MacroVoices #452 Darius Dale: No Difference Between Trump & Harris

Episode Summary

Executive Summary: Macro Voices episode 452 featured Darius Dale arguing that the U.S. election matters less for markets than the broader fourth-turning backdrop of populism, rising debt, sticky inflation, and likely monetary debasement. He expects resilient U.S. growth, a dovish Fed aiming for a soft landing, and stronger liquidity ahead, all of which he sees as supportive for risk assets and gold despite near-term election and valuation volatility.

Main Topics: Election impact is secondary to structural macro forces (Priority: 5/5): Dale argued that while markets are pricing a Republican sweep, the election outcome itself matters less than the longer-run trend toward populist fiscal policy, larger deficits, and more debt regardless of who wins. Fourth turning, fiscal dominance, and rising U.S. debt (Priority: 5/5): A central theme was that the U.S. is in a fourth turning characterized by rising populism, deteriorating fiscal balance, and accelerating sovereign debt-to-GDP, with both parties contributing to debt growth. Sticky inflation and no durable return to 2% without recession (Priority: 5/5): Dale contended inflation remains structurally sticky and is unlikely to durably return to the Fed’s target without a recession; he expects inflation to bottom in Q4 and drift higher over the next year. Resilient U.S. economy and low recession odds (Priority: 4/5): The interview emphasized strong household and corporate balance sheets, limited manufacturing exposure, and a business-cycle setup that does not yet show the leading indicators typically seen before recession. Fed soft landing bias and dovish reaction function (Priority: 5/5): Dale said Chair Powell wants a soft landing, the Fed’s estimate of neutral is around 3%, and the central bank is already cutting/tilting dovish despite above-trend growth and inflation. Liquidity tailwind from global easing, China, and U.S. Treasury dynamics (Priority: 5/5): Dale expects broad-based global liquidity improvement, with China a major driver, plus a temporary U.S. liquidity boost from Treasury cash balance drawdown during the coming debt-ceiling episode. Gold bullish, but technicals overbought (Priority: 4/5): Both Dale and the hosts were constructive on gold’s medium-term outlook due to fiscal and monetary debasement, while noting the metal is technically overbought and due for consolidation.

Key Arguments: The election is less important than the structural shift toward populist fiscal policy and more public debt, which Dale sees as unavoidable in a fourth turning. Both Democrats and Republicans have historically increased debt; Dale cited CRFB estimates showing Trump and Harris proposals both worsen debt metrics. U.S. dollar hegemony is being challenged, increasing the likelihood that the Fed will have to monetize or repress yields to support Treasury financing. Financial repression is already visible in low term premium and rising pressure on banks to absorb more Treasuries. Inflation typically lags the business cycle and does not durably fall until after a recession starts; current cycle indicators do not yet point to recession. The U.S. economy remains resilient due to strong household balance sheets, robust corporate balance sheets, and a much smaller manufacturing sector than in past recessions. Powell’s reaction function is asymmetrically dovish; the Fed appears more focused on engineering a soft landing than on aggressively fighting inflation. Global liquidity is turning up across major economies, and U.S. Treasury cash management/debt-ceiling mechanics should further support liquidity into early 2025. Gold is supported by fiscal dominance, monetary debasement, and dovish policy, even though it is technically stretched near term. The hosts added that election-related volatility and unresolved outcomes could create tactical downside spikes, but those may be buying opportunities if the broader liquidity backdrop remains intact.

Data Points: SP 500 futures: +24 bps to 5,852 - Macro scoreboard week over week as of Oct. 30, 2024 close U.S. dollar index: -31 bps to 104.10 - Consolidating after a four-week advance into the election WTI crude: -305 bps to 68.61 - Geopolitical gap lower continued to close during the week RBOB gasoline: -249 bps to 196 - Weekly macro scoreboard Gold futures: +185 bps to 2,801 - Relentless buying despite overbought conditions Copper: +46 bps to 4.35 - Weekly macro scoreboard Uranium: -309 bps to $80.00 - Weekly macro scoreboard U.S. 10-year Treasury yield: +8 bps to 4.28% - Weekly macro scoreboard Labor share of national income: 52% current vs. 56% average from 1960-2000 - Used to support the argument that the social contract is broken and populism is rising Corporate profits share of GDI: 13% current vs. 9% long-term average - Illustrates widening corporate take relative to labor Government social benefits as share of household income: 18% current vs. 6% in 1962 - Shows expansion of social spending Corporate tax rate share: 11% current vs. 43% peak in 1970 - Used to argue public sector financing has shifted onto debt Post-war public debt growth after year 4 of presidency: Democrat median 26% vs. Republican median 39% - Dale’s empirical study on debt accumulation by party Public debt growth, excluding Trump’s year 4: Republican median 36% vs. Democrat median 26% - Dale argued Republican administrations still lead on debt growth CRFB estimate, Harris proposals: +$3.5 trillion debt over 10 years - Relative to baseline, per Committee for a Responsible Federal Budget CRFB estimate, Trump proposals: +$7.5 trillion debt over 10 years - Relative to baseline, per Committee for a Responsible Federal Budget Debt-to-GDP under current law in 10 years: 125% - CRFB projection cited by Dale Debt-to-GDP with Harris proposals: 133% - CRFB projection cited by Dale Debt-to-GDP with Trump proposals: 142% - CRFB projection cited by Dale U.S. dollar share of FX reserves: 60% - Used to show global exposure to dollar hegemony Dollar share of cross-border bank lending: 60% - Used to show global exposure to dollar hegemony Dollar share of international debt securities: 70% - Used to show global exposure to dollar hegemony Dollar share of trade invoicing: 79% - Used to show global exposure to dollar hegemony Dollar share of FX transactions: 88% - Used to show global exposure to dollar hegemony Stablecoin backing share in dollars: 99% - Used to show global exposure to dollar hegemony Commercial banks’ Treasury/agency holdings: ~18% of total bank assets - Indicative of current capacity for financial repression Historical bank holdings at prior fourth turnings: ~50% of total bank assets - Used as comparison for financial repression potential Fed Treasury holdings share: 16% of marketable Treasury debt - Current level cited in liquidity discussion Commercial bank Treasury holdings share: 15% - Current level cited in liquidity discussion Foreign official Treasury holdings share: 14% - Current level cited in liquidity discussion Private sector share of Treasury holdings: 54% current vs. 36% in late 2021 - Used to argue the private sector is being forced to finance more U.S. debt 10-year Treasury term premium: 22 bps current vs. 150 bps historical average - Used to argue yields are artificially suppressed Implied 10-year yield with normalized term premium: Closer to 6% than 4% - Dale’s estimate if term premium were restored Implied 10-year TIPS breakeven: Closer to 4% than 2.3% - Dale’s estimate under normalized conditions Implied 3-month/10-year curve: +122 bps vs. -26 bps current - Illustrates a steeply positive curve under normalized term premium Q4 U.S. Treasury refunding outlook: -$175 billion privately held net marketable borrowing; -$150 billion TGA balance - Dale said this is mildly positive for U.S. liquidity Q1 U.S. Treasury refunding outlook: $823 billion net marketable borrowing; +$150 billion TGA balance - Official projections, but Dale said debt ceiling constraints will alter this Recent debt-ceiling TGA drawdowns: $805 billion (2021) and $560 billion (2023) - Used to estimate ~ $700 billion expected drawdown in early 2025 Gold position size in KISS process: 100% of max exposure; 30% maximum allocation - Dale said gold is at maximum exposure in the model Gold performance under bullish VAM signal: 89% of positive performance - Used to justify remaining long gold until trend changes SP 500 return under risk-on regime: 97% of cumulative return since Jan. 1997 - Backtest supporting 42 Macro’s regime model Bitcoin return under risk-on regime: 109% of cumulative return vs. -9% in risk-off - Backtest showing stronger regime dependence in crypto

Pivotal Quotes: "it doesn't matter who wins the election" — Darius Dale: Opening election discussion; he argued structural fiscal and monetary forces dominate the market impact of the result "We're all frogs being boiled alive in a pot of monetary debasement and financial repression" — Darius Dale: Describing the fourth-turning backdrop and likely policy response to rising U.S. debt "our goal all along has been to restore price stability without the kind of painful rise in unemployment" — Jerome Powell (quoted by Darius Dale): Used to support the claim that the Fed wants a soft landing

Implications: Investors should focus less on the election headline and more on fiscal dominance, liquidity, and Fed policy. Near term, risk assets and gold may benefit from dovish policy and rising liquidity, but 2025 could bring a refinancing air pocket, higher yields, and more volatility.