Bearishness Emerging on Wall Street Within the Goldilocks Regime

welcome to the daily briefing i'm jack farley it is wednesday september 8th today i am joined by darius dale of 42 macro darius welcome back to daily briefing how you doing i'm feeling fantastic man how you doing i'm doing great we had a pre-interview today where we were just going at it talking macro it lasted you know probably 35 minutes and i cannot wait to show the people at home what's what's on your radar uh darius i want to start off by by noting that a lot of bearish uh research reports have been coming out of the big banks whether it's morgan stanley bank of america or goldman sachs and they are noting i'd say three risks the first risk is the delta virus second risk is slowing economic growth or you know the peaking of economic growth and the third is uh balance sheet tapering by global central banks most notably the federal reserve you uh reading your uh report from 42 macro it seems like you're not joining in this course of uh being bearish you still see a lot of upside in the equity market in being risk on tell us why yeah so i mean i'll tell you why we're bullish uh but let me start with where we where you started which is where the banks so number one delta um if you look at east asia some of the survey data coming out of korea that's likely peaked and we're on the other side of the the peak economic impact delta number two uh why does wall street ever get bearish it's valuation and it's their surveys um i had no comment on the surveys but valuation is not a catalyst over the near to medium term and then lastly i forget what the other thing was oh tapering paper on tape yeah tapering um yeah no we don't we don't expect the fed to commence actual tapering and i feel like i have to underline or all caps actual every time i say it or write it in a report it's like we can talk about tapering for six months and all you if you're bearish because of that you're going to watch the stock market grind higher until they actually do something and there we it's been our view increasingly been our view that uh the fed is unlikely to commence actual tapering until december yeah i was reading a report in the financial times today and it said uh you know fed uh uh fed member uh bullard reached out to the financial times to talk about why we need to taper and it's so easy to get something mixed up with one member reached out to the media and talked about it with actual tapering itself so uh tell walk us through the timeline for tapering um and then how do you think it will have an impact on risk assets we were talking earlier you know i said do you think it will impact cyclicals more than than tech yeah so let me let me walk you through the timeline for tapering and if you allow me to unpack this part of the reason we have this view that it's going to be december and increasingly likely going to be december um is really just a function of the lack of substantial further progress in the labor market um you know so there's a few there's quite a few data points that we're tracking on a month-to-month basis that are separate and apart from the headline figures that everyone observes and you know if you allow me to sort of kind of go through them um when you look at the employment to population ratio uh that picked up 10 basis points of 58.5 in august but that's still down 260 basis points from where it peaked in february of last year number two you look at the labor force participation rate for prime working age adults that's unchanged at 81.8 in august that's still down 120 basis points from last february um you look at the sort of the total number of people who are out of work as a function of the pandemic you got an additional 2.7 million people unemployed through august uh the labor force the size of the labor force has declined minus 5.6 million since uh since um it peaked last year so you got about 8.3 million people who are still like physically out of work or out of the labor force altogether as a function of the pandemic and then when you talk about um the fed sort of you know revised dual mandate specifically the maximum and inclusive uh sort of portion of that you know you're seeing some real interesting dynamics that might actually delay the delay tapering i mean so you look at something like the the white unemployment rate in august ticked down by 30 basis points to 4.5 percent i mean if you're white this is a very tight labor market i mean there's no if ands or buts about it but then you look at the hispanic unemployment rate that took down as well but it's still elevated at six point four percent but then you look at the black unemployment rate my folks you know we're uh plus 60 basis points in august up to 8.8 percent so that's still up 360 basis points from where it peaked in august of 2019. so you're starting to see some incremental bifurcation in the labor market that is sort of moving the fed actually further away from their dual mandate so to me i think the real discussion is what in the hell is bullard smoking i mean is he auditioning to become the next uh head of the ecb is he trying to channel this inner trichet and type monetary policy right into a slowdown i mean that's that's what it sounds like so i don't know we'll see yeah i um you mentioned uh the different unemployment rates um between different cohorts correct me if i'm wrong but historically the federal reserve only looked at the unemployment rate for the aggregate of all people now the fact that there's a discrepancy and that one cohort or other cohorts are lagging they view that as a problem and that you know that that is factored into the central bank central bank response function so it would be likely to slow them down and they're tapering right yeah no look i said this last november man the most bullish thing for asset markets is the fed trying to fix racism with monetary policy they're not going to succeed obviously but they're going to try and look look where we are now yeah yeah you talked about uh bullard and you talked about uh him being too soon to taper i have a theory i want to run by you darius which is that uh bullard he may he probably believes what he says he's not uh you know making a misstatement about his own policies he knows what he's talking about oh for sure but but he is serving the purposes of the federal reserve in that uh the people who go out and talk to the media they sound really hawkish and they you know say oh well you know this is ridiculous we have to taper and that calms the bond market down because it uh gives the appearance that the federal reserve still cares about you know preserving the purchasing power of the dollar and that they are i don't want to get to get too extreme but you know i think that the people who really have their hand on the on the throttle they have made it clear that they care about the labor market uh and that mandate over the uh inflation mandate so what do you think about my theory that that um bullard and the other hawks serve a role of calming the bond market down because if the bond market were to truly grapple you know and look into the heart of of the federal reserve they would say hey it's probably not you know good to own the 30-year treasury at 1.9 percent when the federal reserve is okay with inflation running super hot you know i do believe that you know particularly the non-voters in any given year those that are especially those that are about to sort of join the voting uh board uh as berlin and i believe bostik are next year um you know they i tend to be the sort of mouthpieces of descent and it's sort of part of it i think is them gathering market intelligence but it's also part of it's like yeah to your point they're trying to sort of put you know bumpers around this sort of it's trying to narrow the range of probable outcomes for both asset markets and the economy so you know i commend them for doing what he's sort of probably been tasked to do i just don't think it's it's as urgent as they're sort of implying i mean i guess at the top of the cpi chart you're like oh my god inflation inflation inflation and but nobody's looking at the top of the cpi chart and looking down and said how do we get here well we got here with record demands you know that's been fueled by one-time stimulus and you know sort of one partial one-time reopening they're going to repeat those two dynamics you know every month going forward so inflation is obviously very very much transitory only because the the base effects will get more difficult and you're going to lose those two meaningful uh sort of drivers of demand serious i want to ask you a question which is your the models that you have at 42 macro two months ago they were uh showing a rising deflationary risk you know it wasn't the dominant uh probability but it was a high probability relative to now now in your report today it seems like goldilocks is the dominant regime so my question for you is what has changed what was signaling a deflationary uh signal uh you know a month and a half ago two months ago that now is giving you the green light yeah that's a outstanding question so uh i'll preface this by saying we've always thought that we're going to survive this sort of period between the transition from reflation to the actual deflation that we expect to commence sometime you know november december of this year with goldilocks we thought goldilocks would really sort of dominate that path and part of the reason for that is that the economy in both growth and inflation terms if you think about the delta the rate of change growth in inflation it's not slowing neither of those factors are slowing fast enough to perpetuate a negative market outcome and so what i mean by that that means the onus is shifting from economic signals to policy and positioning signals in terms of uh sort of driving enter and intra asset class dispersion and so if that's the if that's the situation let's have a talk about what policies and what positioning are um in terms of like you know with policy it's like we're going to get we're already in the middle of a net liquidity synonymy we've been really enjoying one all year a bath really um you look at you know sort of you so in terms of how we calculate that liquidity there's obviously a million different ways of calculating it but we look at the change in the fast balance sheet minus the change in the treasury's uh general uh territory general account at the treasury the cash balance of the treasury and that figure is down you know 2.3 that figures up like the net liquidity that's been pumped into asset markets is up 2.3 trillion a year to date um it's up 860 billion since the end of june alone and so that dynamic that net liquidity dynamic is is here to stay at least over the next kind of let's call it two months darius correct me if i'm wrong so in that equation the addition the uh to the net change in the fed's balance sheet minus the change in the in the treasury general account the tga hasn't the change in the tga been negative so minus a negative and you get a positive yeah exactly yeah you're a math guy too bud [Laughter] negative one times negative one that's the problem the limits of my knowledge uh you go a lot further and actually let's put your uh math skills on display if we could put this chart up right now i mean very lucky that people at real vision get to to watch this and really see into your research the dots are different etfs so ark is the arc growth etf uh let's see xle is the energy xlu is utilities uh gld is a etf that owns physical gold and they're sort of all over the map here uh mapped on a y-axis and a an x-axis there is can you explain what the x-axis and y-axis is you know without getting too much you get you know get into the weeds but don't get lost into the weeds give us the broad picture of what they mean yeah no so i i i get accused once a day of being too verbose in jargony so my post labor day uh resolution is to be simplified simplify the context complex a bit more so um the key takeaway from this chart is that when you're up to the top left it usually means that investors are overpaying for protection the options market therefore mark the the dealer hedging activity that takes place from a delta edge perspective tends to get unwound and perpetuate moves higher in asset markets and so that's kind of where we've been all summers which is why it's one of the many indicators that we're tracking at 42 macro that suggests that investors investor consensus positioning by positioning across the buy side is not particularly bearish i mean there's a myriad of other things that we're looking at you know we have a a feature called total confirming asset market vans or vams are short for volatility adjustable minimum signals that's in the 72nd percentile this morning you typically want to raise red flags if you're either in a goldilocks or reflation regime and that's in the 1995 99th percentile because that means that everyone's kind of you know sort of max long risk in that in that juncture um the last thing we have we call it our cross asset correction risk indicator that's capri for short and that's at 40 percent and that 40 percent typically that number that that time series is typically in the low 20s high teens right before meaningful correction asset markets so we have some ways to go in terms of investors really putting on risk and if they don't put on risk then guess what you know it's likely that outside of you know your you know your three to five percent corrections the market's just gonna grind higher every day up until the time where the net liquidity provision really starts to get hairy later this year yeah so uh a lot of that uh when it went over my head but uh let's just keep that uh chart on and the bottom uh left quad is really sort of the quad of uh demise for assets that's when a lot of people are invested they already own the assets so there's not a ton of additional liquidity that can buy it and also uh put volatility is high or put volatility is low well that's when they take off their edges the bottom left the bottom left you know part of this chart here is is you have a low level of realized volatility as denoted by the x-axis and you have a negative implied volatility risk premium and so that means people are they're unwilling to pay for protection even though the assets themselves haven't even corrected and so that to me is like a really negative set that is a really negative setup that's precisely what we saw uh in the second week of february last year like we had grinded through this wall of worry from november through the mid february of from november 2019 all the way through uh february of this year and i would suspect that that's probably what we're headed for you know later this year maybe a lot of those dots if we're having this conversation you know two months from now two and a half months from now have really gravitated towards the bottom left and that to me is a real negative signal because it'll likely line up with a lot of other you know sort of confirmation confirming evidence that investors have really kind of taken off their edges but we're not there yet right no not man yeah because in the bottom left uh quad there's there are no none of the dots there all right if your viewers learn one thing for me from terms of looking at this particular chart if that markets don't crash when everybody's positioned for one they crash when they take when investors are forced to take off their hedges either by a low level of realized volatility they get squeezed out of squeeze out of shorts or they they just turn fundamentally bullish either or that's you know that's the key takeaway uh darius uh thank you for that i think that just to give my interpretation of it so implied volatility is what the the market is paying for whether it will move a lot and then realizes whether it actually happens so when implied volatility is higher than realized volatility uh they are they're the market's buying a lot of insurance and when people buy insurance uh you know it's hard to be left naked when the ties goes out right yeah so the the the technical linkage is that the dealers who sell the insurance have to then go delta heads the underlying exposure in the market you know so that they're you know not you know taking on basis risk and to the extent that the thing that the insurance is being protected against doesn't occur and they have to cover those hedges so that's that's why this analysis is helpful you know again there's not always a signal but sometimes there is a signal and when you look at this chart and aggregate you can pretty much clearly see that the market asked then it continues to climb a wall of worry throughout this sort of goldilocks regime yeah uh darius we have a lot of questions from the audience that are asking now both on realvision.com and on youtube but we're actually going to ask we're going to uh take questions first from the real vision exchange darius you posted a great uh series of charts on the real vision exchange i believe the link to it is in the description of this video and uh you said post your questions and some real vision members some members of the hive mind they took you up and they have some questions for you um so uh peter wants to know what's it going to take for the reflation trade to come back are industrial metals signaling something that the rest of the market isn't picking up on uh probably not um obviously you know the thing about commodities the thing about any any particular commodity or any particular stock or any particular credit is that they can and will move on their own fundamentals when you're talking about macro it's about categories of stocks categories of credits categories of commodities all moving in unison are all having you know some sort of you know sort of fractalized dispersion that makes sense from a from an economic perspective and so when you talk about like what will it take for reflection to come back i think reflation in the economy and and the reality is we've sort of lost those impulses part of the reason one of the reasons we lost two of the reasons lost impulse is one we can't just keep reopening indefinitely and two we lost a lot of fiscal stimulus so i do believe the september data are likely to bounce relative to august because august is the peak month of delta but the reality is even if the data bounced in september that's not the start of a new trend we are now trending lower in growth and and growth terms and we expect inflation to show a trending deceleration as well uh by the time you get into september october so um the reality is if you lack those impulses and and the reason i sort of harp on this is because when you back test you know we have this thing called our grid asset market back test where we back test everything that ticks in macro that's relevant through the lens of our grid process and when you look at those back tests and you study them carefully you tend to only have meaningful increases in bond yields or meaningful declines in bond prices when you're in the economy is inflation i.e both growth and inflation are accelerating simultaneously and that's just unlikely to occur on a trending basis throughout the second half of this year and into the early part of next year so um could you get a backup in bond yields i certainly think that's likely and part of the reason i think that's likely is when you get into you know queue let the later part of q4 let's start let's say starting in mid november certainly by december you're going to have two things that will be very unfavorable from a technical perspective for the bond market now let's the the shifting from the you know the what's happening in the economy to what's happening technically and you're going to have the fed pull back on the amount of stimulus that it's buying and you're also going to have the treasury meaningfully i mean i mean meaningfully accelerate the amount of a treasury insurance and so and the reason that that's obvious that's obvious negative technical for the bond market and and so the reason for that being is because the treasury market sits at the very top of the global capital structure like if you think about this in like school yard terms like the treasury is is you know it's like you know 12 year old darius is 300 pounds and everybody else is 80 pounds right you know like that that is that is the treasury market and so it always gets its money and it's going to get its money from somewhere and it's always going to collect so do you have three options you and i can sell assets from our portfolios to capitalize them um the foreign investors former central banks the foreign official reserve sector can capitalize them or the fed can capitalize them well we know the foreign reserve sector has not capitalized in recent years that peaked in 2014 they refused to recycle dollars um we do we know the fed is likely to be buying you know less bonds than they are currently in that time period as well so that means you and i are going to be forced to capitalize capitalize the bullet the bull is going to grab us by the ankles and start shaking us and say hey i need hundreds of billions of dollars from you and i have an axe i haven't come to collect in a while and that to me is a negative technical that you know could easily see a 10 15 20 basis point back up at bonios if not if not a 20 to 30 basis my back up but this concept of going from 130 to two to me still seems somewhat preposterous in the context of lacking all those economic fundamentals that i highlighted earlier yeah it's it's such a brilliant uh analogy you say darius so the the treasury is the bully in middle school who's going around the lunchroom and shaking people shaking fellow classmates to get some change hoping the change will fall out of the pockets and the federal reserve is the rich kid who says hey mr treasury the treasury bully don't worry about it i'll pay you off i'll give you the thing problem is if the rich kid stops paying less and less and less then the bully's going to do a lot of shaking and you know some of those kids might not have any much change left to give therefore bonds could go up so that's the technical thing but your you think that the a bond market route or some weakness in bonds wouldn't be exacerbated because why well it would be it would only be exacerbated if the economy were about to show trending acceleration and economic growth and trending acceleration and inflation it's highly unlikely from a probability perspective that that is occurring you know mid to late q4 of this year if anything it'll be extremely obvious that both growth and inflation are trending lower at that point in time right two more questions from the uh real vision exchange uh fred p wants to know about darius's views on gold in the coming three months and jobana wants to know uh do you have any thoughts on uranium yeah gold is in this kind of weird awkward place right because everything i just said means that you could see it back up in in the long end of the tips curve the tips are uh treasury inflation protected securities that's the real interest rate you know deflated by market-based expectations for inflation and so you could see a backup in in the 10-year tip shield in that time frame where the bully comes to collect and between now and then you could easily see you know strength in the us dollar um and so like i just don't see how gold really breaks out of this awkward consolidation phase in any one meaningful way if anything i think the risk is probably huge to the downside uh but that doesn't necessarily mean that it has to go down i i my model's neutral and gold from a quantitative perspective in terms of our volatility just a momentum signal and i'm fundamentally neutral on gold as well and this is another thing you don't have to have a view on everything ticking at all times if you have a high conviction view then express that in your portfolio my conviction view is in the process so the portfolio construction reflects my high conviction in the process not in any one of those individual securities absolutely and my uh you know long-term view on gold just based on on my research is quite bullish but i speak to a lot of smart people and smart analyst smart investors who forecast that the next you know three to six months for gold could continue to be choppy so you got to separate the long-term view from the short-term view you're spot-on man so you just hit the nail on the head in terms of what i you know have these conversations with you know with our subscribers and our clients all the time it's like we can talk about the destination but the destination is not how you make or save money the sequence is how you make or save money the sequence is where your good and bad decisions occur or that you compound good decisions or compound negative decisions and that's what risk management is about investing is about telling a story about some future state the risk management is about not losing money along the way to getting to that future state and that's what we really focus on here 42 macro yeah darius uh we took a lot of questions from the exchange the real vision exchange has been around for um you know almost a year now and a lot of our members get a lot of value to it we recently took it up a notch in terms of the tech we launched it on real vision 2.0 so it really is a cutting-edge platform and rao powell real vision ceo uh wanted to let some members just give an update on about about the new exchange so let's take a look at rao's video that came out today on real vision i think you know by now i'm passionate about community i think it's the future of real vision future of business models overall the community of real vision has grown over the years to something truly spectacular something i call the hive mind you know where you get supplied with information from us and you've become smarter than the individuals on the platform i mean we've actually proven it by stuff like the real vision bot which surveys you guys and you guys are smarter and are outperforming both the markets and most of our guests but over the last year we built out something called the exchange which is a kind of social media forum where you can start sharing ideas videos research notes ask the community questions and the first iteration of that was pretty clunky and it wasn't perfect i mean everybody complained if you went back it went all the way back to the beginning of the feed and the feed was chronological and wasn't sorted by you know what was the most engaging content but we've changed all of that and we've spent a long time working with the right partner to build out a much better exchange because i care massively about the hive mind i think the future of real vision lies in this and that all of our worlds will collapse within the community idea so now it's nicely organized it's much cleaner you can bookmark stuff so you can store some interesting information for later you can engage with people there's direct messaging there's even group messaging so you can start talking to groups of people yourselves forming your own networks and here is where you can post research ideas or ask questions and get proper feedback from people now a lot of you haven't used this yet but thousands of people are and i'd really love you to start thinking more and more about how you can use the exchange because the value of real vision is not just the content we make it's you you guys are the experts on something and that's the key thing when you have lots of experts on something applying their minds to let's say finance markets crypto then we've got something truly special so go in there and enjoy if you want to check out the uh new and improved version of the exchange please click in the link for the description below where you can see all the charts that darius posted for this exact episode that we talk about in this episode uh so thank you darius um for posting them and thank the real vision exchange members for posting your questions darius before we get to the other questions on on youtube and realvision.com of which there are many i want to quickly um put up a chart uh of your sort of uh momentum signal for the nasdaq uh qqq the nasdaq 100 and as you can see in the the green for the audience uh that is a bullish signal and red is a bearish and darius a lot of the charts that you posted on the exchange uh whether it's for you know a low volatility or low beta communication services technology is pretty you're bullish on so many things so uh you talked about why you're bullish my question for you is what are you bearish on yeah i mean look if you you don't want to be too bearish on too many things if you have a fundamental view of goldilocks right that's the that's the starting point but i do believe that there are pockets of risk out there um that or you know one has been priced in and we've been you know accurate on the you know right right side of it and that's china right you go back to you know the early part of this year when it became very clear uh to me at least that the credit cycle was peaking and rolling over and we've seen a meaningful sort of decline in that in that indicator the reason i highlight that indicator first is because that tends to be the most the number one thing a lot of investors focus on when they focus on china risk and so you look at something like the credit impulse that peaked around 32 percent in november of 2020 that's all that's come down pretty sharply all year it's on you know just scythe 25 now and and the reason i call that out is because i haven't seen anything from the pboc or from the public world that suggests that that we're going to see a meaningful sort of cessation of that of that decline and and you know so historically you've seen pretty pretty sharp declines in something like three months shy board the reason i look at three months i bore sorry what is that three month what shy boar's uh interbank lending rates in china oh okay so the reason i look at that is because you know most people don't realize this but you know four-fifths of private non-financial sector credit is on bank balance sheet in china like it's sitting on the bank balance sheet the banks are the primary source of credit innovation intermediation on the mainland whereas you know you look at something like the us less than 50 percent is on bank balance sheet we have hedge funds mutual funds all these other entities not bank sector creating creating credit and so you look at something like shy board you're going to get a general sense of the you know the ultimate impact of monetary policy and you know you can sort of see it in china in a way that you can't see in many other economies and child wars barely budge it's only down 10 basis points in the last two months since in june and so it's telling you that hey look the pboc's policy setting has not materially eased yet you know because you're not seeing it in the interbank lending rates yet and so that means that the credit impulse in china is unlikely to bottom anytime soon because you typically see a sharp decline in chai bore you know prior to a bottoming and the re-inflection higher in china's credit impulse so um you know in terms of like looking at something like the kba china etf or the uh the fxi or something like that those things are have been bearish you know or everything china adr has been bearish but those things that kba at the bare minimum is popped back into neutral i don't trust that neutral signal at all if anything it's telling me that there's potentially more risk emerging to the downside so um you know i'm not a raging china bear i'm not a raging bear on anything in goldilocks but i certainly think uh china is an area of focus and you we haven't even talked about the regulatory risk right and this and i'll say that to say this i think china is getting this pandemic right in a way that most western societies are unable to because i think a lot of what they've done especially with this dd thing recently in terms of like trying to effectively nationalize deity i think they're realizing that the pandemic is an endemic one and two if the pandemic is an endemic we're not going back to 2019 levels of you know service sector demand and consumption and if we don't do that then we're probably not going to go back to 2019 levels of employment and i think they're trying to get out in front of that transition of this sort of real societal economic transition of saying hey look man let's you know people are going to be really pissed if things don't get back to normal and they're probably not going back to normal so let's take some regulatory steps to make sure that there's more harmony and balance in society that profits are being more evenly distributed throughout society so i think they're taking it proactive and what ultimately might be the you know world beating you know measures but right now it's just not good for asset markets right you have people you know super long china in terms of all the growth that we saw there and now they got to get out of those positions darius we got a question from elko who really hones in this point says darius do you think evergrand or other china credit risk will affect u.s markets evergrand being a very large property developer in china and i believe their bonds have traded from something like 90 cents on the dollar a few months ago to now something like 20 cents on the dollar so that's sort of flashing red no no definitely not i mean just by definition right like you you say one china has a closed capital council almost nothing they do there has a real impact on from from a systemic risk perspective aside from just a major growth slowdown and they're not going to have a major growth slowdown because evergrand defaults or a series of other sort of you know high risk default in china there's no tolerance and there's no appetite i learned this from steve roach probably 12 years ago um you know the good good for good mentor steve roach 12 years ago there's absolutely no tolerance in china for what happened what we saw in august in september 2000 uh 2008 in terms of like allowing you know real systemic risk emanating from the financial sector they're not going to allow that to happen there they have plenty of tools and a war chest that's north of three trillion dollars to make sure that that doesn't happen and so to answer the question no i don't think ever grant's going to create catalyze of systemic risk if anything it's just continuing it's a continuation of what china's really trying to do which is bring the excesses out of society are out of the financial sector so that they don't have to ever worry about something like lehman but they're also trying to do at the top of the you know capital structure now it's like look you guys have gotten rich with all this innovation and jim bianco excellent investor outstanding investor i was on real vision daily briefing on friday and he was saying hey look man like they're going to scare all the innovators out of china and in the silicon valley and i don't disagree with that statement but the reality is is you know are they going to uh you know if if we're storming the capital and marching in every street burning stuff in every street here in america are they going to come to america either because that's where we're headed if we you know everything that china's probably trying to get out in front of in terms of the societal you know rebalancing that that probably needs to take place on the other side of this the other side of this endemic yeah there's so much to unpack there uh darius when i think that the hallmark of 2008 was a pension plan in norway bought some bs product from a wall street bank in new york and there you had a global contagion of financial risk where uh largesses in the u.s spread and infected the world and you're saying that china does not want that and i i think that makes a lot of sense to me but what's interesting darius is that when you said that four fifths of the credit risk is on the balance sheets of you of chinese banks and it's not on the u.s banks that instantly made me think of 2008 because why is it not on the balance sheet of u.s banks it's because of uh regulations which uh prevent from all this risk being on the the the balance sheets of u.s banks they did also i think we learned in september of 2019 and again in in march of 2020 that the risk didn't go anywhere sorry the risk the risk still is there they just moved to different place that's what dodd-frank accomplished dodd-frank just made it more it's palatable to take risk in the in the non-regulated uh sort of sectors in finance so you know this is why you know and in my opinion i think that's part of the reason you know why jeff snyder's been so right about like look every time we have these accelerations we wind up you know kind of slowing and and the trend keep continues lower in terms of you know productive capacity of the economy and the reason for that is that look it's hard for an economy to grow if credit creation is being done in the shadows right if the bulk of credit creation is being done by people who inherently don't trust each other or handling or you know economic agents who desperately need their money back otherwise they lose their job you know it just makes this whole thing a lot less sort of um robust like you know you it also and it also creates sort of perverse incentives to like be super pro cyclical when things are really good here go take an extra loan and start two car washes or or two beauty salons or you know the next 18 jamba juices whatever you know what happens you know like that's what happens i believe that there were the cycle terms the credit spreads start to rise and the fed's balance she's contracting and it's like no no instead of having two jamba juices we need you to sell me to tell those java juices and give me cash you know like it's such a we created this system that's so it it's so um i'm not lost for word here but it it just it's not efficient it's not efficient you know it's efficient for making money but it's not efficient for growing an economy and really distributing wealth adequately yeah the demand to create a jamba juice is at its apex when really they're already too many drama abuses the demand the the the willingness to finance the 18th jamba juice is more than the willingness to finance the first one exactly so the first one was cutting edge of the 18th is just like it's over yeah uh darius just two quick events um today today the federal reserve released its beige book um it's uh you know it sends its report on the economy in the u.s for the month of august interestingly i think the term delta as a delta variant appeared 32 times also the ecb is scheduled to meet tomorrow and it will announce perhaps its plans of tapers we saw what how markets reacted to the fed's plans tomorrow um we could see how the the ecb's taper will will impact asset markets today actually european equities were down i believe over over one percent so maybe you know already pricing that in darius i don't have time to ask you about those two things i want to hear your thoughts but we don't have time but i will ask you a thought a question from bernardo from uh who asks darius what's your favorite kind of sandwich oh man that is a loaded question you don't get so for the for those of you guys to only see me sitting in this chair i'm 6'4 280 pounds so i've obviously like a lot of different types of sandwiches being put on the spot i'm gonna have to just go uh bow out and say peanut butter and jelly oh you can't go wrong with that no you can't absolutely not that's great well darius 42 macro thank you so much for joining us thank you everyone to watching if you want to see all of darius's charts please click on the exchange link below also stay tuned for uh tomorrow's daily briefing which will be tony greer hosted by maggie lake uh thank you one quick thing yeah yeah the the re the new exchange is awesome like you guys did a really good job with that man like it was super easy to post super easy interact with people like it's it's it's it's it's awesome everybody check that out for sure yeah thank you and i think a lot of people they're commenting on youtube or they're commenting on the video in realvision.com they're sort of searching for a they're yearning for a sense of community they have their financial ideas they want to share it with other people they want to see what other people are saying i think now um you know really the everything is there on the real business exchange so i thank you darius for saying that and um watch out all right so thank you everyone and uh have a good night [Music]

Channel: Real Vision Finance

Views: 9,430

Rating: 4.8204489 out of 5

Keywords: real vision finance, real vision tv, is everything a bubble, everything bubble, market bubble, market bubbles, market bubble 2021, Mispricing, Ash Bennington, chinese, stocks, darius dale, bitcoin, equity, equities, nasdaq, plummet, churns, jack farley, consumer sentiment, consumer prices, inflation, mike green, michael green, chinese tech, chinese tech stocks, china's tech crackdown, eviction moratorium, eviction moratorium ending, eviction moratorium update 2021

Id: 53lP8mf4rF0

Length: 37min 38sec (2258 seconds)

Published: Wed Sep 08 2021