Speaker 1Happy Thursday out there, Team 42. It's your skipper here, Darius Dell, to present our Macro Minute for Tuesday, November 5th, 2026. Or should I say, Unhappy Thursday, for those who aren't paying attention to our signals and our memos. So, as always, we'll start with our executive summary from today's lead-off morning notes. Let's dive right in. What did we learn today that will likely have the greatest impact on your portfolio? Is the Q3 non-farm productivity and unit labor cost data challenged the durability and severity of the current risk-off inflation market regime? What key macro data or policy signals supported our active themes or consensus expectations? The Q3 non-farm productivity data supported the consensus forecast affirming growth. The Q3 non-farm productivity data strongly supported our productivity boom and jobless recovery themes. The Q3 unit labor cost data strongly supported our cooling housing and labor theme. The Bank of England's decision to hike rates is consistent with the consensus forecast of accelerating inflation. What key macro data or policy signals challenged our active themes or consensus expectations? The Q3 unit labor cost data challenged the consensus forecast affirming inflation. In the Eurozone, the September PPI data challenged the consensus forecast of peaking inflation. In Japan, the final October composite PMI data challenged the consensus forecast of accelerating growth. In the UK, the October auto sales data challenged the consensus forecast affirming growth. What other key macro data or policy signals did we analyze in today's Lead Off Morning Note? Number one, U.S. voters rejected the data center boom on Tuesday, and Texas Governor-elect Gina Hinojosa, the state's first Democratic governor in over 30 years, wants an immediate moratorium on new data centers. Democratic gubernatorial wins in Georgia, Ohio, and Pennsylvania could expose half of planned U.S. data center additions due to tougher local resistance. data center watch reports that local opposition disrupted at least 45 projects worth 88 billion dollars in the second quarter of 2026 per open ai chief global affairs officer chris lehane certainly a number of them are in places that have been particularly impacted by the globalization of the last 20 to 30 years and for a lot of really good reasons these folks have been really burned by companies and others in the past you don't say chris number two all told the risk of politically induced slowdown in data center construction is both high and not likely priced in. We've been saying this for at least six weeks now. The bull case for the hyperscalers is that a politically induced data center slowdown reflates near-term free cash flow expectations. Moreover, a deepening of the current risk off market regime condition will force factor where investors up in size, quality, and lower in beta, but the stocks may go down anyway. So just be aware of that. That's for our relative performance crowd. Number two, the Bank of England delivered its first rate hike in over three years, signal more increases in the coming months, and warrant hyperinflation would approach 5% next year. All told, modestly above-trend unemployment and modestly positive real wage growth are offsetting each other as drivers of corporate pricing power in the UK. Thus, we still contend the Bank of England rate should be hawkish, largely because of the uptrending, well-above-trend PPI, which is a leading indicator for both headline CBI and core CBI. We would not fade market pricing for three additional Bank of England rate hikes over the next 12 months. And finally, number three, over 250,000 people joined 180 French protests centered on living costs, and the demonstrations mostly stayed peaceful despite some incidents. All told, we continue to believe France, which shares nearly identical fiscal metrics to the U.S., is a preview of the significant redistributive policies we believe are headed our way in the 2028 election cycle and beyond. History proved that historic cantaloupe effects, such as our current K-shaped malaise, do not just go away unless you legislate them away via systemic downward mobility of elites or revolution, civil war, or both. That's what we call paradigm E, which is major political realignment and total war. So we're currently in paradigm C now, which is try to boom the economy and outrun the debt, you know, and positively affect the debt trajectory. The next stop on this train is likely paradigm D, default via debasement. You do default via debasement enough, start from a starting point of a nationwide affordability crisis. This is how you can get those on the bottom of the table outraged and enraged enough to finally flip over the monopoly board and just recreate a whole totally different society that obviously won't be good for capital holders. So just keep that in the back of your mind as we look into 2030. But for now, as always, a wrap up with a question from our community. This one's titled, remember, you can make a killing being the first investor in a new trade. You can also get killed. So it's first time post. I kept thinking about this comment when I looked at the market yesterday thanks for the signal and great communication so um they're referring to a pivot uh incrementally bearish pivot that our uh market signals uh made our kiss and dr most signals made uh yesterday they started off quite bearish and they got incrementally bearish yesterday despite the massive rally uh got incrementally bearish into the massive rally yesterday which we in yesterday's macro minute we called out as saying hey this might just be you know dealer gamma squeezing and delta hedge covering uh short covering and so um again in our view we don't think a politically induced data center slowdown is priced into 2027 or 2028 sales and earnings expectation we know it's not we can see it and so um you know it may be the case that wall street tries to spin this as being bullish but you know i've seen wall street do stupider things than that so we'll wrap it up there darryl still here presenting our macro minute uh for thursday november 5th uh 2026 best of luck out there today and if your portfolio is getting tattooed today, just remember, today is always the best day to get on the right side of market risk. You do not want to sit there huddling losses because that is how you commit type two errors. The difference between a type one error, which is a small manageable loss that allows you to stay alive and continue playing the game, is very different than a type two error, which is a big, large lifestyle destabilizing loss that causes you to change your lifestyle out in an adverse way. And so folks who stay long losers is in developing risk off market regimes that may very well develop into crashes and or secular bear markets, because by the way, they all look the same at the beginning, with the exception of 1929 in terms of secular bear markets and with the exception of 1987 crashes. We have 200 years of data setting U.S. equity market performance, volatility, drawdowns, CAGRs, et cetera, that tell you every secular bear market looks exactly the same at the outset. Every crash, with the exception of 1987, looks exactly the same at the outset. They all start off looking like corrections. And so it's your job, if you want to remain on the right side of market risk and actually achieve an on-time and comfortable retirement, achieve the financial freedom that you deserve and your family deserve, then you need to respect market signals and stay on the right side of market risk throughout your entire investment journey. You can't sit there investing based on what you think is going to happen in the future. Because I tell you right now, I've never met anybody on Global Wall Street, and I've met all the top PMs, CIOs, and asset allocators on Global Wall Street, not all, but many of them. None of them do that. None of them manage billions or even trillions of dollars with just what's going on in between their ears. And so I wouldn't recommend you try that at home either. So wrap it up there. Everyone have a wonderful day. We'll catch you back here tomorrow.
Speaker 2Cheers. For full disclosures, visit 42macro.com backslash disclaimer.
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