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Macro Voices

MacroVoices #384 Darius Dale: Blow-Off Top Coming Before Bears Get Validated

Thu Jul 13 2023
Darius DaleUS EconomyCredit MarketsBusiness CycleManufacturing SectorHousing MarketChina's EconomyFinancial SectorMarket AnalysisMarket TrendsTechnical AnalysisMarket VolatilityGold OutlookBricks Alliance


This episode covers various topics including Darius Dale's interview, market updates, US economy and credit markets, business cycle indicators, credit cycle, manufacturing sector, housing market, China's economy and financial sector, market analysis and outlook, market trends and technical analysis, market volatility and gold outlook, and gold outlook and Bricks Alliance.


US Economy Resilience

The US economy has shown resilience due to factors such as record cash on household balance sheets, low household debt service ratio, and record levels of cash on corporate balance sheets.

Business Cycle Indicators

Housing, orders, and production/profits are already breaking down, following the typical pattern of a business cycle. Timing the recession is important for investment strategies.

China's Economic Challenges

China is reopening its economy but faces challenges such as low economic surprise index level, negative inflation surprises, and reluctance to pursue large-scale stimulus programs.

Market Analysis and Outlook

Crude oil market rallied despite bearish data, technical indicators suggest potential bullish phase. Equities continue to trend upwards. S&P 500 close to previous all-time high.

Market Trends and Technical Analysis

S&P 500 may experience a double-top before a market reversal. NASDAQ shows strong market but Russell lags behind. Low volatility allows for cheap option strategies as hedges against downside risks.

Gold Outlook and Bricks Alliance

Gold futures show signs of moving higher, potentially influenced by announcements about a gold-backed bricks contender for replacing the US dollar as global reserve currency.


  1. Darius Dale's Interview and Market Update
  2. US Economy and Credit Markets
  3. US Economy and Business Cycle Indicators
  4. US Economy and Credit Cycle
  5. US Economy and Manufacturing Sector
  6. US Economy and Housing Market
  7. China's Economy and Financial Sector
  8. Market Analysis and Outlook
  9. Market Trends and Technical Analysis
  10. Market Volatility and Gold Outlook
  11. Gold Outlook and Bricks Alliance

Darius Dale's Interview and Market Update

00:08 - 07:19

  • Darius Dale returns as this week's feature interview guest
  • Discussion on what the bears got wrong and why there's still upside in the stock market
  • Discussion on inflation and how the macro backdrop has changed
  • China's recovery and its impact on global demand recovery
  • Market update with S&P 500 futures up, US Dollar index down, crude oil contract up, gold attempting to break out, copper up, uranium down, and Treasury yield down
  • Key news to watch this week is Friday's University of Michigan consumer sentiment levels
  • Darius Dale's track record and previous accurate calls discussed
  • Importance of credit event in unfolding the rest of the story in the market
  • Silicon Valley Bank incident not considered a credit event yet
  • Belief in right tail risks left to price in equity and credit markets
  • Questioning how much longer before bear market rally rolls over

US Economy and Credit Markets

06:54 - 13:17

  • The U.S. economy has been the driving force behind the stock market and credit markets.
  • The speaker initially had a bearish outlook but pivoted to a bullish stance in mid-January based on indicators related to U.S. recessions.
  • Leading up to recessions, the S&P 500 typically experiences strong performance, with a median increase of 16% one year ahead of its peak.
  • Current aggregated positioning metrics indicate low participation from institutional investors, which is concerning given the potential for a credit cycle downturn.
  • The recent credit event did not meet the criteria for the specific type of downturn predicted by the speaker.
  • Credit standards have degraded, but not at an accelerated pace, and there has been a slowdown in lending growth among small banks.
  • The contraction in CNI lending and overall loan growth is higher than it was a few months ago, suggesting that this is not as severe as some investors believe.

US Economy and Business Cycle Indicators

12:56 - 19:13

  • The US economy's reliance on non-bank financing has contributed to its resiliency.
  • The shadow banking sector, influenced by market-based measures of stress, has kept the credit machine going for non-bank lenders.
  • The main driver of the business cycle is a stage two credit downturn.
  • Housing tends to break down as a long leading indicator of the business cycle.
  • Orders tend to break down around 8 to 10 months ahead of a recession.
  • Production and profits tend to break down around 4 to 6 months before a recession.
  • Employment tends to break down at the start of a recession.
  • Inflation is a lagging indicator that breaks down around six to eight months after a recession.
  • Current data shows that the US business cycle is following this pattern, with housing, orders, and production/profits already breaking down.
  • Timing the recession is important for investment strategies, but it's not the sole focus. Understanding recessions helps in pricing and recovery strategies as well.
  • The yield curve inversion suggests that a recession was most likely to commence in November 2023 through April 2024 based on historical analysis.

US Economy and Credit Cycle

18:46 - 24:59

  • The 13 to 18 month forward interval has the highest likelihood of a contraction in GDP and rise in unemployment rate.
  • Q4 to Q1 of this year had the highest probability outcome for recession.
  • The economy has resisted recession due to various factors favoring a soft landing.
  • Record cash on household balance sheets suggests excess savings and liquidity.
  • Household debt service ratio is at an all-time low, not threatening a recession.
  • Corporate sector also has record levels of cash on balance sheets, indicating resilience.
  • Private sector income and wealth have outpaced inflation since the start of the pandemic.
  • Limited credit cycle vulnerabilities with private non-financial sector credit not growing significantly.

US Economy and Manufacturing Sector

24:44 - 31:12

  • Limited exposure to the volatile manufacturing sector in the US economy
  • Manufacturing share of total non-farm payrolls is significantly smaller in recent business cycles
  • Manufacturing sector contributes to a small percentage of job loss in recessions compared to the services sector
  • Labor market resilience due to difficulty in finding and retaining talent
  • Short-term inflation breakdown evident in CPI and PCE metrics
  • Immaculate disinflation observed in the US economy
  • Inflation tends to break down well into a recession, but current data suggests we are not currently in a recession

US Economy and Housing Market

30:45 - 37:30

  • Core PC is typically flat leading up to a recession.
  • Immaculate disinflation observed in financial markets is not consistent with historical business cycles.
  • Pandemic-related inflation impulses are well below levels historically associated with higher inflation.
  • Transitory inflation from the pandemic is expected to dissipate soon.
  • Housing disinflation may pause in the second half of the year.
  • The housing sector is experiencing a strong recovery, particularly in new home sales.
  • Low mortgage debt service ratios and low mortgage rates contribute to the resilience of the housing market.
  • China's role in the global economy after the pandemic may be different than before.
  • China's economy was already in a structural liquidity trap prior to COVID-19.

China's Economy and Financial Sector

37:08 - 43:53

  • China is reopening its economy back into a structural liquidity trap
  • China has the lowest economic surprise index level among major economies
  • China's inflation surprises are the deepest negative in the world
  • Chinese authorities are reluctant to pursue large-scale stimulus programs
  • Current account degradation is impacting Chinese economy
  • Chinese financial sector's growth has slowed due to changes in business model
  • China will continue increasing liquidity, but not as significantly as before
  • Chinese equity market indicates less liquidity coming out of China
  • Demand for physical commodities may not be significant in response to Chinese equities

Market Analysis and Outlook

43:24 - 50:39

  • 42 macro provides research services to corporations, central banks, and retail investors at affordable price points.
  • They publish a slide deck every month with webcasts going through each chart.
  • They also publish a weekly round-up of actionable investment advice and a daily morning note.
  • The EIA reported a crude oil build of 5.9 million barrels, with Cushing Oklahoma drawing down 1.6 million barrels.
  • Gasoline inventories decreased slightly while distillate inventories increased.
  • US production decreased by 100,000 barrels to 12.3 million barrels.
  • Despite bearish data, the crude oil market rallied due to an upward revision in demand outlook by the EIA.
  • Technical indicators suggest that crude oil may be entering a bullish phase if it can sustain prices between $75 and $80 per barrel.
  • Equities continue to trend upwards, reaching close to previous all-time highs.

Market Trends and Technical Analysis

50:14 - 57:10

  • The S&P 500 is close to its previous all-time high, suggesting the possibility of a double-top before a market reversal.
  • Despite not making fundamental sense, the trend in the market is strong and upward.
  • Key levels on the S&P 500 include a call wall at 4500 and a put wall at 4200.
  • The expected move for July 21st op-x is plus minus 60 points, with resistance at 4500 and support at 4400.
  • Stagnation in the S&P may occur due to its distance from all-time highs and the upcoming FOMC meeting.
  • The S&P remains in a bold trend with no technical evidence of running out of momentum.
  • Short-term overhead resistance may be reached, but there is nothing stopping the bulls from attempting to test major highs.
  • Key levels on the NASDAQ include a call wall at 370 and a put wall at 360.
  • Resistance now lies at 383, while support resides at 350.
  • A blow-off top may be seen in the NASDAQ, but shorting a strong market does not make sense currently.
  • The Russell has been lagging behind other indexes and is about %21 away from all-time highs.
  • Staying along small caps in the form of Russell IWM can provide some protection if going short on NASDAQ or S&P.
  • A portfolio manager may choose to buy bonds for risk-free returns instead of taking risks on further upside potential in stocks.
  • Fear of missing out and career risk are driving money flow into these markets.
  • Incredibly low periods of volatility allow for constructing cheap option strategies as hedges against downside risks.
  • The three-month SOFR futures are currently pricing in a Fed funds rate near five and a quarter by the end of the year.
  • Powell is expected to keep interest rates at current levels.

Market Volatility and Gold Outlook

56:46 - 1:04:41

  • The market is trading back down to February, March lows and betting on the Fed funds rate being near five and a quarter by the end of the year.
  • Recession risks in the fourth quarter may force interest rate futures to start pricing in those risks.
  • The VIX is currently around 13.5, indicating less than 1% moves in the broad markets each day.
  • When the VIX trends below 16 into the 13 area, it's possible for it to go as low as 9-10 with a gradual rise to the upside in broad markets.
  • Hedging becomes easier with lower volatility, using put spreads can be effective.
  • The ratio back spread strategy can be implemented during lower volatility periods.
  • Volatility one year out is also at multi-year lows.
  • A sustained move below 100 for the US dollar index could accelerate its weakening trend.
  • A material re-pricing of the dollar lower could act as a tailwind for risk assets and commodities.
  • Gold futures are showing signs of a move higher, potentially influenced by announcements about a gold-backed bricks contender for replacing the US dollar as global reserve currency.

Gold Outlook and Bricks Alliance

1:04:11 - 1:11:57

  • The bricks alliance has formally announced its intentions to assert a gold-backed brick as a contender for replacing the US dollar as global reserve currency.
  • The Western institutional finance community is either ignoring or underestimating this development.
  • If the brick's alternative reserve currency system gains traction, it would require buying more gold regardless of price to increase the money supply.
  • This could be another reason to be bullish on gold in the long term.
  • Gold is catching a bid and the correction may be ending sooner than anticipated.
  • A breakout above $1900 could lead to higher prices, potentially retesting previous highs below $2100 and even breaking towards $2200.
  • There's a lot of upside potential in this early stage breakout.