This Trigger Could Send Stocks Bubbling Sharply Higher | Darius Dale

Because we ultimately have to figure out whether or not the Kevin Walsh Federal Reserve is going to look through uh these sticky inflation pressures. If they look through the sticky inflation pressures, let me slow down and say this because I want everybody to hear this appropriately. The stock market will bubble if they send a signal that they are going to ignore near to medium-term inflation pressures. This is very similar to what happened in the late 90s.

Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Tagert. Welcome you here for a discussion I'm very excited to have. Uh, we're joined by the great Darius Dale, founder of 42 Macro, the investment research service, uh, perfect for DIY investors. Darius, how you doing, my friend?

>> Adam, it's such a great pleasure to be back with you, my friend. How you been?

I'm doing well. How you doing? Uh, I've been good, but a lot has happened since, uh, we had you on at, I think the last time you were on was at our spring conference back in March. Um, it's now almost June. Markets are definitely in a different place right now. Um, lots to talk about. We'll go through all your slides and everything in a second because I know folks are are very excited for that. Um, very quickly, I just want to note that um, you know, love to get you on the channel as often as we can. You're a man with a very busy schedule, a man in high demand, but we have worked it out that we are going to hopefully have you on with a bit of a greater cadence in the future here for folks. So, I want to let folks know that if I do my job right here, um, if you like this discussion today, it's great news because you're going to get more of them with Darius.

>> Yeah, I'm super excited for our partnership, Adam. It's been going great and, you know, we're just really, really grateful to be in front of your audience, you know, educating something that you and I are both extremely passionate about. So yeah, we're going to try to make this as much as as much as possible at monthly frequency so that investors can, you know, kind of keep up with what we where we are with respect to markets and ultimately where we respect to uh to to some of our systematic processes.

Great. Well, fantastic. And look, um, you know, folks already know how highly I think of you and your work there, Darius. Um, but one of the things I'm really excited about with our continuing uh the continued integration of our partnership is uh as most folks who watch this channel know, I have financial advisors uh who Thoughtful Money endorses and they're on this channel with me every week. In fact, we're going to have some guys come on after the discussion here with you today. And they're there to really help people who do not want to be their own personal money managers, right? I mean, and and there's a lot of people out there who um, you know, that it's not what they want to do. They want to focus on the things that they're good at. They want to focus on earning their money or taking care of their family or just life in general, right? And they want to outsource the money management to a smarter mind and have that person just be their financial quarterback. That being said, having, you know, surveyed this audience and been in communication with it for years, the majority of people who watch this, Darius, are actually DIY investors. for folks that want to be their own personal financial quarterback. And partnering with you gives us um a solution to be able to direct those people towards um all the information, all the insights that you put together at 42 Macro. I'm not even going to describe them here simply because you're going to walk through them. So your pictures are going to be worth thousands of whatever words I could think of. But that compliment, you know, you're really helping me compliment the the need of the majority of this audience, and I very much appreciate that.

>> No, look, it's really it's a it's a blessing, man. you know, we built our company uh to do, you know, what I was doing for institutions for over a dozen years, which is, you know, help them stay on the right side of market risk. We built our company so that we can help all investors stay on the right side of market risk. As you know, we've talked, you and I have talked about my background, uh, over the course over the last few years on your show, uh, you know, coming from extremely humble beginnings. You know, some of the humblest beginnings you'll see on anybody and you know,

>> you my friend are such a phenomenal American success story. It's it's I can't think of one that's somebody has come from yeah one door there now

>> I want I want that success story to be copied and pasted as many times as possible that's why 42 macro exists that's why I have political aspirations in the future we can talk about those at at a later date but uh ultimately you know we built this company so that you know I can help make everybody rich not just the rich people

That's great. Hey, I think it's the first I've heard you talk about any political aspirations, so totally interested in hearing about that in the future. But before we get to all that, just know you've already got my vote, buddy.

>> I appreciate you, brother. Thank you so much.

All right. So, all right, let's get to the meat of the sandwich right away here. So, um, your model essentially starts, correct me if I'm saying this incorrectly, but but starts with a regime, and it basically says, okay, let's look at the environment, uh, that the investing world is in right now, and then let's figure out how to position for that environment. If I've been following your work correctly and I do follow it closely, we are now in a reflation regime. Correct.

>> That is correct. Absolutely. If I can share my slides, I'll just, you know, quickly go through.

You can all Exactly. That that that that's the heart everybody wants you to get to right away anyway. So do it.

>> Absolutely. So uh we use our global macrois matrix Adam to what we now cast what we call the market regime. That's what institutional investors essentially uh use to describe the behavior of the markets both from an asset allocation uh, you know, long short and also factor leadership within the various asset class perspective. And so what we're essentially doing is we and we talked about this, we won't go into great detail today. I'll put revert investors back to our uh, your spring conference where we kind of really unpack this in great detail. Essentially what this process is designed to do is you know survey all the most important markets across the 12 most important asset classes for institutional investors. essentially scoring them from the perspective of two things. One, what is the current volatility adjusted momentum signal condition for each market? And two, how does that current condition relate to how them that that factor or that asset classes has performed historically? And so we're essentially tallying up the, you know, the total amount of votes for each of the four regimes that you can uh be in uh on a daily basis to determine, you know, essentially what regime has the most love from institutional investors around the world. you know, the the the folks moving the most capital around the world, you know, the types of clients that we serve here at 42 macro and I've served throughout my career. And so, right now, reflation, which is a risk on regime with an inflationary bias, continues to be uh the regime that has the highest sum and share of confirming markets. It's got a reasonably high strength of signal at a 77% uh uh level in terms of the total amount of signal that's being generated uh uh in the in the regime at the current juncture. That means what this ultimately means is that institutional investors around the world have a reasonably high degree of confidence that we are in a reflation market regime and as a function of that they have a lot of positioning associated with that because their goal is to stay on the right side of market risk otherwise they're going to lose their seats on the global buy side. Um, you know, there's obviously Goldilocks is a risk-on regime with a disinflationary bias. Inflation would be a riskoff regime with an inflationary bias and then deflation which is the opposite of reflation which would be a riskoff regime with a disinflationary uh bias. And so what we can essentially surmise just from this process alone is that a markets are essentially trading like reflation on a trending basis and b investors around the world have a reasonably high uh allocation uh to that to that signal. You know, we've been in a risk-on market regime uh since um April 11th is when our systems pivoted back to risk on market regime. I think the last time I was on your program back in mid-March, we were in a riskoff market regime. Our systems have broadly taken down risk to sort of chop off the left tail of the distribution associated with the uh straight horm crisis. We've since obviously uh back going back to early April, you know, got back long across a lot of different asset classes and factors which you can see here reflected uh in this regime change regime change probability uh chart.

All right. So, um, I I know your market your sorry your framework takes into account, you know, zillions of different data points. Um, let me just ask you this. Um, what impact is the war having right now? Obviously, we've been churning through the war over the past two months. And has the market, in your opinion, already priced the end of this war? Or if it hasn't, what do you expect the market to do should a peace deal be struck?

>> Oh, that's a great question. So, I would argue the market the the close to from our perspective, the conflict itself is not the issue. It's the closure of the straighter Hermuz, which I don't think I'm I'm breaking glass when I say that, but you know, let me just remind investors of the ultimate risk of the closure of the straighter Hermuz. Here on slide 109, we can just see that, you know, for really, you know, since since, you know, early, you know, late February, early March, you know, we've really had no container vessel shipping traffic through the straight. Um, and as a function of that we're not seeing the uh, you know, the proliferation of petroleum products, fertilizer inputs, various food stuffs, uh, that go in and out of that straight, uh, you know, that are, you know, really significant from the perspective of of the global uh, uh, GDP cycle, from the perspective of global food production, uh, the global petrochemical cycle. There's all these different cycles that are being negatively impacted by the supply chain dynamics in the street. However, from the perspective of investors, what matters most, and this is something and I talked about back at, you know, back then, is that what matters most is the hit to the global liquidity cycle because ultimately, you know, this these things are all sort of interconnected from the perspective of global dollar recycling. And so if you think about this from the perspective of the net international investment surplus economies that are that are being heavily impacted by the supply chain disruption, you know, their inability to generate as much GDP, which ultimately translates to household savings, corporate profits, FX reserve accumulation, their inability to to to do that will ultimately cause a big negative liquidity suck from the global financial markets. That could be upwards of at least, you know, 6 to 8% of global GDP or on the high end, 8 to 11% of global GDP once we start to see uh those u you know, those crude oil inventories really start to get to a a dangerously low level. And FYI, we're talking about a 9% hit to global GDP that was in the global financial crisis. So, you know, GDP is kind of the easy way for us to kind of, you know, proxy the hit to liquidity associated with the closure of the trade of Hormuz, you know, primarily, you know, looking at looking at this through the uh, uh, you know, the petrochemical side of things and the crude oil side of things. But the reality is, if these international investment surplus economies like, you know, Germany, China, Japan, you know, Switzerland, Hong Kong, Saudi Arabia, Qatar, Kuwait, if these economies can't generate the profits, the household savings, and the FX reserves they need, they're ultimately going to have a big breakdown in the global dollar recycling cycle. And so to answer your question, Adam, ultimately, if we see a reopening of the straight or Hormuz and we take this risk, this left tail risk off the table, in our opinion, we'll see unwind of what we've seen in financial markets around the world, which is a massive crowding into uh the AI trade because that's the that's the place where investors could really see uh the tangible and mostly most importantly orthogonal uh earnings uh um, you know, kind of um, you know, growth that we've seen. We've seen information technology as from a sector standpoint rally 30% since our market regime uh now casting process pivoted back to a risk-on market regime and and and and broadly signaled uh risk on uh vibes across a lot of the different risk assets mega cap growth up 20%. That 30 and 20% compares to only 10% for the S&P and 9% for the broad global uh stock market. So what will likely happen once we reopen the straight Hormuz is that we'll start to see a flow of funds out of these crowded trades and back into, let's call it, the rest of the equity market, the rest of the credit markets to participate in what is obviously in our opinion, a very uh positive dynamic from the perspective of the productivity enhancement that we're going to see from AI. So in our opinion, we think that's the next leg of this uh in terms of reopening the straight, but obviously there's some other dynamics we have to factor in as well, namely central bank intervention on the inflation front.

So super fascinating. Let me ask you this question. So obviously reopening the strait is removing a negative to the global economy, right? So you would think that okay, this is just a net positive. But if you're going to see a rotate capital rotation out of the hyperscalers, the AI and AI adjacent stocks to everybody else, could that potentially pull the indices down because the hyperscalers make up such a huge percentage of the market value? Um, or would it be just a wash? What's your opinion on this?

>> No, it's it's unlikely to pull the index down. And so, you know, what? Okay. So, so this would be a net positive for the the the the markets as well.

100%. Yeah, there's more there's going to be more emotion on the buy side of things than on the sales side of things. So, ultimately, you're probably going to see index indices that continue to move higher in the absence of further catalyst. And I keep alluding to this, but in our opinion, we think a very underappreciated risk in financial markets is that global central banks really start to engage in tightening cycles over the medium term to quail, you know, to kind of quash what we believe are, you know, core inflation pressures that are separate and apart from uh the elevated energy price in the in the energy supply shock. Uh, I think there's a, you know, if I can be frank from my from our from the perspective of our analysis, there's kind of quite quite a lazy uh uh viewpoint uh in global financial markets right now that essentially assumes uh that, you know, the the elevated rates of inflation that we're observing, particularly here in the US economy, are primarily being driven by uh inflation or sorry, by crude oil, by energy uh inflation and the reality is that's not true. Uh, what's true is that we have an overheating economy, which I was on your program last spring calling for uh, you know, signaling the upside risk associated with uh our paradigm C aka run it hot theme going back to uh near the lows of last April. And so obviously we're, you know, obviously much higher in in market prices and much higher in economic terms. So that was obviously an accurate viewpoint and we're essentially saying we're getting to a place in the context of that view that is really starting to signal some meaningful inflation pressure. But, you know, I I'll I'll pause there and kind of let you finish on this uh on this thread.

Yeah. Yeah. Okay. So, just a couple threads I want to pull on this. Sorry to get back to my my previous question, but um, what I want to make sure we're setting folks's expectations correctly, at least looking through your eyes. So, um, assume peace deal struck, you know, tomorrow, next week, whatever. Um, straight reopens. um, with this capital rotation, it will be net positive and certainly you'll be able to really ride the um, the stocks of kind of every other sector besides the AI1 as they recover. But I I don't I I just I don't think that necessarily means the stock market's going to go on a crazy tear higher again because as capital moves from one side to the other, you know, the the hyperscaler stocks will likely be selling off as this goes on. So it'll be sort of counterbalancing it. So, it's not a net negative in your opinion. Maybe a net positive, but it's not necessarily like, oh my gosh, if you think the S&P has done well this year by being up 10% or whatever so far, it's going to close the year at 25% up or something like that. I I'm not I want to make sure folks don't get that impression from this discussion.

>> No, it's uh so I'll start by saying that it's uh it's not a zero-sum game. Liquidity is still expanding. Uh, so right now if you look at our global liquidity model

liquidity global liquidity which we take as a as a, you know, our global liquidity proxy which sums total assets on global central bank balance sheets plus global broad money supply plus global fiat FX reserves, that metric continues to trend higher and moreover when we look at the leading indicators of global liquidity, we think about things like the currency currency v, uh, interest rates, bond market volatility, you can kind of see that better in these charts here, uh, you know, global growth, inflation, global unemployment, the things that lead global liquidity from a three and six month uh, uh, lag perspective. Those things are all currently signaling that we should still have a modest uptrend in global liquidity over the medium term. So you you think about this set of rotations, uh, and then sometimes that could be a zero-sum game and it would be a zero-sum game if liquidity weren't expanding. Uh, but no, as I mentioned, liquidity is currently trending higher and key leading indicators of global liquidity are signaling a modest uptrend over the medium term. So as long as you have liquidity expanding, it's not a zero-sum game. What ultimately is likely to happen, kind of, you know, landing the plane on this, is that you just probably have a little bit of a catch-up trade where, you know, tech and mega cap growth and all the AI providers are going up still, but you ultimately have a bit of a um, you know, faster appreciation in some of the uh, sectors that are going to be most impacted by the diffusion of AI throughout the economy from a productivity and profitability standpoint.

Okay. All right. Got it. Thank you. That's good clarification. So, is it fair to say, correct me if this is wrong, but is it fair to say that you think the um stock market will perform moderately well to use your term over the second half of this year?

>> Oh, uh my expect our core expectations, let's take it back to our

And again, should should there be a peace struck? I I should make that really clear because that's the context we're talking about.

>> Yeah, absolutely. We don't have any fun, you know, I don't have a strong view on that. I mean, I do have a strong view on that. I mean, going back to what we signaled at on the night of April 7th, uh, you know, I think I was on Bloomberg on April 8th talking about this, which is by removing by essentially um, when you go back to the original contours of the ceasefire, you know, one of the original um, you know, uh, elements of that of that ceasefire was the fact that the the Iranians were okay with reopening the trader Hormuz upon, you know, certain dynamics. Obviously, all those dynamics have not been met. those elements haven't been uh, you know, cross you know, cross-checked, but the reality is that in our opinion at the time and real time, we said, hey, this is a signal that their ultimate goal is not to sort of, you know, tank the global economy and and keep the trade over moves uh closed. Now that has become the result, but that's that's become as a function of, you know, the two the two parties being far apart on some of the key elements. But the reality is in our view, we maintain the same view that we had back then, which is this is going to get resolved positively. Um, you know, they they entered a negotiation, we're willing to give up a reopening of the straight or Hormuz. And so I think what we're seeing with the headlines this morning is that it's moving in the direction of what we thought all along, which is that it will get resolved positively. And so if it gets resolved positively, then you have to go back to what are the core themes uh in financial markets and and are those themes adequately priced in? And so we'll just kind of look at what our active themes are here. To answer your question, Adam, we got our sticky inflation theme and and and by the way, for those who have not seen this yet, uh orange, this is our fundamental research summary. We update this and and and include it in our uh, in every 42 macro research report. It doesn't change much because, you know, it takes, you know, lots of data and analysis to to kind of remove something or from this page or to put something on the page. But the reality is, and we'll make sure clients are well aware of what's changing. But when we go into the fundamental themes, most of our fundamental themes are bullish. Uh, sinky inflation is obviously bearish, you know, with the red lettering there. But resilient US economy, which you and I were, you know, back in the fall of 2022 talking about how resilient the economy was going to be. Everyone was worried about recession then. Uh,

>> and it's been remarkably remarkably so. Yep.

>> Yeah. No, thank you, man. Appreciate you. Uh, Paradigm CK, run it hot. Everyone was freaking out about tariffs in April of last year. We basically said, "No, they're going to run this economy hot. You got to get long, you know, at risk assets." That was accurate. Productivity boom theme. We authored that in the fall of last year alongside our jobs discovery theme. Both those themes are incredibly positive for corporate profits. FYI, corporate profits are booming at levels and rates that we have not seen since, you know, the first half of 2021, cooling housing and labor. That's a positive dynamic as well in terms of telling the Fed that it doesn't necessarily have to chase uh accelerating headline inflation. And then source of funds, exactly what I just highlighted in terms of that catch-up trade uh uh from AI providers to the to the AI beneficiaries. And so most of these things are either explicitly positive or really have no net, you know, kind of impact on financial markets from a directionality standpoint. The only thing that's negative is sticky inflation. And in our opinion, we think the sticky inflation thing may cause some problems uh once we get uh maybe, you know, um, you know, may cause some problems over the next, let's call it, three to six months. But I I certainly think we'll resolve that uh that those issues uh in a really positive manner by the time we get to year end.

Great. Let's let's actually talk about that because that's where I was going to go next. So okay. So if I've heard you correctly, your sticky inflation thesis pre-exists the oil price shock. So even if the oil price shock, you know, gets resolved relatively soon, we still have the original sticky inflation drivers in place. Now pair that with run it hot, right? So you have been very accurately predicting that the US uh economy was going to continue to strengthen coming into this year and I've actually been surprised at how robust it has been given the dampening impacts of the war on top of it. Right? So you remove the war. Well, then it's just run it hot has an open playing field to to run. Um, so a do you expect the um the US economic growth story to kind of go into overdrive if this um war is resolved relatively quickly and does that then exacerbate the inflation?

>> Uh yes yes and yes.

Okay. That's why I'm so concerned about the next, you know, let's call it three, maybe not three to six months, but per perhaps the next two to four months is because we ultimately have to figure out whether or not the Kevin Walsh Federal Reserve is going to look through uh these sticky inflation pressures. If they look through the sticky inflation pressures, let me slow down and say this. I want everybody to hear this appropriately. The stock market will bubble if they send a signal that they are going to ignore near to medium-term inflation pressures. This is very similar to what happened in the late 90s. And so,

>> sorry to interrupt, but but what would that look like? The Fed saying, "We're not going to raise rates."

>> Yeah. It'll it'll just be, "Hey, we we understand that there's inflation here, but we're headed for a disinflationary productivity boom. Just give it time." That's exactly what Greenspan did in the 90s. And we think Kevin Walsh was essentially hired to be the guy with the most amount of credibility to engineer that message. Now, we don't know how, you know, uh, effective that, you know, how how well that plane's going to land because in the context of the rest of the 19 member FOMC, Kevin War has only one vote. Um, you right now you have 10 different estimates of the median or sort of the neutral rate right now among FOMC participants. When you look at the direction of travel from the receptive of their communications, it's all generally been in a hawkish manner. And so, he may not be successful with that. he may actually have a dissenting Fed against his own vote to hike interest rates at some point uh uh here in 2026 and into the early part of 2027. And so markets don't know that's a that's a known unknown. Those are two known unknowns. One, how will the Fed respond to Kevin Walsh? And two, what will the Fed do in response to sticky inflation? Those are two those are two known unknowns and I don't know that anybody has a credible answer to that because again, we have a new Fed chair with a new who's trying to institute a new reaction function and institute a you know massive overhaul of regime change in the institution. So if anybody tells you they have an answer to that right now, they're guessing. And I don't guess you don't guess. But your your playbook is if the Fed decides to look past the rising inflation, the stock market's going to go run on a tear higher

>> 100%. Because that's incredibly positive for nominal earnings. Uh, and right now nominal earnings are booming. And so you're essentially saying we're going to have an incremental boom to nominal earnings. Right now the investors have to be the most concerned about the Fed taking away the punch bowl. And right now, you know, if you think about the punch bowl right now is is this nominal earning cycle. If you look at next fiscal year EPS for the Msei US index, it's expected to grow 30%. And we're already growing something like 20% now.

Talk about shooting the moon. Yeah.

>> this is exactly the risk we're up call for. By the way, the rest of the world, if you look at MSEIXUS, is currently projected to grow 34%. So, even faster than what we're essentially saying. And so uh but you still have this valuation discount that we talked about uh in February uh in late February when I was on your show. Uh, there's a 60% valuation uh dis uh premium in the US market relative to the global equity market even though the global equity market is projected to grow earnings faster uh in the next uh fiscal year. And so ultimately we just think the AI diffusion trade is going to be an underlying you know kind of core dynamic of financial markets. it was being priced in pretty materially from let's call it fall of last year all the way through February of this year. But that got interrupted, you know, once investors got very concerned about the near-term earnings outlook and ultimately the the monetary policy response uh to the stinky inflation pressures to the buildup and stickiness of inflation pressure.

God, I'm sorry, Darren. I just have a zillion questions for you. I got

>> they're trying to be measured in them. But so of this this acceleration of earnings expectations.

Um, h I'm presuming a lot of that's due to AI or or second you know f first or secondary effects around AI. How much of it is due to capex spending, meaning the bet on AI versus um productivity increases, you know, where the corporate fleet is finally starting to get the return from AI investment that that that we've been promised.

>> No, it's both. It's both in our opinion. So, I'll start by saying uh if you look at uh the the the capex, I mean, we're already talking about, you know, almost $800 billion of capex just from, you know, the hyperscalers this year. Uh, and that obviously has a It ripples across the global economy from the perspective of, you know, the chip suppliers in in Taiwan and the memory suppliers in Korea and the industrial good suppliers in in Japan and and then the Netherlands and Germany, you know, this is rippling across the global economy uh from this. I mean, you know, $800 billion is more than 2% of US GDP.

Right. This is just in one year. The capex intentions. And that's

>> supposed to be over a trillion next year.

>> it's I think it's 1.2 two trillion. Again, this is just US US US companies. You know, I haven't seen any estimates from a global standpoint, but we obviously know the rest of the world is very much on on board uh with this as well. So, that's that's step one. So, we know the the capital uh spending programs of these large uh, you know, AI providing companies are creating a tremendous amount of upside from a, you know, earnings growth perspective in the near term. They're also adding to inflation pressure, by the way. uh, this is a tremendous massive uh aggregate demand shock that we think the central banks are going to have to actively debate how they respond to uh in the coming months, which is why we think there's some two-sided market risk, which is why answering your question, I think we finished the year at a much higher level from a stock market standpoint than we are today, but that doesn't mean we can't have a let's call it 10 to 15% draw down between now and then as a function of central banks reaction function uh getting incrementally hawkish. we we just don't know the answer to that yet and so uh, kind of landing the plane on this. If you look at revenue per employee, uh, you know, we've been growing comfortably above trend and we use this as a proxy for productivity growth because we most of these countries record productivity statistics on a on a severe lag. So it's hard to kind of see that in real time, but if you look at revenue per employee, uh, we're growing above trend in the US at 6%, we're going above trend in in the Euro zone at plus 11%. We're going above trend in the UK at plus 11%. We're at trend in Japan at 1.5% below trend in China at minus 3.5% and growing well above trend in the global uh uh equity market at at plus 9%. So, you know, we're seeing the the the productivity growth already happen from a revenue per employee standpoint. We know there's a tremendous amount of we know there's a massive aggregate demand shock in the form of the AI related capex. So, we have this massively positive earning cycle. Uh, and and this is just from AI. There's also all these other things that you and I have talked about over the years, particularly since April of last year, that are still favorably impacting the US economy specifically. We have massive deregulation tailwinds. We have massive fiscal policy tailwinds here in the US economy. We have a very resilient consumer that's supported by incredibly positive balance sheet dynamics. So, there's all it's a lot of really positive stuff, which is what I was screaming from the high heavens last April when everyone was freaking out about tariffs. So you you definitely were and I this is a very pleasant routine we have Darius where I get to compliment you on the precience of your calls because you've been you really have been one of the guys uh maybe at the top of the list. Not one of but the guy who has called things the most accurately over the past couple of years. Um

>> now correct me if I'm looking at this wrong. I I do see the increases in revenue per employee that you circled here on a relative basis and granted these are early days so this thing could totally rise from here but it doesn't seem to be on the magnitude of other periods we've had where um revenue from per employee, you know, had said some great cycles here. So I'm guessing in the kind of here and now of the snapshot of where we are in the markets, the impact is mostly coming from the capex spending versus from the um the productivity benefits of AI. But those I'm I'm totally willing to bet that the productivity benefits will continue to increase from here. But when I look at all this um plus the other things that you mentioned, right, the reg, you know, all those other sort of tailwinds that are letting the economy leading the economy to run hot like it is. I gotta say, Darius, I mean, I'm a guy who has a lot of high-end macro concern, like long-term macro concerns, and I know you do, too, to a certain extent.

>> Oh, yeah.

>> But I just don't see how a recession is possible anytime this year or early next year, unless something dramatically changes. There is just a tsunami of money flooding into the economy, plus those other tailwinds you mentioned. Do you think similarly?

>> Yeah, no, I think we could if folks are on your your channel using the R word. Um, just tell them to punt it into the ocean at least until late next year. Just take the R word, punt it into the ocean and and and just worry about everything else. You know, we've been saying this for since last April when we offered the paradigm C theme. And by the way, for those who may be new, we don't have time to unpack it today, but paradigm C is the grow phase of the cut grow sequence that you that sovereigns and obviously the US sovereign being the most important one have to sort of undergo to to deal with a supply demand problem in their in their bond markets. If you have a supply demand problem in your bond market, you only have three choices. You can try to cut your uh fiscal deficits and the rate of debt accumulation. You can try to grow your way out of the problem or you can try to print your way out of the problem. We think the US is going to try all three in different orders and you know, different times. But the reality is as long as we're in paradigm C, which is the growth phase, you have to expect above trend nominal growth, above trend real growth, above trend earnings growth, and ultimately above trend capital uh appreciation in in in things like the equity market, and that's exactly what we've been calling for. That's what the history suggests and that's exactly where we are in this moment in history. So, you know, we think if you look at the consensus shortr run potential road GDP growth expectation, which is the blend of the current year and next year. So essentially what does the wall street economist consensus, which are the best forecasters in the world on on the growth on on, you know, in terms of the economy, what do the best forecasters in the world think the US economy is going to grow on a base effect adjusted basis, you know, uh, you know, over the next, you know, this year, next, and it's at 2.1%. We've been saying since la last April, it's at least 3%. And so consensus is about 50% too low on growth relative to our paradigm C theme. Uh, I would argue our productivity boom theme is meaningful as well. Our resilient US economy theme, particularly from the sp of the consumer, is meaningful as well. And so Adam, to to answer your question, we are nowhere near a recession uh in the US economy. In fact, if you just kind of look at some key leading indicators of that dynamic, you know, initial and continuing jobless claims uh signal that we're in a low probability development recession. And if you look at the three-month annualized rates have changed, they're well below the recession signaling thresholds at the current juncture. If you look at our 42 macro fab five recession signaling indicators, which I I think I introduced these on your program three years ago, uh, you know, in 2023, essentially saying, hey, a lot of folks still think there's going to be a recession. The remember I think you had the analogy that was like cops knocking at the door of a party and

>> Exactly.

Or something like that.

>> Gets the wildest right before the cops show up. Yeah.

>> Exactly. Exactly. And, you know, we use these indicators essentially to say, hey, there wasn't going to be a recession back then. Obviously, you know, we refreshed this analysis on a on a basian basis, you know, throughout and so there at no point do we ever see that there was going to be a high probability of developing a recession in the US economy. Right now, only one of the five indicators, the University of Michigan employment survey, is currently breaching its recession signaling threshold. The others are all comfortably away from their recession signaling thresholds. And then finally, our business cycle model, which essentially tries to identify how the various interconnected cycles within the business cycle uh are correlate, you know, kind of um, you know, aligning to uh to to kind of signal a recession or recovery from a recession. You know, right now we know that there's historically a pattern in terms of how things have historically um, uh, uh, transpired when you look at all the post-war business cycles stacked on top of each other. So we know that policy, if you look at uh, interest rates, they tend to get restrictive about, you know, 15, 18 months ahead of a recession. Uh, corporate profits tend to break down durably below trend about 12 months ahead of recession. Liquidity tends to break down durably below trend about three quarters ahead of a recession. Growth and stocks tend to break down uh durably below trend about two quarters ahead of recession. Credit uh and employment tend to break down durably below trend right when the recession starts. And then inflation, being the most lagging indicator of the business cycle, tends to break down durably below trend 12 to 15 months after recession. So if you're trying to predict a recession using these, you know, this kind of cycle-based analysis, what you essentially want is some, you know, the the current data to kind of resemble this historical pattern, which again includes all the post-war US business cycles. And right now, not only is the current data or the current data not resembling this this historical pattern, they're actually hooking up uh in in some of the um, in some of the cycles. And so we would argue this is actually a business cycle that is gaining steam right now. And so this goes back to the point I made about the stock market potentially bubbling. If the Fed does not take the punch bowl away from an economy where inflation is accelerating and well above their target and an economy where growth is accelerating and well above consensus expectations, in our opinion, we think that is a tacit signal to investors to say take on more risk. You know, put increase your equity allocations in your portfolio, flow funds out of the fixed income asset class and chase uh the stock market. And this is how you can easily get equity market bubble if we're not already in one.

And that only becomes more so if there's an end to this war. Price of oil comes down. People less worried about geopolitical risk. Correct.

>> Yes. Yes. Yes.

Okay. Um, so a couple I've got like a thousand strings to pull. I'm only going to pick one or two folks. I promise.

>> Take your time, brother. I'm chilling, man. I'm here to educate the people.

I love you, brother. Um, so people will there's a comment you made about how um consumer spending has remained resilient and actually seems like boy it's like it could get stronger from here and I agree with you. I think that could happen. I'm not as close to the data as you are but the data that I look at uh tells a similar story. And I know for a lot of people listening to this, there's a cognitive dissonance because they're regular people and they're looking around them and they're saying, "What are you guys saying?" Like the cost of living is continuing to go higher. Now gas is at, you know, 450 or if you live in California, it's getting close to seven bucks a gallon, right? Like people are hurting. This is not a we, you know, a lot of the country is in a recession, maybe a depression. Um, and I I've had a lot of conversations about X about this recently, and I I don't deny any of that, and I am very concerned about it in many ways, but I've made this statement. I'm going to make it again. It sounds terrible, and I don't mean to make this uh in the way that it sounds, but in terms of economic growth and how the economy is fairing, it almost doesn't matter how poorly the bottom leg of the K-shaped economy is doing as long as the top leg is over compensating for it. Is that a correct statement, Darius?

>> Yeah, it's always been about the net. Uh, and this is why, you know, I think we uh, and thank you for bringing that up because it it breaks my heart too, that we have an economy, a K-shaped economy. You you coined the phrase this lowercase eye dotted economy, which I think

>> Thank you for remembering. Yeah.

>> Yeah. Now increasingly headed to in fact I think by the end of this AI you know rainbow whatever you want to call it maybe it's not a rainbow by the end of this AI you know theme becoming very obvious to every you know person investor government in the economy it will be very clearly a lowercase I dotted economy.

>> It'll just be a bunch it'll be some trillionaires in the dot and then the rest of us.

>> the rest of us, you know, very dystopian manner fighting for resources, but, but let's let's save that for for discussion.

>> Exactly.

>> Uh, the one thing I I will bring I will show you a chart here which caught my attention on on on X the other day, which is similar to our analysis, which is, you know, you know, when you look at the BEA, when they publish the distributional statistics, you know, uh, they only break it out into quintiles. So it's hard to get further down drill down into that. Uh, Moody's, you know, use some data, I think some Federal Reserve survey data to kind of break it down further than that. Uh, and this was published in the Financial Times the other day. the top 10% of US consumer consumers by income percentile, you know, the top decile account for almost 50% of consumer spending, and that's up from about 35% of consumer spending back in uh, the early 1990s. Bottom 80% bottom four quintiles, I mean, account for only about maybe let's call it 37%. This is why we continue to see the res the resilient sorry, no, this is not why the economy has been resilient. The income support of the top 10% is why the economy has been resilient.

>> Right.

>> We've supported their incomes both from a federal standpoint.

But also from the perspective of of financial, uh, uh, markets. And so, ultimately, you've had this, you know, this massive, um, you know, this massive, you know, kind of wealth trans, wealth and income transfer from, you know, let's call it the public sector balance sheet to the top, you know, kind of quintile or top decile of households, which has allowed them to support consumption.

You know, fun fact, uh, we have about 11.5 trillion dollars of cash on the household US household sector balance sheet, and that's up, uh, about $8 trillion since the, since right before the pandemic. So obviously, you know, we've more than tripled, we've essentially tripled, uh, in that statistic, and really just, you know, call it, let's say, in less than six years. And that, that 11 plus trillion dollars is somewhere around 5% of total household assets. You know, we, it typically is around 2% of total household assets in terms of total amount of cash. So the rich are filling, as rich and flushed with cash as they have ever been in as far back as we have the data, which goes back into the, the 1940s. And so, you know, this, this wealth effect dynamic is real. It's supporting consumption at a time, uh, where, uh, you look around and you see elevated rates of inflation. You see a stagnant labor market that would suggest that, hey, you know, we shouldn't have, uh, trend or at trend or above trend consumption. But the reality is, we've been able to do that because of all the income support and because of all the, uh, uh, stock market appreciation that we've seen in recent years, compounding at plus 20% per annum. So obviously, that's only going to get more distorted, um, in favor of the wealthy, as the current, um, dynamic we have that is pushing asset prices ever higher, right? Because it's the rich that own all those assets, right?

Um, so folks, I promise I will do this with Darius in the future, especially since he's coming on more frequently. Darius, in one of your, your next appearances, let's do a deeper dive into, um, what a fourth turning would look like economically. Uh, because I, I've got to believe, I mean, I know you're, you're, um, a big student of, uh, Neil Howe's fourth turning framework. Um, but I got to believe you think that this is, this is, uh, dangerously unsustainable, right? Um, I, I have no idea how close we are to the, the point of breakage. Um, but if you keep concentrating wealth like this, uh, eventually something breaks, right? A societal rebellion, whatever. Right. So we don't have time to do it justice now, which is why I'm not pushing you to talk about it in, in depth right now, but are you okay doing that at some point in the future in more depth?

>> Would love to do that. I would love to do that. As you and many of your viewers would know, I'm, you know, big fan of Neil Howe, former colleague, good friend. I've learned a tremendous amount. He's been, I consider him to be one of my top mentors throughout my career. I worked with him for a long time in my previous, um, in my previous role. You know, I would say Neil and, and, and, and former Fed chair candidate Rick Reader are the two smartest people I know.

>> Uh, you know, having been in many meetings with both of them, learned from both of them over the course of my career. And, you know, Neil's work, you know, I think if a lot of folks who are kind of new to Neil's framework, you know, I, there's some guy who had the worst tweet of the 21st century said, you know, fourth turning is a horoscope for men. That tweet has aged like warm milk. I won't name names, just to spare him the humiliation. But, uh, you know, in our opinion, you know, kind of just landing the plane real quick on this, and we'll do a deeper dive on this in one of our future, uh, segments, but the key takeaway, the big risk of all this is the, the political ramifications of it all.

Income and wealth inequality have always been met with resistance from the perspective of, of, of either revolution or just general overhauls of the, how the government functions in society. And so, what's more than likely to happen if we continue to go down this path from an income and wealth, uh, inequality perspective, particularly as it, as all this sort of AI capex and this massive aggregate demand shock boosts inflation, you know, having our second, you know, inflation crisis here in, in the last five years, you know, we're basically squeezing the, the, the lower part of the K or the bottom part of the lowercase I in a way that is very unhealthy and unsustainable. And so, ultimately, it's going to have a ramification in the form of maybe nationwide wealth taxes. You might start to see states, you know, overregulate AI, ban AI, ban certain uses of AI in a way that could be really negative for the forward outlook and return estimates for a lot of that capex. Um, you could ultimately see, uh, states essentially saying, "Hey, I'm rejecting federal regulation to not ban AI, to not regulate AI. I'm going to succeed. I'm going to, you know, nullify, you know, federal views." This stuff has always happened in fourth turnings, you know, going all the way back to the 15th century. And, and unfortunately, uh, spoiler alert, uh, every single fourth turning since the 15th century has ended in total wars. So that's not to be, you know, a doomsday. I'm not a doomsday person. You, I think we understand these dynamics as well as anybody. And, and our conclusion, which was a very unique conclusion among macro thinkers at the time, going back to when we first, uh, uh, uh, published this, uh, research back in the fall or back in September of 2023. Our conclusion was that the central bank is not going to allow all these negative outcomes, and that they're going to be overly, uh, responsive from a, from a, um, a monetary easing standpoint to prevent all these negative outcomes, to deal with the supply demand imbalance in the bond market. That's a function of a rising geopolitical risk. That's also a function of structurally elevated inflation. And so, in our opinion, we think the Fed is still going to be on board. They might have to get dragged kicking and screaming to support the bond market, uh, over the coming years. But ultimately, I think we've been right as rain on our pivot out of the bond market into gold. Uh, we've been right as rain on our structurally bullish outlook for the equity market, uh, which we maintained since January of 2023. Uh, and, and, and, and so on and so forth.

>> All right. Um, so folks, I do promise we'll do a deeper dive on this. The Darius, the reason why I brought all this up is, um, what we're talking about right here with these fourth turning things, um, those things are going to take time to play out. And even though we are starting to see elements of them, right, we are starting to see some pushback against AI, we are starting to see, you know, the, the election of candidates who are pushing wealth redistributive policies, Zorhan Mandami being a great example of one.

Um, it is still early in this process. And so, what I just want to let folks know is it, I hate to say it this way, but like, it doesn't matter yet. And so, you want to be very careful about, um, getting too concerned about what may be very correct predictions, but if they don't matter now, you're going to get steamrolled by this juggernaut of increasing economic growth, um, rising asset prices, etc. And so, you know, that's the, what the value of services like Darius's do is they tell you what the market is doing right now, not what it should do, not what we wished it would do, but what it is doing right now and how to position for it right now. And I, I just say this, Darius, just because you've probably seen the same. A lot of the things that that, you know, are creating the fourth turning and that people become aware of and say, "Oh, that's a big issue that's going to create a crisis down the road." A lot of that stuff was visible to people 10 years ago. And I know people all along the way who, who got so immediately, you know, uh, scared of that is that they moved to the endgame investment position and then the market passed them by for a decade, right? And so, you just got to, that's why I, I hate to say it this way, but like, until it matters, it doesn't matter. You got to just play the market that's playing out in whatever regime it's in right now.

>> Adam, thank you. Thank you for saying that. Uh, if the, if there's one thing I can teach your audience, our audience, the general investing public, is that it doesn't matter until it matters. And this is why, you know, our service is essentially optimized. It is optimized to prevent what we call type two errors in institutional finance. And so, there's two types of errors you can make as an investor. One being a false positive, a type one error. Uh, we'll just kind of use this, uh, let me just draw here. Type one error is what we call a false positive. That means you are essentially trying to bet on what the market is pricing in, either bullish or bearish, and the market changes its mind. A type two error is what we call a false negative. Institutional finance, a false negative means the market is doing something, it's betting on something, and you take the other side of what the market believes. Uh, the market, we're in a raging bull market, and you want to say, "Okay, I believe in the fourth turning, and I'm interpreting it wrong. Uh, and so I'm bearish." Or, or, or we're in a raging bear market, uh, and, uh, the market's cheap, so therefore I got to buy. That's what we call a type two error, a false negative. Those type two errors, when you go back and you study this statistically, which we've done, you know, I've done throughout my career. I've done tremendous amount of statistical analysis on this stuff here at 42 Macro as well. When you study the, the type one errors versus type two errors, uh, in the context of an investment process, in the context of a return, you know, investment return streams, the type two errors are significantly larger, more hazardous, more costly to both your financial health and your well-being. Uh, uh, you know, kind of one of my favorite slides, um, you know, I think I might have explained this slide on, in your, uh, presentation, uh, uh, on your show, uh, you know, a couple years ago, but the reason, you know, you have to make a decision as an investor to optimize your risk management process to either avoid type one errors, which are false positives, i.e., the market changes its mind. I was, I'm trying to hang out with the market, but the market changes its mind, or the type two error, which is, I think I'm smarter than the market, so let me fade the market, let me buy when the market's going up, or sorry, let me buy when the market's going down, or let me sell when the market's going up. Those type two errors create significant problems and significant tracking error in bull markets and, you know, to the downside in terms of underperforming, and they also create significant, uh, drawdowns, uh, in bear markets. And so, you know, what this chart shows is essentially why we have optimized our process for avoiding type two errors and why the entire hedge fund industry exists to begin with, which is a, you know, an industry that's designed to eliminate type two errors from their clients' portfolios. So, this, this chart shows, you know, uh, two investment strategies which have 50% identical, 50% average annual returns. Both strategies are the exact same in terms of their average annual return. Uh, but one strategy, strategy A, which essentially features risk management, you know, to kind of cap up, you know, caps to you, you essentially trading some of the upside to prevent some of the downside. Uh, you'd wind up with, you know, $337,000, uh, after year three, with 50% average annual returns from an initial investment of $100,000. Where strategy 2, which doesn't feature risk management, you're essentially just going along for this big crazy ride, uh, uh, in financial markets, you wind up with, let's call it, not quite half, but, you know, let's call it maybe 40% less money, uh, than, uh, strategy 2. And again, these have two, the same exact average annual return. And the reason for this is because the sequence of returns is arguably the dominant thing in markets, which is why I don't think you should apologize for saying it doesn't matter until it matters. You should never apologize for that. The whole entire, you know, $5 trillion global hedge fund industry, which, you know, I spent my career, you know, building models for and risk management systems for, that industry wouldn't exist if this slide wasn't true. If the sequence of returns wasn't the most dominant aspect of financial markets. Our goal is to have money in the future. And so, you can ultimately have more money in the future by managing risk, by avoiding type two errors, which is exactly what our risk management overlays, KISS and Dr. Mo, are optimized for.

I I love this chart and I love your explanation of it. Um, you know, I, one of the common threads of this, this platform, Thoughtful Money, is the importance of risk management. You're empirically showing people that right here. Um, all right, Darius, I gotta start wrapping up, but real quick, um, uh, you are wicked smart and, um, it, it amazes me. Um, I mean, not not just your, your level of of of smarts and intelligence, um, and how you apply it all, but you deal with so much data and yet you're able to process it and and make it understandable for folks. But the thing I got to tell you, the thing that gives me the like that convinces me the most that you're a savant is that slide presentation that you work with. It, I, I think it looked like it had 166 slides in it.

>> I think so. 166.

>> Your ability to say, "Oh, there's a slide for this." And then you enter in the slide number and go directly to it that you know out of the 166 slides exactly which slide you're going to. It's unbelievable. I mean, it's, it's, it's, it's almost like a Rain Man type of talent. It's amazing.

>> I, I am cheating to some degree, two owns. One, I make the slide deck myself, so it forces me to, uh, you know,

>> Sure, but there's still 66 of those slides to remember and to know which order they're in. It's amazing.

>> Fair enough. But I, I'm guessing a lot of times, okay, I think it's slide 130, and then sometimes I'm right, sometimes I'm wrong. So, I'm not, it's not, I'm not as soanti as you think I am. You know, let me, and I, I really do want to, um, um, push back on that because I think there is a, you know, this is not just in finance. This is in every, um, every field where you know, we use our brains. There's a belief out there that there's a, you know, people with, you know, excess brain computing power that generate these positive outcomes. But for me, and from my interactions and travel around the global buy side, you know, that hundreds of institutional investment accounts across the global buy side, many thousands of meetings over the course of my near two decades on global Wall Street. The best investors aren't necessarily the smartest investors. Quite frankly, a lot of times the smartest people in the room are the ones who are most wrong because they develop a sense of overconfidence. And I've seen it many times and, you know, some of the most hallowed, I've, I've debated and, and witnessed debates with some of the most, some of the top investors in the world, you know, on many occasions. And a lot of times the folks who are most wrong tend to be who you and I and CNBC and Bloomberg and Fox Business thinks are the smartest people. M

>> It's not the smartest people, it's the people with the most discipline and the best process. And those aren't the same thing.

>> I, I totally agree. And look, you have, don't have to look any further than Long-Term Capital Management to know how the smartest guys in the room can screw things up. Or, and I will say, especially in my journey through life in corporate America, but but especially in my journey through finance, um, I have learned what you've learned, which is the smartest guys, uh, they might have their, they often do have their moments in the sun, but their long-term track record generally vastly underperforms the people who, who, as you said, have a framework and are disciplined. Or as I would say, are just practical. Right? And this is, this is not, um, the only success factor, but a very common background that I find for the people who, who are successful in that way is they were athletes. And I know that you were, Darius.

>> Military too.

>> And military, yeah. You know, people who have done the hard work of of, you know, days of grinding towards an objective. Um, and then being very practical if that objective moves and how do I change and okay, we're down this play. How do we get back up next play? Right? It, it's the people who have been in the arena and just learned how to kind of, you know, I don't want to say outthink the enemy, but they've just learned that if we just are disciplined and we've got a good game plan, we're going to, we're going to gain more yards than we lose in the end, and therefore we're going to get there.

>> Oh. Oh my god, Adam, thank you for saying that. I have nothing to add because it was brilliant. Thank you.

>> Well, whatever. Okay. Um, again, it's all just a reflection back to you about how smart you are. Okay. Um, or, or at least how successful you are. Um, okay. So,

>> How process-oriented and disciplined. Diane, I do the same exact

>> Which then leads to your success. Um,

>> Six days a week, I do the exact same thing. Exact same thing. Most people cannot say that in our industry, and that's why their results, you know, t, you know, differ a little bit from ours.

>> Yeah. Um, gosh, I, I'll take 30 seconds on this because we got to start wrapping it up here and I, I don't want to cheat you, but, um, as most folks who are watching know, um, Darius, I started a, um, you know, I talk about the importance of investing in the things that really matter. You know, money is super useful and helpful, but it's a means to an end, right? It's not the end.

>> Amen.

>> What are the ends? Well, good health, functional health, fitness stuff. That, that, that's one of the ends. And, um, so I try to, when I can, model for folks. And so I've, I've been very transparent in saying I just set a, uh, or started a like a, a fitness transformation program. It's a 12-week program. I'm now in month, like, sorry, week three and a half of the 12-week program. And I'm posting my results on X so folks can see whether or not I'm actually progressing or not. But it's to show people exactly what we're talking about here, which is if you are commit, if you come up with a good plan, you're committed, you're dependent, you pick yourself up after setbacks, you get back on that bike or horse or whatever it is, um, you can achieve the goals that you set for yourself. And I got, what, six and a half more weeks to go. So I could still, sorry, eight and a half more weeks to go. I could still screw this up. I mean, I'm, I'm doing this publicly. It's a live experiment, but my intent here is to show people at the end that, yeah, all right, look, if, if that dude who sits at a desk most of the day, you know, can, can transform that way, then maybe I can do the same as well.

>> Amen, brother. And, uh, not to blow too much, uh, smoke up you, but, uh, two things. One, it's already working. Uh, your jacket is, is thin. I can see how jacked you are underneath your jacket. And, uh, your cheekbones. The last time you and I were on, your cheekbones.

>> Yeah. Yeah. No, totally. You're a handsome guy, man. I'm sure you get that a decent amount. So, uh, keep it up. Whatever you're doing is working.

>> Well, thanks. Well, well, I got to get there and then I got to stay there. But anyways, let's check back in when you're on again in the future. Hopefully by month, uh, week 12, I'll, I'll, I'll have not made a fool of myself. But again, the whole, whole under the whole foundation of this is just to show good plan combined with commitment and discipline. You're, hey, I do the same thing six days a week. Nobody else does. Like, I'm trying to show that you don't have to be brilliant. You can just apply yourself and get there. Okay. So, in, in starting to wrap up, one word you have not yet mentioned, Darius, is valuations. And, um, you know, I know your model takes in a whole host of other things and that valuations in and of themselves are almost useless timing indicators. Um, what is your level of rumination on valuation, Darius? Is it something you're even worried about?

Oh, uh, to answer the question, no. Uh, I don't think you should ever be worried about valuations. Valuations just, just, they just tell you where the supply and demand balance in the market is at the current juncture. It doesn't tell you if the supply is going to increase. It doesn't say the demand's going to increase. It is if the supply is going to increase relative to demand. It doesn't tell you the demand is going to increase relative to supply. It's just a snapshot of time. Uh, you know, what matters more is tracking, uh, things like valuation, tracking, you know, things like, you know, implied volatility, correlations, tracking investment allocations to various asset classes, and noticing when they breach critical thresholds, and noticing when the momentum ebbs and flows in these things. That is what matters from the set of the positioning cycle. But the thing I'll say about the positioning cycle and, and also why I answer the question the way I did, positioning cycle is not a catalyst. It does not determine the momentum and dispersion within and across asset markets. What determines the momentum and dispersion within and across asset markets are the other five key, uh, macro cycles. See, I got one wrong. This supposed to be slide 23. What determines the momentum of search? Other key macro cycles are the others is growth, inflation, monetary policy, fiscal policy, liquidity, right? What we really trying to figure out is, as investors, you know, which is hard to do, but is very important to do, which is what is the supply and demand of capital and capital assets? Like, that's what we're trying to figure out. And we use things like growth, inflation, monetary policy, fiscal policy, and liquidity to essentially approximate those things because there's no statistics to actually determine that. And ultimately, what positioning does is it accelerates the market response from these other five key macro cycles. So, if we get to a place in the positioning cycle, let's call it, if we're at a major bear market bottom, uh, then you get to a place where the positioning cycle is so light that all it takes is any, you know, positive surprise on a trending basis in any one of these other five key macro cycles, or multiple, usually at the bottom of a bear market, usually multiple positive surprises that trend, uh, to, you know, kind of unwind that crowded bearish position. Conversely, when you go to the top, uh, you're at or near the top of a market cycle, all it takes is a, you know, kind of a negative trending negative surprise in one of those other five key macro cycles to start to unwind crowded bull positioning. So, I am moderately concerned about a decent level of crowded bull positioning, but we're nowhere near where we were heading into, uh, uh, this year. Right now, on a median basis, if you look at the 10 indicators that we track in our positioning model, we use AI bulls bear spread to proxy retail investor, uh, positioning. We use the National Association of Active Investment Manager stock allocation survey to proxy institutional investor positioning. We use the AI stock, AI bond, and AI cash allocation surveys to proxy investment manager positioning. We use implied or we realize volatility proxy systematic fund positioning. We use implied volatility correlations to proxy market neutral hedge fund positioning. Uh, you basically, you most of the market movements come from these two, uh, um, um, um, you know, components. Uh, we use the S&P 500 price and next 12 month earnings multiple to proxy, you know, broad, you know, risk sentiment, investment credit spreads, as well, and then economic policy uncertainty to proxy the macro fund, uh, positioning. And when we look at the kind of amalgamated positioning signals from across these, you know, 10 different investor cohorts, we're really right now, we're on a 70, we're in the 74th percentile of implied crowded bull positioning on a median basis. When you're at major bull market peaks, and we have data as far back as, uh, you know, the, the 1987 market cycle, for, for, you know, as far back as we have for, for, for the longest time series within these, uh, um, time series, you know, at these major bull market peaks, which include August '87, July 1990, July 1998, March 2000, October '07, April 2011, September 2018, Feb 2020, uh, Jan 2022, and then February 2025. On a median basis, we're in the 75th percentile of implied crowd positioning. So we're not even there yet. We're just beneath it. But even more importantly, uh, in January of this year, in Jan 26, we're in the 95th percentile. So we got up to the 95th percentile of implied crowd positioning prior to, uh, the issues in the, um, in the Middle East, and we ultimately had a pretty manageable, uh, uh, pullback, associated with that. Now, I would argue the pullback itself was, was, was truncated by the ceasefire. Uh, so we probably would have saw a much more significant, uh, pullback, if not a crash, if we didn't get to the ceasefire and a promise to reopen the Strait of Hormuz. But the, the key takeaway I'm making is that, you know, we're well off from where we were with time series history, just a few months ago. And so, from my perspective, this is why we keep saying the market can bubble. Just getting back to the 95th percentile of crowd bull positioning, which is where we were in mid-January, uh, could, you know, catalyze a bubble between now and year-end. And in my opinion, what would ultimately catalyze that dynamic is a Federal Reserve that chooses to look through a buildup of inflationary pressures for the second time in five years.

>> All right, great, great answer to that question. So, um, you know, right now, like you're saying, uh, maybe got some degree of concern, but it's not nearly as high as it was at the beginning of the year. If the market does bubble, um, then very likely you might become even more concerned in the future. But right now, it's, it's not a reason that you're losing sleep over.

>> No. And the reason I'm not losing sleep over again because the other five key macro cycles are aligned in a way that is generally producing positive, you know, forward-looking results for, for the market in terms of the forecast.

>> And so that's been the case all year. It's been the case for the last few years.

>> Okay. So let's, let's get to the punch line here, right? Which is, um, you know, Darius does all of this, all this data analysis, uh, to then distill it down into actionable steps. And you've got two main, um, offerings that you offer through 42 Macro to retail investors. The main one is, uh, your KISS model. Um, your more detailed one is the Dr. Mo. Um, from those, well, from everything you've said, but certainly from those green and red lights there, sounds like very favorable for risk-on assets. So I'm going to guess KISS is, um, I already know this, um, KISS is well exposed to stocks, uh, and to gold. Um, Bitcoin is sort of the outlier. Um, I don't know if we want to talk about that first, but, um, it's a risk-on environment right now, essentially, right?

>> Oh, yeah. We're still in a risk-on market regime, reflation market regime. Bitcoin, crypto broadly has not participated. I think there's some, you know, leverage-centric reasons why I think there's been a tremendous amount of leverage being applied to this asset class. Uh, from the perspective of the, the, the, what they call the Bitcoin, um, uh, reserve, uh, companies. I'm not going to name names because I, I don't need negative publicity or anything like that.

>> Smart call. Smart call.

>> The key takeaway is, I, I think, you know, there's something that needs to be, you know, figured out in the, in the crypto asset. There's two things that need to be figured out in the crypto asset class. One, how much of all this incremental leverage from the, you know, from the reserve companies, uh, is cause, is preventing the asset class from doing what it should be doing in a risk-on regime, which is rally and rally sharply. And so, the fact that it's not rallying sharply, uh, you know, is preventing this trend, this systematic trend following overlay from allocating, uh, to Bitcoin. So we have 0% of our maximum exposure of 10% uh, in Bitcoin currently. Gold's been breaking down, you know, kind of a slow motion train wreck there. So our KISS system is kind of, um, taken down as exposure to gold, uh, you know, over the past, you know, several months, uh, to, to only 50% of the total allocation of 30%. But stocks have been, you know, flamboyantly rate ripping and roaring. As I mentioned, you know, we got the, the model got pivoted back long, uh, equities back on April 11th, and so, you know, we've just been, you know, participating in the, in the raging bull market in the, in the global equity space. Uh, obviously, it's been concentrated, but, you know, KISS is designed to not make those types of, uh, concentrated bets. You know, we just invest in VT, which is the broad global equity market, which participates in all the different, uh, uh, regimes and, and kind of removes the, uh, uh, um, you know, the, it reduces the risk associated with having to factor bets, which most retail, and most investors in the world struggle with. I don't know too many institutional investors that are on the right side of factor risk consistently, let alone any retail investors. And so we try to, you know, limit those types of choices.

>> Okay. Um, God, I hate to ask this. This is so nerdy. It's probably a dumb question. I'm looking

>> Dumb questions, my friend. Only dumb answers.

>> I, I'm just looking at that, that line for VT.

>> Yep.

>> And it says its beta relative to the S&P 500 is 1.1. Yep.

>> Um, why isn't it 1.0?

>> Well, there's two different markets, right? The VT is the total global stock market. So the, you know, US markets, US equities are only about, um, you know, I want to say 60% of that. Uh, US, yeah, US markets are about 60% of that. Uh, if you look at, uh, um,

>> Okay. So just a whole bunch of other companies basically.

>> Yeah, it's the entire global public equity market. US is about 63% of VT, uh, whereas the reality is US is only about 47% of the global stock market. So there is an overallocation to US stocks among US investors who invest in things like VT. Ultimately, it tells me that we're probably going to be extremely right on our source of funds theme over the next few years as AI diffuses throughout the economy and essentially transfers, you know, profitable technology from the tech companies to all the other businesses in the economy. So we think that trade has legs, but again, why try to time it? We obviously had a very big lesson, uh, in, uh, 2026 with the closure of the Strait of Hormuz that threw a wrench, uh, in that program, in that, in that, in that theme. And so, ultimately, you know, as an investor, you have to just simplify your goals and and align your goal, optimize your process to be in full alignment with your goals. If your goal is to retire on time and comfortably and live a comfortable lifestyle, you do not need to make a bunch of factor bets and timing factor bets along the way to do that. You just need to do what KISS is trying to get you to do, which is participate, uh, in the, uh, productivity growth of the of the economy. You know, avoid the financial oppression that central banks are trying to levy upon you. Avoid the monetary debasement that central banks and public and fiscal authorities are trying to levy upon you. If you can just do those three things and you don't need to make a lot of choices to do those three things, you're going to have a phenomenal investing career.

>> All right. Um, kind of hate to do this because I could talk another five hours with Darius, but we got to bring to a close. So just in wrapping it up and making it practical for folks, um, you know, Darius does all of this immense analysis, um, and as a member of, uh, his 42 Macro service, you get all of it. You, you can consume as much as you want at this immense banquet of data, but if all you care about is just, hey, what do I need to do now? That's what a service boils down for you. And so you'll be told on a regular basis, um, or, or really, you're kept informed on a regular basis of what's going on. But, you know, if you just want to say, hey, just tell me when I got to do something, the service will do that. And the benefit is, is it, it doesn't, it's not tapping on the shoulder all that often. Um, so you can get on with your regular life. You don't have to spend zillions of hours, um, following the markets or reading every single data point that he puts out. Um, if you just want to know, hey, when are you making a change in your model, let me know. The service is great for that. And so, um, again, if you are a DIY investor and you want to continue to be one, um, but you want to leverage the benefit of all of this horsepower and all this data analysis that the team at 42 Macro does, um, plus be told whenever they're making a change to the portfolio and why, um, then go to thoughtfulmoney.com/diy doityourself DIY. And, uh, you'll be put in touch with Darius and the team there. And, uh, I, I, you know, it, it may not be for everybody, but I think it's a phenomenal service for the vast majority of DIY investors. Anything you want to say in conclusion on this, Darius?

>> No, thank, uh, just thank you for the, uh, for the plug there. Um, you know, again, I, I've, I've made plenty of money throughout my career. I don't need another dime of of revenue, uh, to retire on time and comfortably personally.

>> But, but what we are trying to do is we are trying to connect.

>> I'm trying to bring other people with me that'll help them. Yeah. Exactly. So.

>> Exactly. I want to see other people on the Mediterranean when I'm, I'm bumping into yachts in the Mediterranean. So, that's my goal. Uh, is to, you know, essentially, you know, I've had the real great privilege to learn from a lot of really great institutional investors throughout my career of what works, what doesn't work. I've learned through my own trial and error of what works and what doesn't work. And so, ultimately, what 42 Macro is is a service for people who want to accomplish a few things. One, you're optimizing for retiring on time and comfortably, living a comfortable lifestyle, having some money, uh, to give back to your family, to give to your community, um, throughout the journey and, and after your journey, uh, here on this earth. Uh, that's, uh, core. Uh, number two is, you, you know, you don't want to be stressed out about this wiggle in the market, that wiggle in the market. You want to, you know, basically have a high quality risk management process that you don't have to spend too much time and energy, uh, to maintain. Uh, and three, you just want to feel comfortable at night knowing that you have a pro, a risk management process that ultimately, you know, prevents you from making big mistakes in your portfolio. And as we talked about earlier with type one versus type two errors, type two errors are the big mistakes. You're not participating in a raging bull market. That's a big type two error that a lot of retail investors make. Uh, or you, you blow up your portfolio in a raging bear market, which is a big type two error that a lot of investors have made over the course of the past couple of decades. We haven't had a trending bear market in a long time, since, not since the global financial crisis, but in our opinion, we think the next bear market is going to be a secular bear market. And so I think we're going to see, you know, how well retail, retail does when the market doesn't vote, but that's neither here nor there. So, that my key takeaway is that, you know, 42 Macro is not for everybody. If you're very focused on taxes, or you want to trade every week in the market, you, you're concerned about dealer gamma positioning for next Tuesday afternoon, like if that's what you want to do, we were not, we are not the research.

>> Right. If you want to geek out about factors, probably not the right service.

>> No, no. We can, I can, you got about a practice is what I do for our institutional clients all day. But again, I don't think retail investors really need to make those types of choices to retire on time and comfortably and live comfortable lives. In fact, I think most of the time they, they, they complicate things. But we, you know, we have retail investors can see our Dr. Mo allocations, which we manage across 70 different factors. Basically, a KISS for institutional investors across 70 different factors. But the key takeaway I want to, um, you know, land this plane on, which is if you want slow, steady compounding returns, going back to that chart we talked about, you know, at the, at the end of the presentation. If you want the blue, the blue bars in this chart.

>> If you want to avoid those type two errors.

>> Exactly. If you want, if you want the blue bars, that's what 42 Macro is designed for. If you want the red and all the gamma and this and that, you want to trade everywhere, go in the market. You want to be on the right side of every trade in the history of mankind, which is obviously not doable, then, uh, 42 Macro is not going to be the partner, uh, for you. And we're totally comfortable with that.

>> All right. Um, my friend, look, uh, such a wonderful time with you again. Uh, it's all substance, it's all, uh, signal, no noise when you're on, Darius. Um, and again, I'm really excited about the fact that you're going to be coming on the channel more frequently going forward. I can't thank you enough, my friend, and I'm very excited about the future together.

>> No, me too, brother. I appreciate you. Thank you guys. Thanks everybody in the Thoughtful Money community, and best of luck with the next six weeks, man.

>> Thanks, brother. I'll need it.

>> I appreciate you, brother. Cheers.

>> All right. Well, now is the time in the program where we bring in the lead partners from New Harbor Financial, one of the endorsed financial advisory firms by Thoughtful Money. I'm joined as usual by lead partners John Lodra and Mike Preston. Mike, let's start with you. Key takeaways from this discussion here with Darius.

>> Thanks, Adam. We've followed Darius for a long time and, uh, we really appreciate the fact that he's got a structured way of looking at things. He's got different regimes that he puts the, the market, the market structure into, and he just talked in this interview about us being in a reflation regime, and in a reflation regime, it's a growth-oriented regime. And now, well, there can, there can certainly be some noisy signals and that type of thing. Overall, we have to admit that we have been in a positive trend in a, in a growthy regime, or a bullish regime, if you will. And we'll talk a little bit more about systems a little bit later, but for, for the most part, we agree that that's where we've been for the most part, save for a few corrections along the way. Darius talked about the closure of the Strait of Hormuz being really important. I don't think anyone can disagree with that. Uh, the market seems to be thinking that that's going to resolve. We, we agree that probably the opening of the Strait is more important even than the thought of the resolution of the conflict. It's all about the, the Strait. I think that we probably would agree with that. We're seeing oil down today as we record, down about, down to about $90 a barrel. So, it's pulled off about $10, but oil was at $65 a barrel more or less right before the conflict. So, we're, we've still gone from 65 up to maybe 100 and something, low hundreds, and we're back to 90. We're still very elevated. If we get an opening of that Strait, we might fall all the way back into the 70s over the next coming weeks. Who knows? The market seems to be predicting that that's likely to happen because there's been this strong bullish tailwind. So, we're watching that. Uh, Darius talked about liquidity. We've not, I know you've got other guests on the on the program that measure liquidity a little bit more, uh, finitely. We don't really measure it that finitely, but it's pretty obvious that this market's been all about liquidity and really has been for a long, long time. So, um, that's not to be argued, I don't think. But here's a, a point that I put a star next to because I think this, I think he's very right on this. He said, in the next two to four months, the stock market will bubble if they ignore inflationary pressures. I think the market already entered a bubble. We've been talking about different metrics, one of them being a breakout of old highs and adding 500 points within a couple weeks on the S&P. That's happened. To me, that's the kickoff of the bubble. I think he, he said that we might already be in it as well. He's absolutely right. If we get some positive news on the Strait of Hormuz and, and if the new Fed President, Powell, kind of ignores inflationary pressures, we could get that blow-off that we've been on here saying is likely or or.

>> Yeah, that's a key signal you've been looking for, right?

>> Yeah. I don't necessarily know that we have been looking for a big drop of oil. I mean, it's.

>> No, no, no. I, I meant a blow-off spike to sort of end this crazy run.

>> Yeah. Yeah. And it's, there's some guesswork in that, Adam. There's nothing absolutely guaranteed in this business, but being in this business since 1999, and John and I have been in this business for, what, 25 plus years now, each of us, um, there's some gut feel involved. You know, we've been in this huge bull market, non-stop liquidity, recessions and pullbacks have been literally banned. The, the small little recession we saw in COVID. If you look at a chart that shows gray bars where where recessions have been, you can hardly see it. It's so narrow. So.

>> And we've had multiple indicators telling us that a recession and market pullback should be coming, like an inversion of the yield curve, like the SA indicator triggering. Nothing's mattered. This has been different for longer than I think ever before. That doesn't mean it's permanent, but it has been different. So yeah, I don't think it ends any other way than one big fabulous fireworks show, really. And so, and he seems to think that that could be likely too, particularly if Powell ignores inflationary pressure. So let's see. Uh, one or two more points, then I'll pause. Actually, probably just, just two. The rich are feeling the richest that they've been since the 1940s based on data he was looking at in this economy that's shown crazy wealth disparity because of the targeting of the wealth effect that has not been fair. It's been a K-shaped economy. And if you think about it, you guys talked about the fourth turning. The

Last climax of the last fourth turning was 1945, you know. Then we went through all the cycles again. We're at the peak of the whole four cycles. It makes sense, and we are trying everything possible to make sure that we don't have a day of reckoning. And there's no plan B, you know, and the heck with the consequences. So, that's not going to be a good thing. It's not going to end well. And I guess I'll close with this. Valuations are extremely high. He admits it, but it doesn't matter till it matters. It matters in this sense. The consequences when we actually get the turn finally are going to be much greater than the average consequences. That's why it matters. So, you might want to think about setting your allocation below average unless you think you're really, really good at reacting. You know, even we as professionals have set our allocation, what I think is below average, 48% presently. Equities, we have hedges in place, but boy, if we really thought we could turn on a dime, we'd be 100% in equities or, or who knows, even more, because it certainly has rewarded the people that have done that. But the consequences of being wrong or missing the turn perfectly are just too high. So, I'll pause there.

All right. Um, very well said. Kind of everything that you talked about there, Mike. Um, like Darius's, what I think the key takeaway from everything that Darius walked us through, um, is end of the day, risk management is just such an essential part of long-term wealth building. And it becomes even more important in times like now, where it is probably the least sexy thing to somebody who's got FOMO and is super excited about, you know, a melt-up in asset prices. Um, but of course, that's when it's most important, right? Because when the party inevitably ends, it's the risk management that saves your neck on the return fall.

Correct. Yeah, absolutely. I mean, it was famously, I think it might have been Chuck Prince. I'm not sure if I'm right about that name. It says, "Well, you got to keep dancing when the music's playing."

It was Chuck Prince. Yeah.

You know, and Darius is essentially saying something similar. And I am not saying he's wrong about that. I'm just saying that nobody's going to time the turn perfectly. And the consequences of the turn are bigger than most times in history. So, set your allocations properly and don't think that you're going to get out in time.

Yeah. You know, it's really hard.

And just to use that analogy, Mike, um, you guys are still dancing at the party. Um, but you guys stopped drinking a couple hours ago. You have said goodbye to most of the people. You're dancing near the exit. So, like, you know, it's not like you're completely out of the market. Um, and while this market is continuing to rise, you're going to participate in it. But you're not just like blindingly throwing yourself into it with abandon. Is my analogy somewhat accurate?

Yeah, I guess we're weaning off the party. We're still eating the late-night snacks. We probably transfer it over to coffee, and we're chatting, you know, the late-night philosophical chats, that type of thing.

You know, I guess that's probably the analogy because.

All right.

We just know. We know from experience there's a deduction.

You're not doing cocaine in the bathroom.

Yeah. No, no, no. No, we're on coffee now.

All right. Um, John, sorry to hand it to you with that segue, but, um, uh, anything else to add to what Mike had to say there?

No, I think Mike covered a lot of the important bases. We, as Mike mentioned, we have been followers and fans of Darius's for some time, even before he started appearing on your channel, Adam. So, we were happy to see him show up on your interview roster. Um, and one of the things that has always um resonated with us in terms of Darius's style is his reliance on a system, a rules-based system, um, that looks at factors that are broad-based. They're not, it's not a light switch indicator. There's not one magical indicator that says yes, risk on or risk off. It's a broad kind of composite of indicators. And that's very much similar to our system. Now, our systems aren't identical by any stretch. We look at similar kinds of indicators, particularly on the price action. We don't have as much of a deep research of our own in terms of economic regimes, and that's where we value a lot of what Darius puts out and folks like him. Um, but we very much are driven by price action and market action, which are, in his own words, the key drivers in the day-to-day positioning in his models. The KISS model for do-it-yourselfers and the more, I think what he would call the institutional model, the Dr. And that's very much the way our system works. And in that short-term sense, it's valuation somewhat agnostic. You know, I'll talk about our views on valuations in just a moment. But the changes we've made this year, for example, have had nothing to do with valuations. The ratcheting up or down of risk that we have seen, for example, so far this year within our client portfolios, it's had nothing to do with valuations because, for all intents and purposes, we have been in absolutely extreme valuations all of this year. You might as well say all of last year and so on and so forth. So, it's very much market signals. I want to point out a couple of just isolated indicators that are amongst our composite because I think it's uncanny as to how they overlap with some of the timing that Darius's system has signaled. So, let me share one indicator that we look at, and this is, and we look at this across broad indices as well as sectors and markets. But this is what's called the bullish percent indicator on the S&P 500. And quite simply, it measures the percentage of stocks within the S&P 500 that's on what we call a so-called buy signal. It's a measure of buying strength and follow-through as how broad that is within the market. And, you know, you can see basically, to simplify this chart, when this is in a column of O's, it means that the percentage of stocks on buy signals is declining, and vice versa. Falling markets tend to see a weakening in that indicator, and rising markets tend to see an increase. You look at number four here. This chart is a what's called a point and figure chart. So, it's not a linear time chart, but the time is marked by these numerals. So, four, for example, is April. You can see in early April, after a risk-off March, March was here, mostly of which was risk-off. In early April, we saw our bullish percents move up here. Okay. Uh, and then if we look at things like momentum. This is a measure of momentum on the S&P. You can see on April 10th, early March, momentum turned positive. You know, ironically, that's almost to the day as to when Darius's system went risk-on, if you will. I think it was April 11th, per some of the charts he shared. I just want to share that as an example. It's not meant to say they're precisely the same, but in a broad sense, what these, what both of our systems, I think, do is use data-driven processes to frame whether we're on offense or defense. You know, we like to use a simple analogy of a football game. You know, there's a time to play offense, there's a time to play defense. Our system, our process, and our philosophy will take it a step further. Not only is it a matter of are we on offense or defense, but what kind of players do we want to have on the field? So, you know, that's where we get into some of our relative strength kind of indicators where it's not just enough, we think, to say, hey, you should be in or out of stocks, but where, what areas of the stock market are the areas that you want to be in? And I'll share another kind of tool in our toolkit. So, this is a chart showing sector relative strength across the major sectors. Um, and a simple way to read this chart, it's chronological. You can see time here. It goes back in time every other week. Um, simple way to interpret this is green is good, red is worse. Higher numbers, tally counts, as we call them, is good. It shows the strength of that signal relative to others. And you can see energy, for example, it's green and it's got the highest tally count. That's been the strongest sector for much of this year. But if you go back, look at most of 2025, for example, not only was it in red, very poor relative strength, but the strength of the signal was also very weak. So, it was a very big lagger. And it wasn't until late last year where we started seeing this tally count come up and then switching into green, essentially. This is well before the war broke out. So, we were in the energy sector before the shots started flying in Iran. And it's certainly followed through that energy has been strong as a result of that. But that wasn't the event. The event was certainly underneath the surface signaling well before that. And you see technology's been continuing to be strong. Financials have been very weak. If you look, financials were very strong most of last year. They started to lose relative strength quite systematically. They've been a lagger. If you look, since I think the well where we sold out of financials late last year, I think it was November of last year, they've essentially gone nowhere in the months since then, even though the broad market and many other sectors have rallied quite strongly. So, you know, our system is meant not to just only kind of determine what degree of offense and or defense we're on, but what do the right players have on the field through a systematic process, not a, hey, we think this will do well just because it's thematically seems to make sense. That oftentimes is a very poor way to guide an investment decision because thematics can get even cheaper in value, even though they should work out. And that's why we focus on what is happening, not what should be happening, very much like Darius's system. I do want to talk about valuations quick. You know, we think of valuations as, you know, hey, we can think about field position. We're on offense or defense, but there is some context as to where you are on the field. You're going to run different offensive plays if you have your back to your own goal line versus if you're knocking on your opponent's goal line. And that's really our job as coaches, if you will. When folks work with us that aren't do-it-yourselfers, they're looking for a professional. They're looking for folks like us to be those coaches, not only to be able to call the plays, but also understand the environment. You know, what team is on the field. And then, you know, valuations, we think certainly make sense from the standpoint of someone who's inclined to be just a passive buy and hold investor. That has critical importance to what the likely experience of an investor like that is going to be over say, the next decade. Not over the next two months, not over the next year even, but over the next decade. It would be highly irregular from a historical standpoint to expect a buy and hold investment in the stock market from these levels to be a satisfactory one, even if there's a massive move higher in the short term. So, um, a lot of commonalities, but, um, we're glad that there are people like Darius out there, you know, focusing on the kind of things that we think are really important.

Well, it's, you know, I know you follow Darius for a long time, so it's not a, and Darius has known you guys for a long time, too. Um, I think it's not surprising that you guys think similarly, but I think it's, you know, the thing I want to underscore for folks here is when you are an investor, my strong advice is the first and perhaps most important question you have to ask yourself is, what kind of investor am I? Am I a DIY investor, or am I somebody who is going to look to basically entrust my investment strategy with an expert who's better at this than I am? And the only wrong decision to that question, the wrong answer to that question is the untrue one. So, you just got to spend some real time being honest with yourself. And, um, uh, you know, I think both of you have shown that you have these frameworks. You know, Darius has a gazillion frameworks there, and they do a lot of the same stuff you do for their high-level institutional clients, but, you know, Darius's service at the end of the day is great for, you know, the retail investor who's watching this video who is a DIY investor and just wants to know when it's time to buy and sell, you know, those simple ETFs that Darius has in the KISS model, which is a great model. It's really simple and it's very actionable. Um, but if you're somebody who says, "Look, you know, my time is much better spent doing the things that, that, that, you know, I'm super skilled at, like my job and earning money or saving money, or even just I've got a busy life and I don't want it to be consumed with having to slog through a ton of data." Finding a professional advisor, um, who has an approach that they feel good about. So, if you like Darius's approaches, you probably like your guys' approach. Um, and that advisor can sit down, learn all about your personal situation and build a very customized plan for you and then execute on it using all the techniques that you just talked about there, John. So, you know, what I love, obviously, there's a lot of commonality between the way that you guys and the guys at 42 Macro see the world. And, you know, for me, it's just as an investor, figure out what you're better off with, right? If you're better off doing it yourself, great. Just get good inputs like what Darius provides. And if you're not, then find a great advisor. You don't have to work with guys like the New Harbor guys. Just find somebody who's as good as them or better. Um, and they'll keep coming on this channel every week to show you what a good financial advisor looks like and how they think.

All right. Um, Mike, let me come to you real quick here. We don't have a ton of time left, but I do want to check in with you on the precious metals because, um, they are sucking wind, I think, is the official term for them right now. Um, and I'm just curious, last time, so two weeks ago, uh, they were moving upward quite nicely and we thought we had a breakout, especially in silver. Those gains were then given up pretty quickly. And last week, you said, you know, I'm not losing faith, but I'll be honest, I'm kind of a little bit nervous about the price action here. Curious what you're thinking now, given the additional weakness since last week.

Yeah, Adam, welcome to the long wait is what I would call this trade. You know, I'm going to bring up SLV and GLD, the easiest two ETFs to look at. And I know I've said many times on this program, be careful about drawing lines on charts because the temptation is just to keep moving them. But the lines that I'm about to show you or that you're seeing here are ones that I've had for a while on this SLV chart. Silver had a, I guess, a short-term exhaustion gap is what you would talk about. It was here. This was back January 26th. We popped here. We topped on January 30th and then had this big down move. That was a heartbreaker, you know, and then since then we've tried to base out this March 23rd, March 20th time frame or so. Actually, I thought was maybe the final leg and it might be, but since then, over the next two months, we've been basing out sideways. And so I've, this purple line, I think, is important. This breakaway gap with one, two, three, basically touches here. I thought a couple weeks ago breaking out here was it and that going through this 80 level on SLV was going to heal us. Well, the day after I said that, I think the bottom fell out. So, that felt pretty stupid. But, you know, nobody knows exactly what's going to happen next. But look what's happened since. We're just rolling right along that line. We're below the 50 right now, which is the red line. We're above the green line. And I can show gold too, which is actually testing the 200-day moving average even closer. But here's the thing. These things had a massive move. Gold and silver, silver had more than a double. Gold had close to a double. Miners had a double last year. And this pullback, in my view, no guarantees, but in my view, is just punishing the people that came in too late. That's what the market does. And so I believe we're building out a base and we're going to build the right side of the cup and that we're going to break out. And over the next year, we're going to see 150 silver in my opinion. So, that would be roughly a doubling from here. But I call it right now the big weight. Like even today, uh, this morning, silver was down three, now it's down two. And it just seems to not make any sense. And it just seems, for lack of a better way to put it, forgive me, it seems dead. You know, and I see the reaction of people online, a lot of emotion there. People are just kind of, they think it's done, you know, they think the miners and the metals are done. And I think that's perfect in a way because the bearishness has been rebuilt. So that's the daily on the silver. Let me just show you gold. Gold is almost took out its March low and bounced off its 200-day moving average.

But if I move either one of these to monthly, you know, look at the monthly. So, this huge breakout down at 2,000 gold, basically a doubling here, followed by this pullback. It's great. It's causing that, like I said, the negativity to build. Unfortunately, it is hurting the latecomers. And, uh, we can't say it's over until we get a reversal up. And again, I'm going to say that that's going to be around 88 on silver and maybe around 80 on SLV. But here, I hope next week it's different because this week it's pretty much the same as what we talked about last week.

Okay. Go to GDX for a moment. So, um, you, you know, help your clients own the exposure to the metals directly, but then you have a pretty substantial percentage in your overall portfolios in the mining stocks themselves. Um, are you adding exposure at this point in time because you feel like there's some good values being offered? Would you want to see a directional breakout before you do that? Um, are you even planning on doing that? Are you just fully invested and riding this out? What's the story?

Well, I'll tell you about our current allocation. Our current allocation is 12.5% basically bullion monetary metals type category. Now, that could be bullion, that could be miners, it could be all bullion, it could be all miners. And we kind of move that back and forth based on relative strength of one versus the other. There has been some noisiness in the last year. So, it was bullion leading, then miners are leading, then bullion's leading. And as of the other day, bullion was still leading, but it was close to reversing. But we use those shorter-term signals to populate that sleeve. But that sleeve of 12.5% has not really been touched in the last year or two. So, we're not, we even though we're on a big pullback here and we're likely to go higher, we don't want to increase that sleeve. It's just too much risk. We've learned that the path is just too torturous and the risk is too high for most people. And if we get a doubling in bullion or even a 50% increase, that's a huge gain on a portfolio level. So, we think we're going to keep it at 12.5%. We would actually reduce it if we saw reasons to be worried. But frankly, we, our hedges that we had in GDX in the last couple months kept us in, and we had some nice gains on a GDX put that we had let get partially assigned up at 92 or so, and we're down here at 86. So, there was some value in that. But here's GDX on a monthly. So, we had this big breakout last year. Take a look at the monthly chart. All these triangles, all this long 10-year base, that's the same as the bullion that I just showed you a minute ago. We had this big breakout at maybe, you know, I guess I'll call it 45 to 50 zone. Big breakout last year. And then look what happened. 45 boom up to 100. There's a double, a double in one year out of a big massive 10-year base. I've seen this before in commodities. I've seen it in other groups. You don't generally have something like that happen and then it's over. You know, unless this is a 2011 moment, which I don't think it is. This is a different regime, and we're entering the last few years of a fourth turning. This is a one, two, three, almost four-month pullback here. We got this double, and before it's over, we'll probably get another double. You know, once this thing resolves, we could literally hit 200 on GDX in the next year or so. So, we don't have to have that happen, and we hope to get some of that or most of that if that happens. But I see us keeping our allocation at roughly 12.5%. Right now, it's 7.5% bullion, 5% miners, but we may start shifting more towards miners, make that 7.5 miners, 5% bullion, because it seems like relative strength is likely to reverse back up again on the miners really, really soon.

Yeah. And some of them are trading at really low PEs given their huge jumps they've had in earnings.

The earnings have been great. You know, just to throw one up on the screen. First Majestic, for some reason, doesn't want to load. But there it is, the monthly chart. First Majestic, like a week or two ago. Big earnings. These guys are doing big earnings. I believe they also announced a buyback, but again, you've got that old kind of phenomenon. Where's the base on this one? I don't know. Here's the cup. There's the breakout. Maybe 15. 15 doubled to 30, right? And then we pull back to 20. Is this going to double again from 30 to 60? I guess I wouldn't be surprised. I'm not predicting it. And don't go overboard, but don't get shaken out of these things either if you have conviction and a proper allocation.

Okay. Um, all right. Well, um, I'm going to hand it back to you in just a second, John, but I do want to note, you know, Darius made a really, I think, very strong case for the importance of risk management. That's something that the team at New Harbor really excels in. And if you've watched any of my videos with them in the past, you've probably seen them walk through how they use hedges, particularly options, to minimize downside risk and reduce the drag on their portfolio performance over time. Um, we're not going to go into that here today, but I did just want to underscore, you know, everything these guys are talking about in terms of how they manage money is really built on top of a risk mitigation foundation. Um, John, I'm going to come to you to close here. Um, if you don't mind, you know, to the point I made a few minutes ago about that key question of deciding first whether you're a DIY investor or whether you're somebody who, you know, basically wants to find an expert to handle your investment management for you. Um, I mean, obviously you guys are the solution that works for people who make that latter decision that say, "Hey, I want to get a financial quarterback to call these plays for me and execute them for me." Um, just speak for a moment about the importance of getting that decision right and, you know, how somebody who then decides, yeah, I actually probably would rather work with an advisor, how you can help them kind of determine whether they're a good fit with you guys or not.

Yeah, it's a Thank you, Adam. We talked a lot about systems, Darius's systems, our system. What I will emphasize, any system is a horrible system if it's not adhered to with some discipline. Right? If you have a system, but you conveniently put it on the shelf when it doesn't validate your biases or vice versa, it's no system at all. In fact, it's probably a less productive system than just simply being passively invested and closing your eyes. Um, point being is there's a huge behavioral component in all kinds of investing, but especially when you have a rules-based system, if you're not kind of following those rules, um, you know, it's it's not any system at all. And I don't want to give any impression that there's this perfect light switch indicator. We don't have one. No one has one. And I think Darius would agree with that. And in fact, we impart some judgment. You know, a lot of one analogy I often times use is, you know, our system is meant to be kind of a weight of the evidence type of system. You know, it's kind of like if you're building a jigsaw puzzle, you don't need to have every piece of the puzzle in place to get a pretty darn good idea of the emerging picture and whether that picture is a calm pastoral scene or a stormy sea, right? Uh, that's the way we use our system, but there's certainly some judgment and interpretation that quite frankly is the result of a lot of years of experience. Um, absolutely mistakes made. Mike and I have made every mistake in the book. Um, thankfully we have, and we still make mistakes, but I think we have learned in such a way that our mistakes and our executional mistakes of us and our team, we've learned how to keep those hopefully on the small side of wrong. And that's where a system comes into play. So, the first thing to understand is one's own psychology. And granted, that's not an easy thing to do. Sometimes we're our own worst judges of our psychology. I will tell you that I thank every day that we have a committee here, an investment committee, because if left to my own devices, I would probably fall victim to my own biases. And I think Mike would probably share the same. We have the luxury of a committee where we sometimes have heated discussions about what we're seeing and what the indicators are telling us. And thank God for that. You know, it ultimately helps us come out with a better outcome in the end. Um, you know, for many of our clients, we work with clients of all kinds of backgrounds. Some are very intellectual academics, others are more creative types. There's no one right recipe. But the common recipe for the kinds of folks who ultimately do well with outsourcing it to an advisor like us versus doing it themselves is that they truly want to delegate and relieve themselves from the stress, frankly, of worrying about this every day. It is, you know, one of the biggest benefits I think we offer, maybe it's sometimes a subject, a subconscious benefit, is we take away worry. We try to take away worry. And there's an almost proverbial sigh of relief when a client hands over to us the task of doing this. We have the good fortune of having many clients who have been do-it-yourselfers at various points in their lives, and they almost to every last one that decides to make that change is like, I did okay, but I wasn't enjoying it. It was stressing me out. It was affecting my quality of life. It kept me from doing the things I really wanted to do. And therefore, I find great value in not putting my head in the sand, but discharging the daily duties to someone who can really do this with focus and discipline, and I can just be there to, in partnership with you, our advisors, make sure that we're on track. And so it's not a perfect black and white line. You know, I think the first thing is get in touch with your own psychology and be truthful with yourself. If you have the aptitude and desire to manage yourself. Sometimes, and this may sound self-serving, but you know, we ultimately every day we want our clients to reaffirm that we're worth our fee. If they don't feel like we're worth our fee, we expect them to go elsewhere, whether it's do it yourself or find another solution. That hopefully is self-evident in any time a person decides to work with an advisory team like ours.

I appreciate that honesty and, you know, I know from discussions with you about your business recently, um, you are having a lot of existing clients contribute more capital, which is a sign that whatever you're doing is working for them. So that's great to know that that's going on. Um, all right. Well, look, yeah, folks, so again, this is such an important decision. Like I said, the only wrong answer is the untrue one. But it's interesting for, again, from having surveyed this audience, the majority of people watching categorize themselves as DIY investors, but a healthy amount of them categorize themselves as, yeah, I am, but I don't want to be. It's just that I haven't found a firm or an expert yet that I feel good about. And again, folks, I'm not necessarily saying that the firms that Thoughtful Money brings on this channel are the absolute best match for you. You're the only person who can determine that. Um, but my point is, is once you make that decision about whether you're going to be DIY or whether you're going to move to an advisor, your playbook is very different. And if you choose the advisor playbook, it's not, what's the next best stock I should put in my portfolio? It's, what are the values and strategies that I prioritize most highly, and can I find a firm that embodies those and also has, you know, can project trust and make me feel like they're going to take really good care of me and give me the service that I want. Um, and I recommend folks, you kick a number of tires if you can. But anyways, so, um, where we're going with this is, um, first off, guys, thanks so much. This has been great. Folks, if you would like indeed to see Darius come on with greater frequency in the future, please let us know by hitting the like button and then clicking on the subscribe button below, as well as that little bell icon right next to it. As a reminder, we are fast making our way towards 200,000 subscribers on this channel. We are hoping to get there by the end of July. We're going to need a little bit of oomph to get there in time. So, if you are watching and have yet to sign up, please do subscribe. It only takes a second. It's totally free. Don't forget to hit that bell, as I said. Um, and if you are a DIY investor and happily so, and would like to get some good quality research that may help you catalyze your progress towards your financial goals, then consider talking to the folks at 42 Macro to do that. Like I said, just go fill out the very short form at thoughtfulmoney.com/diy and you'll be connected with Darius's firm. Um, or if you answered the question that, hey, you know what? I think it's really time to start talking seriously to some advisors about maybe taking over for me, um, feel free to talk to one of the ones that Thoughtful Money endorses. These are the firms you see with me on this channel week in and week out. Perhaps you'd like to even talk to John and Mike directly there, along with the team at New Harbor. To do that, just fill out the very short form at thoughtfulmoney.com. It only takes you a couple seconds to fill out the form. These discussions with these firms are totally free. There's no commitments involved. It's just a service they offer to be as helpful to as many investors as possible. John and Mike, guys, great week. Thanks so much. Whatever the future holds in store for us, I'm going to thank you in advance for making sense of it for all of us next week.

And thank you, Adam, very much. We'll see you next week.

Great as always, Adam. Thanks. We'll see you soon.

All right. And everybody else, thanks so much for watching.