Latest / The Paul Barron Crypto Show / How Much Longer Can Bull-Run Last? With Darius Dale

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How Much Longer Can Bull-Run Last? With Darius Dale · The Paul Barron Crypto Show

0:07
Let's take a look at the markets today, and of course we'll take a
0:10
look at where the markets might be going toward the end of the year.
0:13
Could there be some rate cuts, could we see some more macro pressure.
0:17
All of that is what we'll do in terms of the show today, You're
0:19
gonna love it. My name is Bolbara, Welcome back in the tech path.
0:21
Joining me today, of course, is mister Darius Dale coming in for
0:24
forty two Macro. Great to have you back. It's a pleasure to be
0:27
back, Paul. Thanks for having me. How you doing. Hey,
0:29
we haven't had a chance to talk much around all of this craziness. Bitcoin
0:34
going nuts. We've got the S and P flying crazy right now. But
0:39
at the same time, Darius, we still have a little trepidation when it
0:43
comes to inflation, PCE, all those kind of things. So we're gonna
0:47
break it all down for you and get your opinion on a few things.
0:51
I want to go to this first tweet right here. PCE is inline right
0:55
now with expectations edging lower though, which is good, I guess, good
0:59
news for the bond mark it in general, when you see this kind of
1:02
chart, does this give you confidence or are you saying I'm still on the
1:07
fence as to whether or not we're going to continue to see this downturn.
1:11
So when I see that chart, it doesn't really give me too much confidence
1:14
in either direction. You know, what we find is that the year of
1:17
a year time series tend to lag more important variables in the in the inflationatistics
1:22
like the three month and six month anualized rates of change, And what we've
1:25
seen from there, most notably is that we're starting to observe a significant deceleration
1:30
in a significant acceleration in the pace of deceleration in shelter CPI and housing PCE.
1:38
So that gives us confidence that the general trend of inflation is likely headed
1:42
lower over the medium turn. So you're in the camp of we are seeing
1:46
downward trends. Do you think we could see any kind of stalling before we
1:49
hit that two percent target? Or do you feel like this is on a
1:52
fairly good trajectory right now in terms of inflation. Well, I think what
1:56
we've learned, at least in the relearned really in this hyper financialized US economy
2:00
is that the capital market cycle, and specifically fluctuations in the capital market cycle,
2:07
have a meaningful impact on the shorter term economic activity that we observe in
2:10
the US economy, and so if we continue to see very buoyant asset markets,
2:15
it's very likely that we don't have the kind of positive inflation outcomes in
2:20
terms of disinflation that are currently maked to nikos AS's expectations and certainly currently expected
2:25
by J. Powell and other members of that see. Yeah, I mean
2:29
they continue to push on the idea of where these rates might even come in
2:32
on. Here's Forbes talking a little bit about this. Expectations on the federal
2:37
rate cuts at their next meeting in June very low, so probably not going
2:40
to see anything there other than just hey, we're going to just hold the
2:44
line a little bit longer. But they are potentially and could potentially affirm that
2:51
rate cuts could possibly show up toward the latter part of the year. Here's
2:54
my question to you, do you think we're going to see a rate cut
2:58
Q four down the rug Q four. I'm actually more confident in seeing a
3:02
rate cut in July than I am in December. And the reason yeah,
3:07
yeah, And the reason we say that is that this is a federal reserve
3:09
that in our opinion, we're not necessarily this is a reserve, federal reserve
3:15
that is not necessarily anchoring on inflation to implement monetary As we know, the
3:20
federal reserve is a very asymmetric reaction function, and so that any slowdown that
3:23
we see in the labor market is going to have a significantly more outsized influence
3:28
on the federal reserves policy. And with respect to in terms of July versus
3:32
December, you know, we're not really in the business of Okay, it's
3:35
a July June December. We don't care a lot of money and financial markets.
3:38
That's a that's a parlor game at best. But in terms of in
3:42
terms of where we are, we understand that the FED understands that inflation is
3:46
a lagging indicator. It's the most lagging indicator of the business cycle. And
3:50
so the FED, knowing that this is a late pyco economy as evidenced by
3:53
the typeness of credit spreads, the low level of unemployment, and i obviously
3:58
high level of asset valuations, we understand that this is uh the FAN understands
4:01
that it has to start to go sooner rather than later, if only to
4:05
you know, kind of implement you know, dubbish policy tinkering, not necessarily
4:11
policy easing, but policy tinkering as inflation right and used to company. Yeah,
4:15
I think with the scenario that we're seeing right now, even though we
4:17
haven't seen a sharp decline in inflation at least from the CPI standards, the
4:23
one thing you are right on, and that is we've seen the job market
4:26
and started to soften quite a bit. More important, I think we've seen
4:29
start to see some real retail numbers starting to impact for consumers simply backing away
4:34
from especially the restaurant industry. We track that a lot here, and foot
4:39
traffic way down, a lot of people starting to regress. We could see
4:43
numbers that are pretty dismal for many of the restaurant chains, which usually indicate
4:46
retail sales going into the fall. So that could give the you know,
4:50
the FED a little bit more impetus to kind of go in that direction.
4:55
I wanted to get there. I think we share, We certainly share with
5:00
respects of the direction of growth. I think we share a similar outlook and
5:03
that growth is likely to slow. But I think the key determination as relates
5:08
to your foliar construction, your acid allocation, is what's the speed of which
5:12
growth is going to slow over the medium term, and what's the terminal destination
5:15
or we exist the beginning of the slow down into recession. Our analysis,
5:18
we've done a as deep as a dive on the empirical study of the business
5:23
cycles I've seen out there thus far in recent months, and that analysis continues
5:27
to point to a moderation in the economic activity, but not we are not
5:30
yet on that kind of final countdown path towards recession. So it's our view
5:34
that we're going to slow from an above trend growth rate in consumer spending to
5:39
an at or slightly below trend growth rate and consumer spending. And in isolation,
5:42
that's not particularly bears for asset markets, but it could be bears for
5:45
acid markets in the context of some of the positioning and liquidity cyco dynamics we've
5:48
been highlighting for our clients and forty micro. So when you look at the
5:53
timeline here, I know this is all hypothetical, but you look at the
5:58
current conditions and the rate in which the market is decelerating to a certain extent
6:01
based on some industries, which are usually some of these industries do give early
6:09
signals to where we'll see things. Do you see twenty five as maybe a
6:14
little bit more aggressive in terms of how market downturn could look or where are
6:17
you guys looking in terms of the crystal ball of where the market lands timing
6:23
wise? It could be. It could be. We are again, as
6:26
I mentioned, we are based on the leading indicators of the economy. So
6:30
we did a big, deep, vive empirical study to identify, you know,
6:32
several hundred data points within the economy and to identify which ones have the
6:36
most persistency with respect to leading fluctuations in the business right in the indicators within
6:42
and around the labor market and the indicators within and around consumer do not yet
6:46
point us to a path where we are kind of on that final path towards
6:49
recession, which would suggest we have a significant issue in asset markets ahead of
6:54
us for twenty twenty five. So from an economic standpoint, the leading indicators
6:58
aren't suggesting that we have a big issue ahead of us. From a positioning
7:01
cycle standpoint, I don't know that you know, it pays to seat of
7:05
ignore that sort of take that fact and run with it, because we are
7:10
in a place in the positioning cycle where there isn't necessarily a tremendous amount of
7:14
upside from here. We'd probably need to see a pretty meaningful correction for us
7:17
to create ample scope for a significant move higher in risk assets like the SMP,
7:23
like bitcoin, like a theory. Yeah, that's an interesting take because
7:27
you look at what's happening on the investment front, and here's a piece from
7:32
Kobeec. They're talking about us adults, you know, investing right now in
7:36
stock market highest percentage since two thousand and seven. I was surprised at that.
7:41
Slightly higher than twenty twenty three, about seven percent since twenty twenty.
7:46
Across income brackets too, this is like eighty seven percent of houses with annual
7:49
incomes over one hundred grand. I get that, But there's still twenty five
7:54
percent of people that are forty k and below who are actually owning stock.
7:58
So here might be my question to you. People are trying to basically use
8:03
the stock market right now as a hedge to inflation. What you're telling me
8:07
is that we could be slowing down quite a bit to where this may get
8:11
a little bit more equal or even keel. Is this the time that people
8:16
in the middle should be investing in the stocks today or is this one that
8:20
they need to maybe starting to look at taking profit and considering new positioning down
8:26
the road. Yeah, well it depends on your time. Horizing is right
8:28
if you're sort of a trader or kind of an institutional portfolio manager trying to
8:33
get the you know, the quarters and the kind of multi quarter trends right
8:35
and not necessarily this is not that negative of a time because we remain in
8:39
a risk on market regime. Our market regime nowcasting process is identified asset markets
8:43
as having been in a risk on market regime since since been November, so
8:48
that condition remains in place, and as long as that condition remains in place,
8:52
you should do orient your portfolio in accordance with with you know, the
8:56
kinds of things that can not perform in a risk on mark regime. We're
8:58
currently in inflation. However, when you think about sort of structuring you know,
9:03
the hedging and the delta in your portfolio to kind of trend to help
9:05
you actually prepare for a transition out of this risk on condition, that's when
9:11
you need to have these kinds of conversations and when you think about what the
9:13
duration is on the sursvivabability of the sustainability of the current risk on condition.
9:18
You have to be very concerned about the positioning cycle. You know, I
9:22
think you know that was a very good tweet in terms of highlighting some of
9:24
those time series. You know. One of the things we track and forty
9:28
TWOMAIC research for our clients is a variety of indicators within the context of our
9:33
positioning cycle model, and a significant number of them are have already exceeded the
9:37
median threshold we have observed historically at S and P five hundred bull market peaks.
9:43
Now that doesn't mean we are at a bull market peak, but we
9:45
are now across several indicators saying hey, we are probably you know, there's
9:48
not a lot of upside from the perspective of this one indicator. Without there
9:52
are a few indicators the National Association of Active Investment Managers survey, we are
9:56
in the eighty six eighty eighth percentile of that all times historical historically, we've
10:01
been in around the seventy fifth percent tile at these major bow market peaks.
10:03
We've already we've already clipsed the peak of the AI stock allocation. We're too
10:07
low in terms of AI bond and cash allocations. If you look at realized
10:11
volatility as a proxy for systematic volatility, we've already reached that threshold. Implyball
10:15
correlations as a proxy for market neutral fund participation, we've breached that thresholder and
10:18
obviously on evaluation standpoint, we've breached the threshold. So the key takeaway here,
10:22
Paul is that it's still a okay time to invest. But if you
10:26
think about this a multi quarter or even a multi year time arise in perspective,
10:31
the positioning cycle is very much not your friend, and it doesn't won't
10:33
take much to go wrong to cause the significant correction and asset markets. Yeah,
10:37
I want to I want to go. I think you know, every
10:41
time I talk to you, you know, you kind of opened my mind
10:43
up into an area I'm not thinking about and then I got a little shit.
10:46
Yeah, you think about that too. So there's a lot to be
10:50
thinking about here. I want to play a couple of clips for you.
10:52
This is coming in from the All In podcast. This is David Sachs.
10:56
He's talking about and I'm stay on the political side of this. From lobby
11:00
standpoint, primarily where the money comes from that typically drives a lot of asset
11:05
markets. Here's a clip. Let me play this for you real quick.
11:07
I think it's really interesting how the crypto community is getting organized into basically a
11:13
lobby to advocate for its interest because they have the biggest lobby in America.
11:18
Did you know that they've been so targeted over the last few years because Gensler
11:24
and Warren have been on a crusade to basically make crypto illegal or drive it
11:28
off shore. Well, every action has an equal and opposite reaction. And
11:31
now that crypto people have basically had a political awakening and realized they have to
11:35
get involved in the political system. This is a matter of defense self defense,
11:41
you know. Back to the young people we talked about in the previous
11:43
story, I think the reason they're attracted to crypto is because it doesn't have
11:48
government control. And since if you don't trust the government and you see the
11:50
government over and over and over again covered things up or the grift or make
11:56
decisions that are not in your generation's best interest, why wouldn't you opt out
12:00
of their financial system? And you know what, there's a lot of them,
12:03
and they have they're getting organized to your points. Acts are if young
12:05
people show up, it'll be it could be five hundred basis points. I
12:09
mean, young people do not show up to vote because there isn't a NISI
12:11
that they care about. Correct, But there's fifty million Americans that ore in
12:16
crypto fifty five zero, Okay, So if ten percent of them are like,
12:20
let's say that's their scene, that's not a million votes. No,
12:24
no, no, there's a plausible case where forty million of those folks show
12:28
up because you're talking about a structural part of their wealth creation. All right.
12:33
So a couple of points there is that the market shift is starting to
12:37
occur from a dynamic of who's investing, what's driving these markets. Then you
12:43
lay in the factor around lobbies, which really dictate a lot of what happens
12:48
on the regulatory front, as you and I know, it also dictates what
12:52
happens in the securities markets in many cases. So with those kind of new
12:56
factors, because this seems a little bit new, this wasn't around in the
13:00
last election. It definitely wasn't around the last cycle. What would this do
13:03
in terms of changing your perspective as you guys kind of look at some of
13:09
these macro elements that are outside the financial sector in terms of hitting the market
13:13
in terms of performance. What are your thoughts. Yeah, I mean,
13:16
our take on is that if we're in a risk on market regime, it's
13:20
going to be more bullished, and otherwise, if a negative catalyst happens at
13:22
a risk on market regime, it's just less bullish in terms of price.
13:26
If a negative catalyst happens in a risk off market regime, it's more negative
13:30
in terms of price. If a positive catalyst happens in a risk on market
13:33
regime, we're talking off to the races, And if a positive catalyst happens
13:35
at a risk off market regime that we're talking about, it's going to be
13:39
less negative in terms of price terms. So it's really just about the function
13:43
that the path that asset markets broadly are taking to price in some of these
13:46
critical economic variables. And by the time we get into election season, you
13:50
know, when we were talking about you know, Q four of this year,
13:52
markets will be squarely focused on with the path of policy and the economy
13:56
are for twenty twenty five, and we look in to twenty twenty five,
14:01
I think there's two things that could be pretty concerning for investors as you get
14:03
closer to the beginning of twenty twenty five to one, we have growth in
14:07
the US likely to continue to be slowing, and we're going to be starting
14:11
to get to levels by you know, Q one of next year that'll make
14:15
investors concerned about, Okay, if we keep slowing from here, we're gonna
14:16
have a real product that can be an issue. One thing I think is
14:20
not necessarily talked about today but will be you know this time next year,
14:24
is that inflation looks like it very much is likely to bottom in Q one,
14:28
Q four, Q one of next year. And if at bottoms,
14:30
then we're going to start to see a stasis and perhaps of a modest reacceleration
14:33
and inflation from a level that is extremely inconsistent with two percent inflation. And
14:37
so that could be an issue that asset markets have to contend with in terms
14:41
of repricing, repricing the entire FOURD rate curve here in the US perhaps in
14:46
a way that can cause incremental slow down. And if you cause incremental slow
14:48
down from a below trend growth rate already, that's when you can really start
14:52
to be concerned about the procession cock and the path that markets are going to
14:56
have to price in from that point. Forward, So you know, I
14:58
think that's what I said. Like I think, when you think about this
15:01
from the perspective of managing financial market risk, we are still in a risk
15:05
on regime. The time to head for the excess was not yesterday, was
15:07
not to day before yesterday. It's not today. But at some point in
15:11
the next three to six months, we have to understand that markets which are
15:13
forward looking discounting mechanisms will start to look into twenty twenty five and understand that
15:18
the growth and inflation dynamics may not be as supportive as they currently are.
15:22
On top of we might have a significant change in the political cycle dynamics that
15:26
may become less supportive. We don't know, but they may become less supportive.
15:31
I'm going to go into my last question, and I'm a First I
15:33
want to play this clip for you and then I'll get to the question behind
15:35
it. But this is talking a little bit more around the bitcoin ETF,
15:41
and it's coming from an investor that has earned billions in the securities markets and
15:46
in other investments, So coming from him, this is Chamath Polyopatia hitting on
15:50
this very point. Listening, these ETFs are really going to allow bitcoint to
15:56
cross the chasm and habits sort of central key moment, right, And so
16:00
if you apply the averages and again these are just averages, thereby no means
16:04
predictions. Okay, So I just want to qualify that these are just not
16:07
financial advice. It's not financial advice. These are just guess we took these
16:12
and we applied it to the price of bitcoin, And if you go to
16:15
the next page, you start to see what could happen if you just take
16:19
the average of the last few cycles. So, because the first cycle was
16:23
so extreme, and when I talked to one says about this, how he
16:29
explained it, which I which makes a lot of sense to me, is
16:32
there are a lot of countries that will never look at bitcoin credibly, even
16:37
if they support it. The US may be one of those, but there
16:40
is an increasing body of countries that will become dual currency, and they will
16:45
look at their local currency and then they will look at bitcoin and they will
16:49
say both of these two things are needed. One when you're transacting on a
16:53
daily basis for random goods and services, and two when you need to buy
16:57
a permanent asset that needs to have residual value, you'll use something like BTC,
17:03
and I think that's a very powerful concept. And if you look at
17:07
what this price chart could indicate is that if this thing starts to get to
17:14
these levels of appreciation, it is going to completely replace gold and start to
17:18
become something that has transactional utility for hard assets. And I think if you
17:25
marry that with this worry that some folks have about dollar debasement, you start
17:30
to see some really interesting opportunities. All right, So any other investor,
17:34
even people that are kind of dabbling in various you know, metrics out there
17:41
and investment classes, you know, I would kind of take that with a
17:42
grain of salt. Coming from Jamath a little different. I want to get
17:45
your opinion on this, and that is if you have big investors like this.
17:49
Let's just assume that people worldwide in Jama's position and in that area of
17:56
investor class, they're looking at this same day and they're starting to say,
18:00
all right, we have a new asset class now that basically has become mature.
18:06
Will that have an effect, in your opinion, Darius, on how
18:08
the rest of the markets, whether it's bonds, securities, things of that
18:14
nature play out going forward, Because now we have really what could be a
18:18
huge impact on how investors are going to look at new markets and where they're
18:22
going to invest into. What are your thoughts. That's a phenomenal question,
18:26
man, This is this is this is going to graduate us into a very
18:30
institutional discussion. So hopefully your folks are watching aren't going to hit button.
18:33
But so one, I very much enjoyed the analysis, and specifically like the
18:37
fact that he omitted the original cycles of having cycles because again, those returns
18:41
are very unlikely to be replicated in the future from an asset basically coming from
18:45
zero. So that's starting point number two. I do respect and appreciate,
18:51
you know, sort of how you know, thoughtful the analysis is with respect
18:52
two specific price targets over different time horizons, because that obviously matters, you
18:56
know, depending on certain investors may not correspond to let's say, in October
19:00
twenty five time horise and maybe they care of a little bit about October twenty
19:03
four. That was helpful. What is less helpful in my opinion and sort
19:07
of misses the mark as it relates to, you know, sort of institutional
19:11
risk management is the fact that you can have an asset appreciate a lot of
19:15
value in price terms, but you may not have an asset appreciate a lot
19:18
of value in time terms. And the reason I say that is if Bitcoin,
19:22
let's let's let's assume is that analysis is correct. Let's you know,
19:26
that's got a million starct by October twenty twenty five. A lot of that
19:30
return if you are along the asset along the way, if you have to
19:34
experience the daily realize the volatility of that asset along the way, you could
19:38
actually get spooked out of that position. If we have a significant correction,
19:42
and one thing that could potentially cause the correction, well, we haven't even
19:45
talked about today, which is you know, usual for our conversations here,
19:48
Paul, is where we are in the liquidity cycle. You know, if
19:51
you go back, you sort of look at the liquidity cycle, which we've
19:53
been on an up trend since October twenty twenty two. You know, we're
19:56
kind of getting long in the tooth. From that perspective, we're probably you
20:00
know, seventh inning relative to the historical duration, the median historical duration that
20:03
we've preserved in these liquidity cycles. But we've already achieved a lot of the
20:07
performance that we typically have observed so, and we have more importantly, we
20:11
have not achieved the median max straw down. The medium extraw down for bitcoin
20:15
in a liquidity cycle upturn is minus sixty one percent, minus sixty percent.
20:21
And so you can buy bitcoin today saying it's going to go to a million
20:23
between now and then, but you could lose sixty percent of your money and
20:26
oh, by the way, maybe a lot of the position thirty forty fifty
20:30
sixty percent down, you know, to sort of manage risk. And so
20:33
that's what we're trying to do. That's why investors, you know, sort
20:34
of subscribe to our research. And you know, we have institutional clients all
20:37
over the world who pay attention to everything we say every day. Is because
20:41
we help them with the path that markets take to achieve the predictions that they're
20:45
positioning for in their portfolio. We concern ourselves with the path and the path
20:49
the path is going to be one that requires a lot of significant draw down,
20:52
a lot of volatility. Then we will flag that for our clients and
20:56
say, hey, this is not the time to be betting onto math's outcome.
21:00
And coincidentally, it is the time to betting on your MAT's outcome.
21:02
But I wouldn't necessarily say that tomorrow or the day after tomorrow, so obviously
21:06
folks have to check back with us on that. Well. I think the
21:08
key here is, you know, when we look at these kind of situations
21:11
is obviously this isn't I feel like this is a new era in investing,
21:18
mainly obviously the BIGTF success. Sure, it's it's changed people's theory, their
21:22
their view of the market. You know. Now you've got major investors out
21:26
there starting to talk a little bit more about what's happening. So it's always
21:30
good to pick your brain. Darius, Thank you so much. I love
21:34
it. And if you guys want to learn a little bit more about what
21:37
Darius is doing, check out his website just forty two macro right there.
21:40
We'll definitely want to get you back as things start to progress here, Darius.
21:44
I was looking at your page here. I didn't realize. You guys
21:45
we're up to ten trillion on client advisory on assets. Wow, you gets
21:51
eleven or twelve? Now, yeah, this is this is great. You
21:56
guys are doing great over there. Congratulations on the growth. I appreciate you
22:00
man, Thank you man, And so listen to partner with folks like yourself.
22:03
Man. I always enjoy our conversations. Man, I look forward to
22:06
next time. All right, bye man, thank you and we'll catch you
22:08
soon. I'll bless you brother, thank you. All Right, you guys
22:11
are maybe on the podcast side of things right now. Jump over you'll get
22:14
a chance to catch some of these charts and some of this additional coverage we
22:17
do over here on the YouTube channel. Make sure and if you're not in
22:19
the Diamond circle, that's our own private email group where we do a lot
22:22
of additional content more analysis on different sectors of the crypto markets as well as
22:27
some of the emerging tech markets. So check that out. Of course,
22:30
follow me out there on Twitter. It's at Paul Baron. We'll catch you
22:33
next time right here on tech Path