Stocks, Economy Are Running RED HOT! All Evidence Says More Up

追加: 2026-05-30

[00:00:00]What's going on, guys? Today, we've got a very special treat. We have my friend Darius Dale. He's the founder and CEO of 42 Macro. And he's going to explain to us why the US economy is resilient, why they're running it hot, what that means for asset prices, and whether you should be worried about a big bubble crash coming in the future or not. Before we get into this episode, please remember to subscribe on YouTube. Hit the subscribe button right now, and let's get into this conversation with Darius.

[00:00:21]We're live from the desk of Anthony Pompiano.

[00:00:26]All right, Darius, everyone thinks that growth is slowing. There's all these problems on the horizon, but the April PCE report that may be telling us a different story. What's going on here?

[00:00:42]>> Oh, yeah. Well, thanks for having me.

[00:00:43]It's always a pleasure to be back with you and your audience, my friend. Uh, so the first thing I'll say is, uh, the economy continues to be very resilient.

[00:00:49]uh we've been of the view that uh our resilious economy theme which we authored back in uh September of 2022 when everyone was freaking out about recession back then uh that continues to be the core dominant driver of the US economy the the core components of that theme our paradigm C theme aka run it hot theme which we authored in April of last year when everybody was freaking out about tariffs tanking the economy uh was an additional kicker to the upside from the perspective of growth and so what we got out of this April PC report which was the first report that we saw saw uh you know on the other side of the kind of um you know crisis in the Middle East and the spike in gas prices. It was very robust. It was incredibly supportive of our resilient US economy theme. It was very supportive of our paradigm CAK run it hot uh theme. And ultimately I think the bears are going to have to go back into hibernation if their goal is to translate the move in energy to a downturn in the US economy.

[00:01:41]>> Now when we see these types of reports come out where people are spending money and real goods all this stuff. Um why do you think that's happening? Is it just like they're making so much money in the stock market and in investments that they have leftover capital? Are they just oblivious to any sort of economic pain and they're just doing it all on credit cards? Like how do you think through like what the why behind the numbers?

[00:02:01]>> Yeah. Well, so uh the why is is is of several reasons why. The the most important reason is that we have incredibly positive balance sheet dynamics which we'll talk about in a couple slides. Uh but before we even get into that, let's just unpack the data to make sure everyone is on the same page with regards to what is happening. So if you go to slide seven, we show real personal consumption expenditures, which is the broadest measure of consumer spending in the US economy. Twothirds of it being services, onethird of it being goods. We saw a strong positive impulse to a above trend rate of 2.8% on a three on a three-month annualized basis. And so for those who may be unfamiliar, a strong positive impulse is a condition where the slope of the underlying time series, i.e. the the quantity of real personal consumption expenditures is accelerating on a trending basis. That means the three-month annualized rate of change is is above the six-month annualized rate of change and the yearly rate of change is above the the uh the sorry the six-month annualized rate of change is above the year rate of change.

[00:02:54]So you have a accelerating consumer spending that is on a trend basis and and above trend on the side of the the longer run time series. And so these are really positive dynamics. And so ultimately answering your question Pomp on slide eight the you know what we're seeing here is more evidence of what we call our West Village Monttoa effect thesis. And so you and I know a thing or two, a thing or two or 10 or 12.

[00:03:18]>> What a name. What a name >> about partying in West Village and Mont.

[00:03:23]Those days are long gone. You got four kids. I got one. But uh uh but you know, you and I know a little bit of something about that. And and so the core thesis of behind our West Village Monttok effect thesis and one of the core tenants of our resilient US economy theme at least for the past uh nearly four years is the fact that the people what I learned from parting in in Montalk and West Village for you know a better part of a dozen years is that the people who spend the most money aren't necessarily the people who make the most money right like the median consumption in those regions where you know you have very high income people on Wall Street very high income people in in law and other other very high income fields.

[00:04:02]What I noticed and what I'm sure you notice as well is the people who spend the most money don't necessarily make the most money. It's the people who have the most money in the bank. And what I mean by that is the people whose parents have the most money in the bank. And the reason for that is they can spend more of their income into the economy because they don't have the burden of saving for retirement, saving for a downturn, saving for adverse consequences in their life. And so you you observe the peak spending rate tends to come from people in their late 20s, early 30s, not necessarily the managing directors in their mid-30s or or early 40s. And so taking that learning, we applied it to the US economy in the context of what we saw was a very explosive growth uh in uh in in in in in cash and and and in in the wealth effect that we see in terms of um in terms of net worth on the US balance sheet. And so when you look at the April PC report, it was perfect.

[00:04:54]just a perfect example what we mean by this thesis. So essentially what we're saying is the high stock of savings, we got about $12 trillion of cash on the household sector balance sheet. That's up from below four prior to the pandemic. So a tripling of the amount of cash on household sector balance sheets.

[00:05:10]Obviously uh net worth is at an all-time high, a ridiculously high level of an all-time high. And so that high stock of savings is allowing the consumer in aggregate to spend more of its income into the economy. The high stock of savings allows the consumption consumers to reduce the flow the monthly flow of savings which means they're spending more of the money that they make. And so you see real uh disposable personal income growth minus 4.4% on a 3-month annualized basis. Just totally crashing at lowest level we've seen since March of 2022. Yet the savings rate is also crashing uh 2.6%. It's the lowest level we've seen uh since uh June of 2022. And again I I just said we have above trend consumption growth. And so clearly consumers are spending more of their savings into the economy and part of that part of the reason for that uh is the fact that the West Village Montuk effect thesis lives on.

[00:06:01]>> Now let's talk about slide 10 here.

[00:06:02]Socialism for the rich, capitalism for the poor. That seems to be uh very highly controversial at the moment.

[00:06:08]>> Well, look, I don't think it's controversial that it's happening. I think it's controversial to talk about it. That's the >> That's what I mean.

[00:06:14]>> That's what I mean. It's definitely happening. We know it's happening. We can see it in the data. Uh so uh uh so what we mean by this is that you know there's been a tremendous amount of policydriven income support for the upper quantiles of the income and wealth distribution in the country and that's made the economy seemingly impervious to policy shocks. Uh so the chart on the left just shows the uh distribution of federal government spending uh by uh by categories of outlays. The blue bars are the uh outlays for means tested programs, programs like welfare, SNAP, you know, HUD, housing, you know, all that kind of stuff. The stuff that I grew up, you know, benefiting from, you know, you know, I would have been homeless the entire time if if these programs didn't exist. I would have been, you know, hungry the entire time if these programs didn't exist. And then you think about the 47% of the roughly $7 trillion that the government spends on on um on on Social Security and and and Medicare. And then what's the remainder is essentially everything else. you know, everything else being, you know, primarily dominated by national defense, roughly about a trillion dollars, and and net interest on the debt, which is roughly about a trillion dollars. This category is about to total is about $2.6 trillion. And so the government spends about 35% of the money of its outlays basically on people who aren't poor. Uh, you know, it's the big the defense contracts that go to Elon Musk, Alice Karp, and folks who run companies like that. you know the Ander rule all these companies anthropic you know open AI all these companies that sell this stuff to the government uh to the tune of about a trillion plus dollars a year uh and then you have the obviously the net interest on the national debt you know poor people don't own bonds and so it's only capital holders who are getting that trillion dollars of stimulus of income uh support on a year year-over-year basis and this is just one dynamic this is just fiscal policy we know monetary policyy's out the lunch with respect to supporting this socialism for the rich capitalism for poor for the poor dynamic and so that in my opinion is why the chart on the right which we uh snag from the Financial Times shows that over the past three decades the share of consumer spending by the top decile of consumers by income has risen from about 35% to about 50%.

[00:08:21]And so the bottom 80% the bottom four quintiles has dropped from just shy of 50% to somewhere in the mid uh to high 30%. And so this is exactly what we you know the data are indicating a K-shaped economy and what we're doing by applying math to the federal budget statistics and what we're doing by obviously observing the uh the reaction function of the Federal Reserve for the past couple of decades is very clearly supporting this K-shaped economy dynamic and that obviously is supporting the uh the the resilient US economy that we continue to thrive in.

[00:08:51]>> Now this whole idea of a resilient US economy is really being driven by this like run it hot or paradigm C as you've been calling it. Uh you've got some data here that shows the nominal GDP growth.

[00:09:00]Like we're running it hot. We're growing. Uh explain what this is showing us.

[00:09:05]>> Yeah. No, look, the the bottom panel on this chart here on slide 14 uh just shows that we had a slight downward revision in Q1 GDP, but it's still downwardly revised to a very high level of growth. Uh we're now at 6.5% uh on a quarter- saw basis in Q1. Uh 6 5.8% 3-month annualized, 4.5% year-over-year.

[00:09:23]These numbers are all well above trend.

[00:09:25]And by the way, they've been above trend in every quarter since we authored this paradigm C aka run it hot theme back in April of last year. And obviously we know it's we we know we observe what happened you know relative to the consensus at the time that was whining about tariffs when we told everybody stop worrying about tariffs this economy is going to boom. We use those exact phrases. Um you know obviously the the rest is history in terms of the performance of the of the the risk asset markets you know equity markets and credit markets. Now when we go and we look at the core capital goods new orders this really I think is somewhat of like a leading indicator right it should be at least in terms of hey what what's coming down the pipe what are we seeing there >> yeah no this you're spot on it's definitely leading indicator uh you know very few things lead the longest leading indicator of the or the second longest leading indicator of the business cycle the longest leading indicator of the business cycle is monetary policy the second longest leading indicator of the business cycle is productivity growth which leads the corporate profits which ultimately leads liquidity real growth etc stocks on and so on and so forth all all the way down to the labor market and inflation. And so when you look at these types of statistics, core capital goods new orders in a strong positive impulse up 17% through methanual eyes. Durable goods new orders up 30 33% through Methananiel eyes. Another strong positive impulse. These numbers are so far comically above trend. And more importantly, this is exactly what the one big beautiful bill was targeting in terms of trying to, you know, twist the knobs on the on the on the on the regulation and tax front to essentially create a boom in the capital side of the economy. And that's exactly what we're seeing here is a boom in the capital side of the economy. There's also obviously an orthogonal boom in AI related capex and that's part of the statistics. But make no mistake about it, the uh you know the media expensing and the and the changes to the R&D uh um regulation that we got in in the one big beautiful bill. These things are having positive impact which is exactly what we were uh forecasting uh you know over a year ago.

[00:11:12]>> Now when we go and we look at the deflator that seems a little bit different story.

[00:11:16]What's going on here?

[00:11:17]>> Yeah. Well, look, uh, so we have a sticky inflation problem. You and I have been talking about this for, you know, four or five years now. uh you know in terms of um in terms of the stickiness of inflation, the the likelihood that inflation was unlikely to return to the Fed's 2% target uh at any point in time based on a lot of structural changes in the economy that we picked up in the context of our basian research process and then it secular inflation model which has consistently signal an equilibrium core PCE rate that is in the low threes or high twos every single month we refreshed the model since we first published it in in January of 2022 which by the When we first outlined our sticky inflation theme, Tom, the consensus on Wall Street and the consensus at the Federal Reserve at the time was transitory, right? You know, so this is three things.

[00:12:02]>> True. Well, true.

[00:12:04]>> Sticky inflation against trans consensus for transitory, resilient US economy against consensus calling for a recession, and paradigm C running it hot against consensus whining about tariffs.

[00:12:13]It's three for three here. And so getting into the data here on slide 19, what we show here is if you look at the second and third panels, this is the core PC deflator. It's the Fed's current preferred inflation gauge that may be changing. Uh if Kevin Walsh, you know, is successful convincing his colleagues to look at something more like a trim mean uh PC deflator or or even more broad inflation statistic like a median PC deflator. We'll see. But right now, we see that the strong positive impulse in the core PC deflator and super core PC deflators have rolled over into weak negative impulses. And so what that just means is the 3-month annualized rate of change is now below the six-month annualized rate of change. But the six-month annualized rate of change is still above the uh year-over-year rate of change. And so, uh, you know, that's that's telling you that we kind of we're starting to crest in terms of the positive momentum that we've seen in these core inflation time series. Now, they're both still way too high. You know, core PC deflator is at 3.7%, the Fed has a 2% inflation target. Uh, super core PC deflator is at 3%. Uh, the Fed has a 2% inflation target. And so, you know, these numbers are way too high in the context of, you know, Federal Reserve that, you know, essentially has been, you know, prior to the last couple of months was just, you know, blindly looking to quote unquote normalize monetary policy, uh, uh, you know, by lowering interest rates. Uh, the good news is the Fed has responded to this most recent inflationary impulse by backing away from its, you know, policy, um, you know, from its policy uh, uh, objectives in terms of lowering the interest rate. And part of that is them doing what they always do, which is just follow the market. These guys will track the two-year nominal Treasury yield in every direction. No matter what it does, no matter what cycle we're in, no matter what the dynamics in the economy are, they are just they're just if you tell me what the 2-year Treasury yield is doing, I will tell you what the Federal Reserve is going to do in 3 to 6 months.

[00:14:00]Why don't we just let the market set monetary policy? Why do we need a cabal, an unelected cabal of 19 random people, many of whom are very smart, just like us, you know, we're smart people, too.

[00:14:10]But I don't I would never trust myself to set the price, the quantity, and price of money for the entire global economy. That's a ridiculous activity.

[00:14:18]It's only an activity you can concoct when you go to a, you know, a place like Jacko Island to figure out how to, you know, make the rich people rich. So, let me let me not digress.

[00:14:27]>> Well, but here's but here's the thing, right? Is I I do think there's a very strong argument that like the market is smarter than the central bankers. I actually think most central bankers they would agree with that as well and they're trying to react to uh to the market and so the question then becomes what would be the negative side effects if we just set monetary policy and left it. I don't know maybe Bitcoin's done something like that seems to be working out for it so far.

[00:14:45]>> Yeah I I agree with you. Why not just let the market determine the quantity and price of money? Like why not? It's I'll tell you right now it's better than the legacy of failed monetary policy we've had for the past three decades. I mean we've had accident after accident.

[00:14:59]I mean the dot bubble was not an accident. And it was a response to overeasy monetary policy. And the do-com bus was not an accident. There was a response to the reaction to overeasy monetary policy and trying to take away the punch bowl. The housing bubble was not an accident. It was a response to the overstimulation of the economy in response to the dotcom bust. The housing bust and the global financial crisis weren't accidents. They were responses to the Fed tightening policy in response to the housing bubble and the proliferation of credit and debt that we saw throughout the system. You know, I can go on and on and on. the commodity bubble, you know, the the the the the blow up in the in the in the in the bond market in in 2022. There's so many things that the Federal Reserve has had its, you know, giant red thumbrint on for the past 30 years. And in our opinion, I think we, you know, we should have Kevin Worsh if he can do one thing for the country, you know, I think he's going to be a good Fed chair, certainly in my opinion, relative better to J.

[00:15:50]Pal. And I'm not saying that to disparish J Pal. I think J. Pal is a wonderful guy and tried his best and is American patriot, but that doesn't necessarily mean he, you know, had good monetary policy outcomes. this guy and his cabal of of of colleagues let the in inflation genie out of the bottle that it had been in for 40 years. So they they have some blood on their hands. Uh so you know in my opinion I think what Kevin Walsh can do and and and and and really that could be really really positive for both the upper part of the K-shaped US economy and the lower part of the K-shaped US economy is tethering the Fed's reaction function to market forces. You know, they're never going to give up control of the quantity and price of money, but they can do it do they can change their reaction function in a way that is more tethered to that is more rules-based with respect to following the market, trying to stabilize the dollar and and do things that, you know, are more responsive to the fluctuations of the business cycle as opposed to, you know, what they're these academic frameworks like the Phillips curve and all this other jazz and jargon that they try to pump into our brains to make themselves sound smart.

[00:16:49]>> Hey, I hope the best for them. Uh, I ain't trusting them. I don't know about you, but I'm not trusting them. Sounds like the economy is running hot. Asset price is going higher. I hope everyone stops being savers and becomes investors and uh they'll probably be better off, right?

[00:17:01]>> Amen, brother. Amen. That's why you I I so appreciate what you do for the people, man. You know, obviously we're we're piggybacking on the the path that you're blazing in terms of trying to create financial freedom and empowerment for everybody. You know, this is the kind of conversations that, you know, you and I I've had this conversation with Fed, you know, former Fed chair, you know, Fed chair candidate Rick Reer.

[00:17:21]had this exact same conversation maybe not as uh you know politically opining but certainly about the the the nerdiness of the data you know like we it's these conversations shouldn't be trapped in the hallowed halls of Wall Street we should you know I've been a big believer and you know this I'm a big believer in a E-shaped economy not a K-shaped economy anshaped economy there's always going to be rich people there's always going to be middle class there's always going to be poor people but they can be going in the same direction they don't have to be going in different directions which is what our current you know cabal hodgepodge of of fiscal monetary policy is creating >> preach perach where can we send people to find out more about 42 macro and maybe like if people come and they actually uh subscribe what do they get >> uh so uh you know we do deep dive uh fundamental analysis on the US and global economies really primarily focus on the economies that actually impact the market regime you can do as much work on Tanzania as you want but you're never going to you're never going to have any you know alpha or beta generated from that and so um you know what we do is on the fundamental side of things we try to keep people a breast of the six key macro cycles and how they are likely to influence asset markets.

[00:18:22]But the primary thing that we have thousands of investors in 80 countries around the world uh you know you know subscribing to our our service for is for our kiss and Dr. Mo signals. You know these are the quantitative risk management overlays that we built that are extremely successful at keeping people on the right side of market risk in bull markets. You know maximizing upside capture but they're also very good and very adept at sidest stepping severe draw downs in bare markets. And this is the kind of you know these are the kinds of tools that I've you know spent my career helping build for the global buy side. uh these kind of risk management overlays. And so uh I basically did when we started 42 macro I said hey I don't think you know the global buy side you know the citadels the millenniums and you know the 72s these folks aren't the only people who should have these types of tools. I think everyone should have these types of tools and we've been successful at that that thesis.

[00:19:07]>> I uh I agree 100%. So I appreciate you doing this 42mmro.com. People should go check it out. Uh it's always fun talking to you man. We're going to start doing it in person soon. very excited about.

[00:19:19]Um, and we'll we'll see you soon.

[00:19:21]>> I see you soon, brother. Thank you so much for having me.

[00:19:23]>> All right, guys. I hope you really enjoyed that conversation. Darius, he's a genius. I'm just trying to learn from that, guys. So, I hope that that was a great one for you. And please remember, subscribe on YouTube. Hit the subscribe button. I will appreciate it. Everyone here will appreciate it. It's like you saying thank you to us. So, hit the subscribe button. And I'll see all of you live from the desk of Anthony Pompiano on