerate.

We're now at 3.4% quarter over quarter SAR in terms of private sector employment costs, unit labor costs backed up from basically 1% to, you know, 3% currently. And so unless you have a big boom in productivity growth, which it's hard to forecast, you know, I'm not smart enough to forecast. I don't think anybody's smart enough to forecast productivity growth to be

quite honest. But unless you have a big boom in productivity growth, the tightening of the labor market from a lack of incremental supply is going to cause wage growth to stabilize at a much higher level than the prior trend, which ultimately is likely to cause inflation to stabilize at a much higher level

than the prior trend. And this is, you can kind of see this on slide 75 when you think about translate this to companies. So in the chart on slide 75, we show the corporate profitability model, which is nominal GDP, the growth rate of nominal GDP minus the spread between unit labor costs, inflation and productivity growth.

And as you can see, that metric tracks the corporate profits like a glove and has since the late 1940s. And so what we find is that now that unit labor cost inflation is starting to accelerate and we have top line growth slowing because nominal GDP growth is slowing. You now have more pressure on corporate margins than you had, let's say, last year when inflation was persistently decelerating and companies didn't feel the need or the urge to pass on prices. So now that dynamic's reversed. So

You have companies that are going to just feel more confident or more out of necessity to protect margins. They're going to start to feel pressure to raise prices. And then finally, slide 76, where we show leading indicators are supporting our hawkish next 12 month outlook for inflation.

If you look at core PPI, which a lot of the core PPI indicators find their way into the core PCE, but ultimately core PCE is lagged as is core CPI because of the shelter components. The blue line bottomed at a level that is wildly inconsistent with 2% inflation in this particular cycle. And by the way, the blue line was leading the deceleration in the red and black lines by, you know, a year and a half.

And it's been accelerating in an uptrend for about a year plus now. And so it's our belief that the red line and the black line in this chart, which are, again, core CPI and core PC deflator, are going to bottom at levels that are wildly inconsistent with 2% inflation and start to either meander sideways or trend higher over the medium term. So in our opinion, there's five reasons, fundamental standpoint, from a first principle standpoint, why inflation is likely to firm up at a level that is inconsistent with the Fed's, you know, in my opinion, at this point, ridiculous 2% inflation target.

And if they don't do anything about that inflation target or, you know, just allow themselves more time to get to 2% inflation, which is the choice they've made thus far, we're going to have problems in asset markets because it ultimately means that they're not going to be able to, you know, use their balance sheet to perform the necessary monetary debasement and financial oppression that is required by the central, by the monetary authority in a fiscally dominant regime, which fourth turning calls for.

Okay, so your call has been for sticky inflation. The word sticky just means it's not going away, but it doesn't imply anything about whether it's getting a lot bigger from here. So is your call that inflation is just going to stabilize around the current level, or do you think that it's just bottoming and about to trend significantly higher? And if so, how much higher is significantly higher?

Yeah, great question. So on slide 78, where we show the key takeaway from this kind of aspect of our sticky inflation theme, we have our forecast for core PC inflation down there in the bottom right of the chart. So the black line is the realized data. The blue line is our forecast and the red line are the Bloomberg consensus forecast, which are Wall Street economists consensus. And as you can see, we have core PC inflation bottoming in January 2.6 percent, trend

trending sideways roughly at 2.7% for February through April, climbing to 2.8% in May, and then climbing to 2.9% in June, and then climbing to 3% in August and kind of meandering higher from there. So we're not calling for a substantial reacceleration in inflation. We're just calling for inflation to bottom in Q1 and start to move in the wrong direction throughout the balance of 2025 as those five factors really start to culminate and push inflation pressure higher

in the system. And one thing I will say on this on this own type of topic of inflation, to me, what I think is kind of missing from the, you know, when we listen and one of the things I love about, you know, programs like Macro Voices and you are among the first in the world to, you know, kind of put us onto this, Eric, which is the quality of discussion that's being had away from mainstream financial media is

is significantly higher at this point because you have guys like myself coming on and talking and unpacking slide decks for 30, 45 minutes, as opposed to these, you know, one or two minute sound bites of this and that. And you can't get to, you know, unpacking slide 77 like we're about to where we show our secular inflation model. And so this this is what I think is missing from the mainstream narrative around inflation. And it's obviously missing from the Fed's narrative because they very clearly don't agree with this, which is

Our model suggests the equilibrium rate of core PC inflation is in the high twos and low threes. And it has ever since we built the model in January of 2022. You know, there's been some variants throughout the way. We refresh this model every time we get an important data point for our clients, but

You know, on the low end of the variance has been about, you know, kind of two, six, two, seven. On the high end of the variance is somewhere around three, two or three, three. And so for three years, our model has consistently said, when you're looking at, you know, roughly 20 indicators that have all been proven by academic research to be co-integrated or correlated with inflation, they're all suggesting that there is a significantly higher level of inflation pressure in the U.S. economy. And by the way, the equilibrium level core piece of inflation in the prior cycle was around 1.6 percent. So we're talking high twos, low threes. It's almost a double.

When you look at some of the factors that our model is both weighted and unweighted, they kind of arrive at the same conclusion. When you look at the factors that are weighted, you know, deglobalization is contributing a modest amount of inflationary pressure. Demographics is contributing a modest amount of disinflationary pressure. Fiscal policy is contributing a modest amount of inflationary pressure. Housing supplies is contributing a meaningful amount of disinflationary or of inflationary pressure rather.

productivity is contributing a modest amount of disinflationary pressure. Technology is contributing a meaningful amount of disinflationary pressure, but on the offsetting that are wages.

which are contributing a meaningful amount of inflationary pressure, rather. And then our what we call our West Village Montauk effect, which is just the supply of, you know, spendable cash that's on household sector balance sheets is at this record high, both in nominal and as a share of total assets. And that's contributing a, you know, just a gargantuan amount of inflationary pressure. I mean, you know, if you think about simplistically boiling down inflation to too much money chasing too few goods and services, you know, there's a lot more money in the economy that can be spent on goods and services than

relative to the starting point prior to the pandemic. So in our opinion, until the Fed acknowledges that, you know, we are living in a

two and a half to 3% trend core PCE type world, perhaps even maybe a touch higher. Jim was saying is somewhere between three or four. Our model saying it's high twos, low threes. Until the Fed acknowledges that, they're not going to be able to meaningfully expand their balance sheet in ways that I think will, you know, ultimately, you know, kind of extend the business cycle and ultimately appease the treasury market and keep the financial stability concerns from creeping back into the treasury market like what we saw back in the regional banking crisis.

Darius, one more inflation question before we move on. It seems to me, given your outlook, one of three scenarios has to play out. Let's start with scenario two. That's the one where the Fed says, OK, we got to get to 2%. We're going to do whatever it takes. We're going to change policy in order to get there because what we're doing isn't working. What would they do and what would the consequence of that be for markets?

Well, look, I mean, that's going to be that's the scenario where we talk, put radios back on the table. Right. Right now, if you look at slide 45, where we show the Fed's dot plot relative to market based estimates of the Fed funds rate and over various time horizons, we see that, you know, the Fed, the median FOMC member thinks the neutral rate is 3%.

And there are 150 basis points currently above neutral with a bias to ease. That would be very wrong in a scenario where the Fed ultimately decides it has to do more because that's a two-step process where they have to revise up their longer run estimate of the neutral rate to something that's a lot closer to where we currently are and then potentially think about making policy more restrictive.

And so that two step process, in our opinion, is to potentially cause some serious problems in the bond market and broader asset markets, because what you're going to do in that process is ultimately increase the risk of the increase, the probability of a hard landing and also cause more pain in the fixed income markets. And the fixed income volatility would be a negative for liquidity.

Okay, and scenario number three is the one where the Fed capitulates and says, okay, we didn't really mean 2%. It's actually 3.5%. That's our new target. What would that mean for markets?

Oh boy, that's so bullshit. And again, that is our long-term expectation. You know, we've been of the view that ever since we performed our investing during a four-turning regime analysis in the summer of 2023, again, one of the key conclusions is that the monetary authority will be dragged along for the ride, whether they kick and scream it or not, to capitalize Uncle Sam and this throughout the duration of this four-turning regime. In fact, if you go to slide 127, where we show VCF,

various cohorts of the marketable treasury market from an investor standpoint. We see that, you know, the Fed has been reducing its share or, you know, the Fed has been, you know, allowing treasuries to roll off its balance sheet

And so as a function of that, it's been reducing its share. Now it's about 15% of the marketable treasury market. Commercial banks, you know, up until, you know, essentially up until late Q23, they've been losing shares as well. They kind of stabilized at around 15%. Foreign central banks, which are the black line, they've been shrinking their share of the marketable treasury market significantly since 2013.

peaking out in middle of 2008. They peaked out around 40%. Now they're about 14% currently. And so offsetting that is us, the private sector, you know, various investor cohorts, agents, we're all kind of lumped together one bucket here. You know, we've grown our share of the marketable treasury market from 36% to 56%.

And so ultimately what, you know, what's happened in the last few years, particularly from 2020 through 2022 to the highs and yields that we saw in the summer of 2023 was the market repricing because ultimately we were replacing a lot of these economically insensitive buyers, you know, people who are buying for either policy purposes or for regulatory purposes like Basel III, Dodd-Frank, et cetera. We were placing those price insensitive buyers with price sensitive buyers, investors that want

ex-ante units of return for taking risk in their portfolios. And as a function of that, we've seen a significant repricing of yields, et cetera, in the treasury market. And so it's our view that if the Fed comes around to where we've been since January of 2022, which is

You got to get that inflation target higher. If they get that inflation target higher, it's going to allow them to alleviate that pressure that we see on the treasury market from the pink line in this chart of 127 going higher, which is which is us, the private sector now owning by far the lion's share of marketable treasury securities at 56 percent of the total. And one final thing I'll say is that, you know, we can, you know, on site 128, you know, investors should expect incremental financial repression because commercial banks have ample capacity to lend to the treasury market.

Right. On one side, you're going to have incremental monetary debasement because the Fed

in our opinion, where we think this is headed, it might not be headed there 2025, but ultimately the Fed will capitulate to our view that, you know, the equilibrium core PC inflation rate is much higher in this business cycle. And they're going to have to just acknowledge that and move on quite frankly from this ridiculous 2% target that's quite frankly made up. And so if you think about the Fed being able to flex its muscle in terms of on the regulatory side, you know, you go back to the last four turning, if you look at this panel, the panel three on slide 128, the last four turning,

commercial banks owned about 50% of commercial bank assets were in treasury securities. Right now it's only about 19%. So there's a lot more upside there from the Fed in terms of the Fed's balance sheet and in terms of how the Fed and other governmental agencies can regulate commercial banks into the treasury market to take some pressure off of us investors. Because ultimately they need to take pressure off of us investors, Eric. One final try to show you on this topic, which is slide 102.

where we show term premia in the top panel there at about 33 basis points wide, well shy of the long run mean of about 150 basis points. I mean, when you subtract the deviation from the long run mean of term premia from the current level of the treasury yield to just see, you know, what a normalized treasury yield would be if you had a quote unquote normal level of term premia, you're talking about a treasury yield today that has a fair value of 5.68% on the 10-year.

Right. Five point six eight percent on the 10 year up from four point five four percent right now. You know that if you if you have that and didn't have any change to real interest rates, you're talking about, you know, inflation break even price of about three point six percent as opposed to the current two point four six percent. In our opinion, this is that's what the bond market should look like as a function of the structural shift in, you know, the investor, you know, the investor participation in the bond market in terms of that changing structure.

the changing ratios in terms of, uh, who owns what on the treasury bond market, we should have a much higher level of term premium. Uh, there's a variety of reasons why term premium should be wider right now, but among them is the fact that we have higher inflation, higher inflation, volatility, positive excess inflation relative to the Fed's target, which means ultimately they're unable to gobble up as many bonds as they were able to in the prior, uh,

a cycle, you know, there's a lot of reasons why we should have a quote unquote normal level of term premium. I can make the case from just a statistical standpoint that we could, we should probably have a slightly higher than normal level of term premium. So in our opinion, the bond market is mispriced and the only entity in the world with a balance sheet big enough to undo that mispricing or to make that pricing process, you know, kind of go smoothly to get it back to a normal level of price is the Fed and how they influence commercial banks with regulations.

Let's go all the way back to page seven in the deck where you summarize your fundamental research outlook views. We've talked about the first three of them, either in this interview or in previous interviews, but you've got a new one that you added in November of 24. I think that was after our last interview. You call the triple S's. What does triple S stand for and what's the outlook? Yeah, great question, Eric. So triple S's is really an acknowledgement that, you know, from the starting point of

very asymmetric bullish positioning. When you look at some of the structural bullish positioning indicators in our positioning model, we have this sort of crowded asymmetric bullish positioning, but we also have a lot of change coming down the pike. And those two things historically have been incongruent. Historically, whenever you've had a lot of that crowded bullish positioning was built for a reason. And so anytime you interject a lot of change from a fiscal regulatory trade policy perspective, the risk is that that positioning unwinds. And so

what our SSS theme aims to sort of unpack is the ways in which that crowded bullish positioning can unwind. And so on one side, if you think about President Trump's economic agenda, there's sort of five main cohorts

a tenets of that agenda. On the negative side, that may result in a negative supply shock in the economy and asset markets. You have, you know, the tariff policy and then you have securing the border, which we've alluded, briefly alluded to. On the positive side, you have, you know, tax cuts, deregulation and the Doge budget cuts, you know, which had contributed to a positive supply shock

in the economy, particularly from a perspective of capital. And so those things are positive at the margin. And so, you know, when you think about kind of how does it all net out, one, I don't think we know, I don't think anybody in the administration understands how it's all going to net out because Congress is going to play a significant factor in determining all that. But ultimately, how it all nets out could potentially cause some problems for asset markets, not to mention the sequence of it all as well. You could get the negative stuff first. In fact, we

We have already gotten a lot of the negative stuff first, right? We've gotten the tariff headlines. President Trump was floating another tariff headline this afternoon on autos and pharmaceutical imports and semiconductors. You know, so we're getting a lot of the negativity first front loaded and ultimately the positive stuff. We think about tax cuts, deregulation and Doge budget cuts.

that stuff could come, you know, quite late in the process, which could, you know, potentially create like an air pocket in asset markets until we ultimately get kind of get to President Trump saves us, saves the market with the elixir of his policy. So that's sort of the key takeaway for the theme. There's a few aspects of the theme that I think are worthy of discussing that we kind of gotten critical updates on recently. So on one side, I will start by saying the reciprocal trade policy or reciprocal tariff policy, in our opinion, reduces the risk that we get

a too strong U.S. dollar as a function of those tariffs. Historically speaking, what we've seen and what we've observed just from academic studies is that countries that get tariffs levied upon them tend to offset tariffs to a significant degree in the currency market.

particularly China. If you go back and you look at the last couple of trade spats we had with China, we see the Chinese yuan devalued by, let's call it 12 to 15% in those two instances. And what we've seen historically is that we've seen a lot of sympathy devaluation in major currencies to match the incremental competitiveness that's gained from yuan devaluation. And so ultimately you wind up with this US dollar that gets way too strong and a dollar that gets way too strong as a direct headwind for global liquidity, as we show on slide 80.

On slide 80, we see the year-over-year rate of change of our global liquidity proxy, which is the aggregated sum of the 10 major economy central banks, their broad money supply from their economies, and then their fiat FX reserves. And then we show that on a year-over-year rate of change basis in the black line. The green line in the chart on the left is the U.S. dollar's real effective exchange rate on a year-over-year rate of change basis.

As you can see, very inversely correlated to liquidity. The green line in the chart on the right is the currency volatility, which is also inversely correlated to liquidity. Historically speaking, the dollar has been highly correlated with currency volatility. So that's one dynamic that could be an issue. And the reason that's an issue is because on slide 79, we know global liquidity is a key driver of asset markets. So on the chart on the right, these charts show that the black lines in the charts on 79 are the same black lines in the chart on 79.

On slide 80, it's the year-over-year rate of change of our global liquidity proxy. And the blue line in the chart on the left is the year-over-year rate of change of the global equity market capitalization. And then the Bitcoin orange line on the chart on the right is the Bitcoin price on a year-over-year rate of change basis. And as you can see, our global liquidity proxy is incredibly correlated with, you know, the rate of change of asset markets.

incredibly, very, very tight correlations over, you know, a decade plus. And so, you know, in our opinion, if we got a dollar that just got too strong as a function of tariffs, that would be a big issue. But in our opinion, the reciprocal tariff strategy, to the extent he can stick to it, I'm not sure he can, but if he sticks to it, yeah, I think that would reduce a little bit of pressure from the system.

Another thing that could reduce a little bit of pressure from the system in terms of the sequence of it all is the fact that Treasury Secretary Scott Besson, who I've known for many years, is a longtime client, you know, very bright man is going to do some great things for our country. One of the he's already made a very smart choice in terms of keeping issuance on the quarterly refunding side pretty stable. You know, recall that he was hypercritical of outgoing Treasury Secretary Janet Yellen's net financing policy in terms of concentrating issuance.

on the bill in the bill market, which I believe she did for two reasons. One, to kind of make sure the regional banking crisis then turned to a global financial crisis. And two, to free up a lot of that excess liquidity that was trapped on the Fed's balance sheet in the form of the super market. Right. But that money was there because it was looking for short duration instruments and there were not enough of them. And so ultimately, you know, the young satisfied that demand, that market demand for short duration instruments.

And it was kind of a win-win for both the economy and asset markets. And so Treasurer Scott Baxter, now that he's in the seat, I think he recognizes what I just said and has ultimately decided to at least for now, or at least quote unquote for the next several quarters,

stick with that policy. A couple of things I would say on this, with respect to the SSS process, is that for now, things should be pretty good in terms of the Treasury's net impact on liquidity and asset markets. Right now, you have over $800 billion of money in the Treasury general account balance that's likely to get spent into the economy. I would say upwards of $500 billion of that is likely to get spent into the economy and asset markets over the next, let's call it three to five months.

just depending on how long it takes them to get the debt limbing lifted and or punted in terms of the reconciliation process. If they go with a one bill solution, it's going to take longer than a two bill solution. But it seems like the House is full speed ahead on a one bill solution. So that's great for asset markets because ultimately it means we're going to get more TGA spend down, not less. And right now, the Treasury is not, you know, really even a factor. If you think about the fact that we've already hit the debt limit, you know, they were trying to take

They were going to issue $816 billion of net new borrowing here in Q1. That's $816 billion. That's not going to capitalize the U.S. government now. It can either stay where it was in asset markets or go capitalize, you know, go further out on the risk spectrum and capitalize risk assets. So those are all positive dynamics that are likely, you know, get worse as we move forward in time. But at least for the next quarter or two, those things are supportive.

On the, I wouldn't say negative side yet, but I do believe it's going to become a negative factor for asset markets when it's all said and done. We've been on this view, we've had this view kind of going back to where we started the conversation, Eric, that U.S. fiscal policy is

on a very unsustainable path. And in our opinion, that's very part and parcel with the fourth turning. If you look at slide 98, where we show the trailing five-year moving average of U.S. nominal GDP, that's the blue line, the top panel, it's at 6.4% currently. The trailing five-year average of the sovereign, the budget deficit GDP ratio is 8.6%. And so, you know, if you see, you know, basically once we went into the fourth turning with the GFC, since then, we've largely been tracking at a positive spread

in terms of our trailing five-year budget deficit GDP ratio relative to our trailing five-year nominal GDP. So we are accumulating debt at a very, very unsustainably fast rate. And again, this is very consistent with how

the economy asset where the economy has evolved, fiscal policy has evolved in historical forth turning episodes. Again, citing that study that we highlighted at the beginning of this discussion with data going all the way back to 1800. So any of those, if someone wants to kind of get their hands on that study, just sign up and buy the presentation. It's not very expensive. But, you know, the thing I would say on this is that I think there's a big risk

that the Doge process disappoints asset markets. Right now, it's a positive for asset markets because right now we have this kind of un-

You know, we don't really know how much the bite of the how big of a bite of the apple they're going to they're going to take as it relates to potential deficit reduction in this process. In our opinion, Doge is likely to be very disappointing with respect to deficit reduction because ultimately there's a couple of things that are that are causing that. One is political. They've ring fenced very large categories from the Doge process. When you think about Medicare, national defense.

Social Security and obviously net interest, they're kind of powerless to do anything about. And then you're also layering on the extension and expansion of the Trump tax cuts.

So even though we're on record saying that Doge is likely to achieve somewhere between 500 billion and a trillion dollars in cuts just as a function of their that process, it's unlikely to have to have a real significant impact on the deficit. When you factor in the reduction relative to the baseline of current law, the reduction in revenues and ultimately the fact that we're ring fencing and on the ring fencing. And I'll shut up after this, but I got to make this point.

When you ring fence two thirds of the federal budget from the DOGE process, you're going to wind up with a result that is disappointing, right? If you think about those four categories, again, Medicare, national defense, net interest and social security, Eric, those categories are roughly about $5 trillion on a calendar annualized year to date basis. Again, we have one month of data, but

In terms of 2025, but it's about five trillion dollars, two thirds of the federal budget, 14 percent of nominal GDP. And those five, those four categories on an aggregate basis have compounded at plus 15 percent on a trailing three year category basis. Again, these categories, this is two thirds of the federal budget compounding at plus 15 percent.

on a trailing three-year CAGR basis. And we know it's going to continue to go up. Medicare and Social Security are going to continue to rise. If you look at the chart on the right, slide 100, the U.S.'s old age dependency ratio is going to go from, let's call it 85% to 110% over the next decade or so. I'm sorry, from 95% to 115% over the next decade or so. So we know Medicare and Social Security are going to continue to go up.

We know net interest has to go up. You know, we're talking about refinancing around $9.5 trillion just over the next 12 months into a higher interest rate regime. That'll cost us about $125, $130 billion of additional net interest expense. And then national defense, they've already outlined that they want to raise that by $200 to $300 billion. So again, two thirds of the fiscal, the federal deficit, two thirds of the federal budget are compounding it on a trailing three or Kager basis of plus 15%. And that number may actually go up.

So Doge is going to have to take a gigantic chainsaw to everything else. In my opinion, I don't think it's politically palatable for them to do that because you're talking about pissing off a lot of lawmakers down in D.C., even on the Republican side, especially in the Senate. So in our opinion, I think when we get to this process, when it's all said and done, there is upside risk to bond yields as a function of a perceived significant widening of the deficit relative to current expectations.

that they're going to at least try to get our fiscal house in order. Let's talk a little bit more about the left and right tail risks that I think are presented by uncertainty risk in the outcome of this doge process. Because the way I see it, it's very clear that President Trump and Elon Musk are reaching for really big headlines. They're in a PR war with their political opponents where they're saying, look,

millions of people in the social security system who are over 140 years old and supposedly eligible for benefits. You know, this is massive corruption. It has to be fixed. And they've got a number of other things that they're pushing, massive fraud in the USAID system and other NGOs and so forth. I could see this going one direction, which is those exposés on

major government corruption and misuse of taxpayer money leads to huge populist support and the doge thing really takes on a life of its own and gets bigger. I could also see President Trump's

political opponents being successful in the judicial system and potentially the Supreme Court just says, OK, we're slamming the gavel down. Elon is not a legitimate elected official. He has no authority to do any of this. We're shutting Doge down by order of the Supreme Court. You know, no more.

Take those two extreme outcomes of either Doge gets much bigger from here or Doge gets shut down. What are the market implications? Because I think either of those outcomes is possible. Yeah, great question. And I think the probability that Doge gets more popular from here is greater than the probability that it gets less popular. Again, I feel like I took a lot of heat back in December when we first made the call that, hey, they're not going to get anywhere near $2 trillion of expenditure reduction.

Here's all the reasons why, you know, you got a very horny contingent of Elon Musk fanboys on Twitter. So took some heat on that, but it looks like we're going to be right on that. But ultimately, you know, I do want to make the point that Doge is a very necessary process to prevent the risk of a U.S. fiscal crisis in this four turning and the potential loss of, you know, our exorbitant privilege.

which in my opinion, I think would very much lead to World War III because we're not going to lay down and give that up. No country has ever laid down and gave up exorbitant privilege. So in our opinion, I think it's a very necessary process. I applaud Elon for what he's trying to do. But ultimately, this is a more of a political process statement. Our analysis is political. We understand that you're not going to be able to cut the remaining third of the federal budget by 30 plus percent in order to just stabilize the growth rate of expenditures, which is what needs to happen. You know,

You know, that's not going to be it. No one in Congress is going to allow that to happen. So we're going to cut around the margins and perhaps, you know, pretty meaningfully. But again, it's not going to result in a significant deficit reduction.

Because, again, not only are you not not only cutting less than the growth rate of the main categories that are causing the budget deficit, you're also allowing for the extension and expansion of Trump tax cuts to, you know, to reduce revenues relative to the baseline of current law, which adds additional deficits from the perspective of Treasury bond market supply. They're going to try to use this process where.

They can benchmark the reconciliation program or process to current policy as opposed to current law. The current law has the Trump tax cuts expiring at the end of this year. Current policy obviously does not. So the headline figure in terms of the deficit impact would be lower, but the incremental Treasury supply will be the same. And so that's the risk is that the bond market is smart enough not to fall for that accounting gimmickry. On the other side, Eric, you were saying that the Democrats or the Trump's political opponents would

make enough stink in the courts to cause the Doge process to disappear. I mean, I think that's kind of, I don't think that's where we're headed. I don't think that, you know, Doge is going to get pushed back enough in court to kind of, you know, to cause Elon to get out of DC and go back and do what he was doing prior. But I ultimately do think that, again, they're not going to be able to cut enough

of the rest of the federal budget to really achieve significant deficit reduction in the context of extending and expanding the Trump tax cuts. And in the context of our friend, Luke Roman's, you know, sort of a net true expense metric compounding at plus 15% per year. So I think the probability of the court situation is lower than the probability that this gets very popular, but either outcome is in my opinion, I think the highest probability outcome is that Doge cuts 500 billion to a trillion dollars out of the deficit or out of the federal expenditures.

replace that with more revenue reduction. And ultimately, you know, the categories that Doge really isn't able to take a big chainsaw to continue to compound at double digit rates. Well, Darius, I can't thank you enough for another terrific interview. Before we let you go, tell us a little more about what you do at 42 Macro, what services are on offer, how people can find out more and follow your work.

Yeah, I appreciate you, Eric. Always a pleasure to be here. Our ethos at 42 Macro is narrowing the information asymmetry between our institutional investor clients. We have many across global Wall Street and our retail investor clients. So we build solutions to help them both stay on the right side of market risk, as we talked about earlier at the beginning of this presentation.

On slide 11, slide 10 and 11, where we show our case portfolio construction process, you know, that's the solution that we built for retail investors to stay on the right side of market risk. We have thousands of very happy retail investor clients that have participated in these raging bull markets over the past couple of years, in part because of this system. And also, they've had the confidence to participate in the system because

of our bullish fundamental views. And then on slide 12, where we show our discretionary risk management overlay, aka Dr. Mo, our institutional clients and our sophisticated retail trader clients use this as a market timing and position sizing guide for their factor long short bets. And so I would say again, as I said at the beginning of this talk,

The most important thing that we do that we are among the world's best at is now casting the market regime and sending out very timely signals for when the market regime changes from risk on to risk off, from risk on with the inflationary bias to risk on with the disinflationary bias, to risk off with an inflationary bias or to risk on with an inflationary bias. Amen.

And then that's when this model here, this Dr. Mo table will start to change its proper trade recommendations for the various factors that, you know, any institutional investor or

retail trader could be long or short at any given time. And so what we're ultimately trying to do is make sure our clients are constantly compounding returns and staying on the right side of market risk, as opposed to what I think a lot of other investors are doing. What I used to do, which, you know, worked for a while, but I certainly don't think it's working for most people in this post-COVID environment, which is predict something and put on a position and hope that the prediction comes true.

There's a better way to invest. You can actually just now cast what's happening in the markets and participate in what's happening in the markets with systems like our KISS portfolio construction process and our discretionary risk management overlay, okay, Dr. Mo. So if folks want to stay on the right side of market risk, irrespective of what we think about growth, inflation, policy, liquidity, of which

check my track record on this program. I think we have some of the best views on that stuff as anyone, but that in my opinion, I don't think that's relevant for investing. I think what's relevant for investing is making sure that you're responding to the market and ultimately participating with the market's trying to price it. So come check us out at 42 Macro if that's a, if that sounds good to you. Patrick Ceresna and I will be back as Macro Voices continues right here at macrovoices.com. Now back to your hosts, Eric Townsend and Patrick Ceresna.

Eric, it was great to have Darius back on the show. Now let's get to that chart deck. Listeners, you're going to find the download link for the postgame chart deck in your Research Roundup email. If you don't have a Research Roundup email, that means you have not yet registered at MacroVoices.com. Just go to our homepage, MacroVoices.com, and

click on the red button over Darius's picture saying looking for the downloads. Okay, Eric, what are your thoughts on equity markets here? Well, once again, we're flirting with all time highs. And I think it's just more confirmation that Trump's policies are gaining traction and popularity with the American people, despite the media's constitutional crisis tantrums, which as far as I can tell, the public is finally starting to wake up to for the nonsense that they truly are.

Okay, Eric, well, on page two, I have the chart of the S&P 500, and we can see it's trading along 52-week highs. The big question, does it break out? I think there's lots of room for it to break out. The bigger question is, is it a sustainable breakout? And in my mind, there are only two things that can happen that is going to make the breakout sustainable. Otherwise, it will be a fakeout breakout that maybe we...

have a quick punch to 62 to 6300 on the upside and immediately it fades all the way back down. So one of the first things is that it would need to have a widening of market breadth. On page three, I have just a percentage of stocks trading above their 50 day moving average in the S&P 500.

And we've been pinned in this 50 to 60% range for a month now. Basically, when you look at something like the equal weight S&P 500, it is nowhere near its high the way the S&P 500 itself is.

And so we would need a broadening of the market in order for this to have a sustainable move where we'd go into 80, 85% of the stock market participating. And that broadening of the market sees a sustainable bull advance that could see, let's say, 64, 6,600. The alternative to the widening of the breadth, on page four, I have the Magnificent 7 ETF, which is talking about the MAG stocks.

And they simply have been huge laggards over the last two months. They simply have not broken out, not had any momentum, and many of them are rolling over. And so if you don't have a broadening of the whole market, then you need the Mag7s to regain their leadership.

And if one of these two doesn't happen, then you can't trust an S&P breakout. And in my mind, the S&P will potentially hear the spark out a quick breakout that gets the attention of the media and

But if we don't see the underpinning conditions confirming that, then I would be fading that breakout. If we did see that fade happen where it wasn't confirmed, what would be the first warning signs? Well, if a breakout fades and gets down to like the 6,000 level on the S&P and a quick 5% market correction,

If we see that kind of damage done, then I would be start to speculate that the first quarter high is not only in, but then that there actually is room for a bigger or deeper market correction. Now, before we talk market correction, I want to first see that the bulls fail to hold these gains. And so right now we're going to give the bulls the benefit of the doubt. They just need to prove that this thing is real. If we don't see that, then, uh,

I will quickly flip to the short side. Okay, let's move on to the dollar here. Eric, what's your thoughts? The prior consolidation range was 107 to 110. We saw a multi-day breakdown below that range this week, but we just closed over 107 on Wednesday. So the question now is whether we re-enter the consolidation zone and stay above 107 or if the sell-off is going to continue below 106.5, which is the low we put in just a couple of days ago.

Patrick, I'm leaning toward a continued sell-off on continued speculation about the Mar-a-Lago Accord thesis, which Jim Bianco described in last week's Macro Voices and which Zero Hedge has since picked up and begun reporting on. Actually, they're reporting on the gold revaluation hypothesis. They haven't quite got to the Zoltenbonds yet, but I'm sure they'll get that story too.

From a technical analysis perspective, it's still early to call a new downtrend in the dollar, but I have a feeling that's where we're headed. Well, Eric, there are an increasingly large amount of people starting to talk about the idea that the U.S. dollar top could be in based on the fact that the administration wants a weaker dollar. I'm not so sure I'm ready to flip to that camp yet.

As far as I'm concerned, we had an extraordinary bull run on the upside of the dollar. And that's seen on that chart. And we broke out of that two-year trade range bullishly on the upside. And we're now approaching what were the previous highs where they potentially can act as support. With the Fibber Tracement Zones down here, I think a dollar could easily still consolidate one or two more points down to this 105 to 107 range.

and still turn around and be bullish. And so to me, I want to first see whether supports come in here and whether bulls can sustain a rally on the other side. If we see that the dollar rallies start getting heavy, fail to follow through and start rolling over, I'll start entertaining a more bearish thesis then. But right now I'm giving the bulls the benefit of the doubt that they're going to hold the line somewhere in here and we're going to see a meaningful rally back up towards the highs.

All right, Eric, let's move on to crude oil. Well, we saw a brief test of that critical 100-day moving average at 70.11 on WTI, which I emphasized in last week's podcast. That was followed by a nice bounce all the way up to the 200-day moving average at 72.66.

And now we're retracing back to the downside. It's not clear how far we're going to go. But keep in mind, the entire Arab world is in shock over President Trump's messaging about annexing Gaza. So there's definitely room for an upside price spike induced by geopolitics if the ceasefire doesn't hold.

Well, Eric, I'm in the camp where I do believe that the low end of crude oil has been established and we have now gravitated toward the bottom end of that range. Is there a few more dollars downside risk to oil that could potentially materialize? Sure.

But generally, I think that we're at a level where there is still asymmetry, where I don't think that there's a room for a big breakdown in oil. And ultimately, just some new catalyst has to be introduced that potentially could start up a move towards the top end of its range. Now, I'm not super bullish oil where I think, you know, in the next year or two, we're going to see 100 or 120 on the upside. But

could we see us gravitate back into the mid 80s to the top end of the range we've seen over the last couple years? I think that's entirely plausible. So while we haven't seen a bull breakout here that is really showing the next move, I do think that we are at very key support lines that are likely to hold. Now let's talk gold.

Well, as I explained last week, the technical setup was ripe for the market to roll over and it was a good setup for maybe a multi-hundred dollar correction because we were massively, massively overbought. Well, that's exactly what started to happen on Friday. We painted a massive red candle dumping $80 in a single day. Boy, it sure looked like that market was rolling over and maybe headed several hundred dollars lower.

But I traded emails with Jim Bianco over the weekend, and based on Jim's gold revaluation hypothesis expressed in last week's podcast, Jim and I both agreed that this dip was likely to be bought sooner than later. And that's exactly what happened from the Sunday futures open. Right out of the gate, there was a very, very brief spike down for a new undercut low below Friday's low.

But that didn't last, and from there, the retracement hire was underway within minutes. And by Tuesday afternoon, we were once again flirting with all-time highs. So despite that the technicals still very much suggest that we're still overbought here, maybe not extreme overbought like we were on Thursday, there's...

definitely room for an ongoing correction several hundred dollars lower. But the thing is, all of these dips keep getting bought faster than anyone expects. Bottom line, I'm leaning toward an upside breakout to new all-time highs and above the price channel that began in October 23. I think that's more likely at this point than the technicals would seem to admit.

There are two reasons for my extreme bullishness here. Number one, these dips just keep getting bought faster than makes sense in a normal market, as if there's something more going on behind the scenes in this picture. And number two, the rapidly growing popularity of the gold revaluation hypothesis that you heard about first from Jim Bianco on last week's Macro Voices podcast.

Now, all of that said, even if we did get a $200 downside correction from here, which is still possible, that wouldn't invalidate the uptrend. Channel support is just above $2,700 now, so it would take sustained action below that level to invalidate the uptrend.

Yeah, Eric, that completely all makes sense. We are very overbought on the short term. Some of my upper target zones are in this 3000 to 3050 area on the upside. And at some point here, we are going to bump our head on the upper end of gold and begin some sort of mean reversion and correction.

And like you were suggesting, even a $200 pullback, which is actually quite typical in gold, wouldn't be a break of the primary uptrend. It would simply be a consolidation of the advance and could be the base from which continuation patterns will occur in the second quarter of the year. At this point, it's hard to justify this as a new tactical entry level of gold. But at this point, the trend is prospering.

primarily your friend. We continue to have higher highs sequentially each day. You want to respect this upper trend, recognizing though it feels very eighth, ninth inning of this part of the advance. And at some point, gold will go through a profit-taking cycle of some sort, but that wouldn't be something that would shake me out of the trade. And finally, Eric, let's just touch on uranium. What do you think here of the way that it's behaving?

Well, it's been another week of mostly bullish nuclear news flow and another week of spot uranium and uranium miners plumbing new cycle lows, defying the bullish fundamentals.

The uranium market seems to be puking over President Trump's nuclear disarmament comments when he suggested that both Russia and the United States don't need as many nuclear warheads as they both have. That led to what I think is completely misplaced speculation about maybe a version two of

of the megatons to megawatts program, which dramatically reduced the excess inventory of high enriched uranium that Russia was holding back in the 1990s. Look, it's a completely different situation now. That was at the end of the Cold War that the original megatons to megawatts was negotiated. At that time, Russia and the United States both had

tens of thousands more warheads than they do today. Also, that was not really about disarming and dismantling warheads the way most people think it was. What the megatons to megawatts program was actually about was Russia's agreement between

to sell 500 tons of surplus high enriched uranium. It wasn't that they disassembled 20,000 warheads. It was that they took 20,000 warheads worth of surplus high enriched uranium, about 500 metric tons of high enriched uranium that they had in surplus and sold that to the United States.

Now, if something like that were to happen again, which is frankly unlikely in the first place, if it did happen, then it would be a smaller number. It wouldn't be 500 tons because I think they've got more than that, but they don't have anything close to what they used to. Whatever did happen, it would make exactly zero sense for anyone to even think about down blending it all the way to low enriched uranium.

What we need right now is HALU. That's the high test uranium fuel for the new generation of reactors that are just starting to be built. From an economic standpoint, it makes no sense to down blend all the way down from high enriched uranium to low enriched uranium when it makes so much more sense to stop not quite.

a little more than halfway down that path, at HALU, which is about 19.75% enriched as opposed to 5% enriched, low-enriched uranium. The point is, if there was any kind of megatons to megawatts 2.0, it would be to make HALU. That would go into reactors that haven't even been built yet and that are not part of the equation for evaluating the current market and all of the deficits that people have projected.

In other words, it's just not going to matter.

The bottom line for actual uranium consumption is that we're going to consume as much U-308 as we have capacity to convert and enrich. That's what is throttling U-308 demand right now is limited capacity for enrichment and conversion. If they were to down blend a bunch of HEU in order to make HALU or in order even to make LEU, which doesn't make any sense, it still wouldn't change the fact that we need more HALU.

And therefore, they're going to continue to convert and enrich as much as we have conversion and enrichment capacity for. So it's not going to affect U308 demand, even if it happened. And frankly, I don't think it's going to happen.

But the retail freakout that occurred in reaction to those comments definitely underscores the fragility of this market. On Wednesday, URNM dumped to extreme oversold all the way down to an 18 RSI, while URA dumped to oversold with a 31 RSI, just teetering on extreme oversold there.

Both of those are still pointed down, suggesting even lower numbers may still be to come into next week. So it's definitely time to be buying here, not selling. Remember, folks, the idea is to buy low and sell high. We're definitely into oversold, if not extreme oversold markets.

territory here on most of these issues. But I still have reservations about all the experts that are making the call saying, OK, the retail capitulation is now in. That means that it's definitely time to make your big buy because it's not going any lower than here. Look, there's so much retail participation in this market because institutional investors were locked out of uranium for ESG mandate reasons.

and have only just begun to dip their toe in this market. So it's completely dominated by retail investors who are famous for doing the stupidest things at the stupidest times. So if we continue to get news flow, as much as I don't think there's going to be a meaningful megatons to megawatts 2.0, that doesn't mean President Trump is not going to say we're going to have some massive megatons to megawatts

that's going to be fabulous. It's going to be tremendous.

If he starts saying things like that, I think it's going to freak retail investors out and you could see a full scale capitulation at that point. That would be the time to really start buying hand over fist. Now it's only time to be buying hand over hand, in my opinion. I think the hand over fist buying opportunity might still be to come. We'll see what happens. At the end of the day, though, one of two things must happen.

happen here. Must happen. Either all these new nuclear plant builds and all the nuclear plant restarts and all the nuclear plant life extensions that have been announced in the last few weeks and months, either they all get scrapped and that whole plan gets completely, totally reversed, and that would probably take World War III in order to reverse all of those things,

or they're eventually, not sure when, but eventually going to have to start buying fuel for all those reactors, both the old ones that are coming back online and that were not budgeted fuel for, as well as the new ones that are being built. So it's one or the other, either all

all of this entire nuclear renaissance news flow that we've been hearing gets completely, totally reversed, despite the fact that Chris Wright and President Trump and J.D. Vance and everybody else are all saying that the U.S. government is now completely behind it,

It all gets scrapped and the whole thing goes in the other direction or sooner or later, they've got to buy uranium. Now, that doesn't mean we can't have a retail capitulation freak out between now and then. Maybe there's going to be even better buying opportunities. But right now, the buying opportunities are strong. If you're not positioned at all in uranium, it's a great time to be buying.

On page eight, I have the Sprott Physical Uranium Trust chart up. And the chart just looks awful in a sense that it's being regularly distributed here. Lower highs, lower lows on the downside and just being unloaded. Overall, I do actually think there's a very important target zone right here in this $20 to $21 range here.

where we could see that selling at least subside. But whether or not we start finding support lines or bases, it's very likely here that this is going to go deep into March in consolidation of some sort before there's room for a bullish turn up. While I do think that the bull thesis in uranium is still very much intact,

The bigger puzzle to solve is when will we start seeing bullying again in this space? And that currently is not evident. And you have to at least anticipate a few more weeks, if not a month of basing to have to establish a key turn point of where this can technically start to turn up.

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

Well, in this week's Research Roundup, you're going to find the transcript for today's interview as well as Darius' slide deck and the chart book we just discussed here in the postgame, including a link to a number of articles that we found interesting. You're going to find this and so much more in this week's Research Roundup.

That does it for this week's episode. We appreciate all the feedback and support we get from our listeners, and we're always looking for suggestions on how we can make this program even better. Now, for those of our listeners that write or blog about the markets and would like to share that content with our listeners, send us an email at researchroundupatmacrovoices.com, and we will consider it for our weekly distributions.

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