MacroVoices #413 Darius Dale: Still Bullish

Episode Summary

Executive Summary: Macro Voices episode 413 featured Darius Dale arguing that the U.S. remains in a Goldilocks/soft-landing regime, with improving productivity, easing inflation, supportive liquidity, and resilient balance sheets pointing to continued equity upside. While he sees peak rates likely behind us, he warned that markets may be pricing too many Fed cuts and that any regime change could come from hotter inflation, not deflation. The post-game highlighted bullish but technically fragile setups in crude, equities, gold, uranium, and bonds.

Main Topics: Soft-landing / Goldilocks macro regime (Priority: 5/5): Darius Dale says recession odds have fallen and soft-landing odds have risen, supported by a mix of above-trend productivity, fiscal support, and easing inflation, which he thinks favors continued risk-on conditions. Inflation and disinflation dynamics (Priority: 5/5): The interview stresses 'immaculate disinflation' in core CPI/PCE and core PPI, though Dale warns that some underlying inflation measures like median and trim-mean CPI are moving in the wrong direction and could re-emerge later. Fed policy, rates, and market pricing (Priority: 4/5): Dale thinks peak rates are likely behind the cycle, but money markets are pricing an aggressive rate-cut path that may need reconciliation with economic reality, creating a future risk for assets. Liquidity and fiscal support (Priority: 4/5): Treasury borrowing plans, TGA drawdown, RRP usage, and global liquidity are presented as supportive to asset markets, with Chinese policy also adding liquidity into the system. U.S. balance-sheet resilience vs. China vulnerability (Priority: 4/5): Dale contrasts strong U.S. household and corporate balance sheets with China’s debt, demographics, and liquidity-trap issues, concluding China is a trade opportunity rather than a long-term investment case. Asset allocation and market positioning (Priority: 3/5): 42 Macro’s KISS portfolio remains overweight equities, fixed income, and bitcoin with some cash and put premium; Dale says the process is still broadly bullish but hedged against near-term data surprises. Technical market setup in post-game (Priority: 3/5): Nick Galarnick reviewed key levels for the S&P 500, Nasdaq, VIX, dollar, gold, uranium, crude oil, and bonds, emphasizing that the market remains bullish but vulnerable to a correction if support breaks.

Key Arguments: Dale argues the probability of a soft landing has risen because productivity growth improved, inflation cooled, and policy remains supportive. He says the current regime is still Goldilocks, and that the bull market can continue unless incoming data materially changes the macro or quantitative signals. He believes inflation will likely trend lower in the near term, but underlying measures like median CPI and trim-mean CPI suggest inflation risk has not disappeared. He thinks peak rates for this cycle are likely in place, though the bond market and money markets may be too aggressive in pricing future cuts. He warns that the biggest threat to Goldilocks is a future inflation re-acceleration rather than immediate deflation. He views the U.S. household and corporate sectors as unusually healthy, with high cash balances and low debt-service burdens supporting economic resilience. He says China is increasingly a geopolitical rival and is broadly uninvestable for long-term capital, though liquidity support and policy easing may create tactical upside in commodities and proxies. He emphasizes that Treasury borrowing and balance-sheet operations are still liquidity-positive near term, which supports risk assets. The post-game analysis argues that the S&P 500’s 4,800 level is critical support and that a break could trigger a larger correction, while a bounce could lead to new highs. Gold, uranium, and bonds are all described as constructive technically, but with different degrees of near-term volatility and confirmation needed.

Data Points: S&P 500 March futures: 4,870 - Macro scoreboard at the close of Wednesday, Jan. 31, 2024; down 50 basis points week over week after an FOMC drop US dollar index: 103.51 - Macro scoreboard week over week WTI crude oil (March): 75.85 - Macro scoreboard week over week; had approached $79 before retracing RBOB gasoline (March): 223 - Macro scoreboard week over week Gold (April): 2067 - Macro scoreboard week over week; also noted higher on continuous chart Copper: 390 - Macro scoreboard week over week Uranium: 190 - Macro scoreboard week over week; after a very bullish four-month rise 10-year Treasury yield: 3.91 - Macro scoreboard week over week; continued decline over the week KISS portfolio average annual return: about 12% - Dale’s systematic portfolio construction backtest 60/40 average annual return: about 8% - Comparison benchmark in KISS backtest KISS max drawdown: about -11% - Backtest result versus alternatives 60/40 max drawdown: about -22% - Comparison benchmark in KISS backtest Trend-following max drawdown: about -26% - Comparison in KISS backtest without risk overlays Current KISS allocation: 10% cash, 50% equities, 30% fixed income, 10% bitcoin - Current portfolio construction discussed by Darius Dale Equity exposure: 83% of max exposure - Current KISS portfolio Fixed income exposure: 100% of max exposure - Current KISS portfolio Bitcoin exposure: 100% of max exposure - Current KISS portfolio Household cash as share of assets: 5% - Dale says this is the highest since the 1950s Household debt to nominal GDP: 73.7% - U.S. household balance sheet context Household debt-service ratio: 9.8% - Described as an effective all-time low Corporate cash as share of assets: 5% - Highest since the mid-1950s Corporate debt to nominal GDP: 76.5% - U.S. corporate balance sheet context Corporate debt-service ratio: 41.5% - U.S. corporate balance sheet context Q1 2024 Treasury net marketable borrowing estimate: $760 billion - QRA update; down $19 billion from October 2023 estimate Q2 2024 Treasury marketable borrowing estimate: $202 billion - QRA update; down $558 billion quarter over quarter TGA target: $750 billion - Expected by end of Q1 and to persist into Q2 in net liquidity model China reserve requirement ratio cut impact: about $139 billion of incremental fresh liquidity - PBOC easing cited in China discussion China PBOC balance sheet: about $6.4 trillion - Used to illustrate ongoing liquidity expansion China foreign exchange reserves as share of PBOC balance sheet: about 48% - Down from about 83% in March 2014 China debt-service ratio: about 21% - Illustrates liquidity-trap and debt burden SPX spot price in post-game: approximately 4,865 - Nick’s options/gamma analysis SPX call wall: 4,950 - Near-term resistance in post-game SPX put wall: 4,800 - Key support and gamma flip area SPX implied move for Feb. 16 OpEx: +/- 100 points - Post-game options positioning SPX lower implied move: 4,765 - Derived from OpEx implied move SPX upper implied move: 4,965 - Derived from OpEx implied move Nasdaq spot price: approximately 420 - Post-game options discussion; likely referring to QQQ-style level Nasdaq call wall: 430 - All-time highs / resistance Nasdaq put wall: 420 - Current support area Nasdaq implied move for Feb. 6 OpEx: +/- 12 points - Post-game options positioning VIX: around 14 - Low volatility regime in post-game Crude oil U.S. production: 13.0 million barrels/day - Bounced back after weather-related disruption Crude oil prior production level: 13.3 million barrels/day - Referenced as the pre-weather level to recover toward EIA crude inventory change: +1.2 million barrels - Weekly inventory report EIA Cushing inventory change: -2.0 million barrels - Weekly inventory report EIA gasoline inventory change: +1.2 million barrels - Weekly inventory report EIA distillate inventory change: -2.5 million barrels - Weekly inventory report Net petroleum drawdown: 100,000 barrels - Weekly inventory report Gold long-term breakout target: 2,724 - Nick’s cup-and-handle weekly chart target

Pivotal Quotes: "At the end of the day, we're riding with the hot hand, and the hot hand is soft landing." — Darius Dale: Core thesis for 2024 macro outlook and risk positioning "The probability of recession has diminished substantially, and the probability of our soft landing has risen substantially." — Darius Dale: Summary of why he is turning more bullish on the U.S. economy "If you don't do macro, macro will do you." — Darius Dale: Closing pitch for 42 Macro’s research and risk management approach

Implications: The discussion favors remaining constructive on risk assets, especially equities, bonds, and select commodities, while hedging against a surprise inflation rebound or data-driven market correction. Investors should watch jobs, labor-cost, and inflation data closely, plus key S&P support near 4,800.