Bearishness Emerging on Wall Street Within the Goldilocks Regime

TL;DR

Darius Dale of 42 Macro shares his bullish views on the equity market and explains why he believes the risks of the Delta variant, economic growth slowdown, and tapering by central banks are not enough to outweigh the upside potential. He also discusses the potential impact of tapering on risk assets and the timeline for its implementation.

Transcript

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 ca... Read More

Key Insights

• 😃 Dale believes that the equity market still has significant upside potential despite risks highlighted by big banks, such as the Delta variant, economic growth slowdown, and tapering.
• ❓ He suggests that market participants should focus on actual tapering by the Fed rather than discussions about it, as discussions alone are unlikely to cause a significant market downturn.
• 🤩 Dale highlights the lack of substantial progress in the labor market as a key factor influencing the timeline for tapering.
• 🧑‍💻 He also notes the potential impact of tapering on different sectors, with cyclicals potentially being more affected than tech.
• ✳️ Dale discusses the potential risks in China, including the credit cycle and regulatory measures, but believes that it is unlikely to create systemic risk for global markets.
• ✳️ He emphasizes the importance of risk management and the sequence of decisions in investing.

Questions & Answers

Q: What are the main risks mentioned by big banks in their bearish research reports?

The main risks highlighted by big banks include the Delta variant, slowing economic growth, and balance sheet tapering by central banks.

Q: Why does Darius Dale disagree with the bearish sentiment of big banks?

Dale believes that the economic impact of the Delta variant has likely peaked in East Asia, and valuation is not a significant catalyst for a market downturn in the near to medium term. He also argues that actual tapering by the Fed is unlikely to commence until December.

Q: How does Darius Dale interpret the timeline for tapering and its potential impact on risk assets?

Dale believes that the timeline for tapering will be influenced by the lack of substantial progress in the labor market. He suggests that tapering is unlikely to have a significant impact on risk assets until actual tapering begins. He also discusses the potential impact on different sectors, suggesting that cyclicals may be more affected than tech.

Q: Why does Darius Dale think the bearish sentiment of some Fed members serves a purpose in calming the bond market?

Dale suggests that some Fed members who express bearish sentiment may serve the purpose of calming the bond market. This gives the appearance that the Federal Reserve is committed to preserving the purchasing power of the dollar and reduces extreme reactions in the bond market.

Summary & Key Takeaways

• Darius Dale believes that the risks posed by the Delta variant, economic growth slowdown, and tapering by central banks are not enough to outweigh the upside potential in the equity market.

• He argues that the economic impact of the Delta variant has likely peaked in East Asia, and valuation is not a catalyst for a market downturn in the near to medium term.

• Regarding tapering, he does not expect the Fed to commence actual tapering until December, and believes that market participants should focus on actual tapering rather than discussions about it.

• He also discusses the factors that will influence the timeline for tapering, including lack of substantial progress in the labor market, and the potential impact on different sectors.