What Must Be Done To Prevent DOGE From Failing?

Darius recently sat down with FFTT Founder and President Luke Gromen to discuss how marketable U.S. treasury market dynamics have shifted over recent years, the likelihood of a meaningful reduction in the federal budget deficit in this Fourth Turning, and more.

If you missed the interview, here are the two most important takeaways from the conversation that have significant implications for your portfolio:

1. How Have Changes In Ownership Structure Contributed To Price And Yield Dynamics In The Treasury Market?

At 42 Macro, one of the ways we analyze the marketable U.S. Treasury market is by segmenting it into various investor cohorts:

The Federal Reserve: The Fed’s share has been declining due to balance sheet runoff, peaking at 25% in late 2021 and now at only 15% of total marketable Treasury securities.
Commercial Banks: Banks’ market share decreased from early 2022 until late 2023, when it began to stabilize. This stabilization was driven by programs like the Bank Term Funding Program (BTFP) and expectations that the Federal Reserve would dramatically lower interest rates. Currently, their share is around 15%, well south of the peak of 33% in 2003.
Foreign Central Banks: The decline in global trade and the steady shift away from global dollar recycling led by the BRICS member nations caused foreign central banks’ share to steadily decline to 14% from a peak of 40% during the 2008 global financial crisis.
Global Private Non-Bank Sector (Investors): This cohort has become the largest holder of marketable U.S. Treasury securities, with its share increasing from 36% in late 2021 to 55% today.

This shift in ownership has structurally altered the Treasury market. Unlike banks—such as the Fed, foreign central banks, and commercial banks which purchase Treasurys to satisfy policy or regulatory mandates (e.g., Dodd Frank, Basel III and IV)—global investors demand ex ante returns to compensate for taking risk in their portfolios.

As a result of this seismic shift, upward pressure on yields has intensified, signaling a more acute phase in the evolution of Treasury market dynamics and expectations.

2. How Likely Is Significant Reduction In The Federal Budget Deficit During This Fourth Turning?

Our analysis of U.S. federal budget dynamics highlights significant challenges to achieving meaningful deficit reduction.

First, U.S. federal expenditures currently represent roughly a quarter of U.S. GDP—the highest share since at least 1970 excluding COVID and the GFC. Thus, significant cuts would likely catalyze a downturn in the economy—however beneficial a smaller government would be in the long run, which is something both Darius and Luke agree with. Per Luke, the last three recessions saw the U.S. federal budget deficit widen by 600bps, 800bps, and 1,200bps.

Secondly, our research indicates that approximately 90% of the budget is effectively untouchable. This “Aggregated Untouchables” category includes “True Interest Expense”—comprising Medicare, National Defense, Net Interest, and Social Security—along with Medicaid, Welfare, and Veterans’ Benefits. Collectively, these expenditures represent programs unlikely to face cuts under the current pro-populist political climate and are compounding at a rate of +3% per year (+13% per year in the “True Interest Expense” category). The remaining 10% of the budget, which largely includes discretionary spending, amounts to just over $700 billion and has already been shrinking at a compound rate of -15% per year over the past three years.

Lastly, demographic trends are exacerbating the fiscal burden. By 2025, 160,000 people will join the retirement-age population each month, compared to just 32,000 entering the working-age population.

Given these dynamics, meaningful deficit reduction appears improbable without tackling politically protected categories. This leads us to believe that meaningful austerity is an unlikely path forward in the context of this current Fourth Turning environment—especially without a significant devaluation of the US dollar preceding it.

Since our bullish pivot in November 2023, the QQQs have surged 42% and Bitcoin is up +190%.

If you have fallen victim to bear porn and missed part—or all—of this rally, it is time to explore how our KISS Model Portfolio or Discretionary Risk Management Overlay aka “Dr. Mo” will keep your portfolio on the right side of market risk going forward.

Thousands of investors around the world confidently make smarter investment decisions using our clear, accurate, and affordable signals—and as a result, they make more money.

If you are ready to learn more about how our clients incorporate macro into their investment process and how you can do the same, we invite you to watch our complimentary 3-part macro masterclass.

No catch, just high-quality insights to help you grow your portfolio—our way of saying thanks for being part of our global #Team42 community of thoughtful investors.

Why Tariffs Are Much Worse For Investors Than You Likely Realize

Darius recently sat down with Bleakley Financial Group CIO Peter Boockvar to discuss the impact of the Trump administration’s proposed tariffs, insights from the 42 Macro Positioning Model, and more.

If you missed the interview, here are the two most important takeaways from the conversation that have significant implications for your portfolio:

1. What Are The Second And Third Order Effects Of Tariffs And How Might They Cause Problems For Asset Markets?

According to data from the Committee for a Responsible Federal Budget, the Trump administration’s proposed tariffs are expected to generate nearly $3 trillion in revenue to help offset the ~$4+ trillion cost of permanently extending the Tax Cuts and Jobs Act (TCJA).

We believe the market is underestimating both the likelihood and scale of these tariffs given that the Congressional budget reconciliation process – specifically the Byrd Rule – will require pay fors to offset the lost revenue from tax cuts. An equally important but often overlooked factor is the potential for retaliation, particularly from China.

Historical examples, such as the Trump-era trade war, illustrate how heightened tariffs can lead to significant devaluations of the Chinese yuan. If this pattern repeats, it is likely to trigger competitive devaluations among other major currencies, resulting in an excessively strong U.S. dollar. In our view, such dollar strength is likely to suppress global capital formation and weigh heavily on U.S. corporate earnings, ultimately creating a significant headwind for asset markets.

2. What Insights Does The 42 Macro Positioning Model Provide About The Current State of Asset Markets?

Our 42 Macro Positioning Model analyzes a 15 long-term time series, comparing their current levels to the median values observed at major bull market peaks and troughs. Currently, the model indicates several red flags for positioning and sentiment:

AAII stock allocation exceeds the median value observed at major bull market peaks in the seven market cycles since Jan-98.
AAII cash allocation is also below the median value observed at major bull market beaks.
S&P 500 realized volatility—an inverse proxy for systematic fund exposure—is below the median value seen at prior bull market peaks.
S&P 500 implied volatility correlations—an inverse proxy for market-neutral hedge fund exposure—is below the median value seen at prior bull market peaks.
S&P 500 price/NTM EPS ratio sits in the 95th percentile of all historical data, dating back to the late 1980s, and is well above the median value observed at major bull market peaks.
Investment-grade credit spreads are in the first percentile of all historical data, also dating back to the late 1980s, and are well below the median value observed at major bull market peaks.

From a positioning perspective, although these metrics do not necessarily serve as immediate catalysts for reversing the bullish momentum of risk assets, they represent significant potential energy once bearish catalysts emerge. When momentum does reverse, we believe positioning is asymmetric enough to unwind in an aggressive-enough manner to cause a stock market crash.

Since our bullish pivot in November 2023, the QQQs have surged 48% and Bitcoin is up +203%.

Thousands of investors around the world confidently make smarter investment decisions using our clear, accurate, and affordable signals—and as a result, they make more money.

If you are ready to learn more about how our clients incorporate macro into their investment process and how you can do the same, we invite you to watch our complimentary 3-part macro masterclass.

No catch, just high-quality insights to help you grow your portfolio—our way of saying thanks for being part of our global #Team42 community of thoughtful investors.

What Are The Hidden Dangers Looming Over Asset Markets?

Darius recently sat down with Anthony Pompliano to discuss the risks of a stronger US dollar, a potential global refinancing air pocket, and more.

If you missed the interview, here are the two most important takeaways from the conversation that have significant implications for your portfolio:

1. How Can A Stronger US Dollar Cause Problems For Asset Markets?

Our research indicates one significant implication of a strong US dollar is that it pressures foreign investors to repatriate dollar-denominated assets to service the 70% of global debt and 60% of cross-border lending that rely on the US dollar.

The events of 2022 provide a clear example of the potential consequences in such an environment. During a major US dollar rally from January to September of that year, the dollar appreciated by 18%, leading to a reduction in liquidity and severe declines across asset classes, as Gold fell 10%, US equities dropped 25%, US Treasury bonds declined 31%, and Bitcoin plummeted approximately 58%.

Moreover, tariff policies introduced by the Trump Administration, along with potential changes in the Treasury’s net financing policy, may accelerate dollar strength. Coupled with ongoing US economic exceptionalism—driven by tax cuts and deregulation—these factors could push the dollar even higher, increasing the pressure on markets and global financial stability.

If the Federal Reserve’s policy options are constrained by a resilient economy or persistent inflation, it may struggle to prevent the dollar from trending higher, creating significant challenges for asset markets.

2. Is A Global Refinancing Air Pocket On The Horizon?

At 42 Macro, we conducted a deep-dive empirical study on the global refinancing cycle and found it is, in fact, a key leading indicator of global liquidity.

By tracking the year-over-year growth rate of world total non-financial sector debt, lagged by four and a half years to align with typical refinancing timelines, we observe a strong correlation with fluctuations in global liquidity growth. Currently, the lagged growth rate of global non-financial sector debt is accelerating sharply, and our models project this trend to continue through late 2025.

While conventional wisdom suggests this is likely to catalyze an increase in global liquidity, the risk remains that liquidity may fail to expand meaningfully, thus creating a global refinancing air pocket, similar to the divergences observed in 2008-2009, 2011, 2015-2016, 2018-2019, and 2022. If global liquidity fails to follow the path of the year-over-year growth rate of world total non-financial sector debt, we believe it is likely to lead to severe disruptions—or even a meltdown—in global financial markets, negatively impacting asset markets along the way.

Since our bullish pivot in November 2023, the QQQs have surged 44% and Bitcoin is up +184%.

Thousands of investors around the world confidently make smarter investment decisions using our clear, accurate, and affordable signals—and as a result, they make more money.

If you are ready to learn more about how our clients incorporate macro into their investment process and how you can do the same, we invite you to watch our complimentary 3-part macro masterclass.

No catch, just high-quality insights to help you grow your portfolio—our way of saying thanks for being part of our global #Team42 community of thoughtful investors.

Decoding The Macro Puzzle

Darius recently joined Sebastian Purcell on Real Vision to discuss how to utilize key economic cycles to anticipate Market Regime shifts, our “Resilient US Economy” theme, global liquidity, and much more.

If you missed the interview, here are the three most important takeaways from the conversation that have significant implications for your portfolio:

1. What Role Do Economic Cycles Play in Navigating Market Regimes?

At 42 Macro, we analyze six key economic cycles—growth, inflation, policy, corporate profits, liquidity, and positioning—to assess the sustainability of the current Market Regime and anticipate future shifts.

These cycles do not directly dictate our clients’ portfolio positioning, but they do provide context for how our core risk management signals – KISS and Dr. Mo – might evolve in the future.

By analyzing where we stand within each cycle, investors can assess the durability of the current Market Regime and prepare for potential changes across various time horizons.

2. How Does The US Economy’s Shrinking Reliance On The Manufacturing Sector Contribute To Our “Resilient US Economy” Theme?

One key pillar of our 28-month-old “Resilient US Economy” theme is the US economy’s limited reliance on the manufacturing sector, which has historically been the most cyclical part of the economy.

Manufacturing’s share of nominal GDP has declined from 28% in the 1950s to just 10% today. Furthermore, its share of total nonfarm payrolls has dropped from 44% in the 1940s to 14%.

Unlike manufacturing, the services sector—driven by population growth and migration—rarely contracts, providing stability and cushioning the economy from the sharp downturns often seen in manufacturing-led recessions.

The manufacturing sector has accounted for a median 98% of net job losses during postwar US recessions. Thus, limited exposure to the more-cyclical manufacturing sector equals limited risk of an economic downturn. It is not clear to us why so many investors failed to anticipate this obvious upside risk in the data.

3. What Is The Outlook For Global Liquidity?

At 42 Macro, we track global liquidity using our Global Liquidity Proxy, which aggregates global central bank balance sheets, global broad money supply, and global FX reserves (excluding gold). We then add a global bond market volatility overlay to simulate the impact of the expansion and contraction of the global repo market.

Our research also indicates there are leading indicators of global liquidity, such as equity and crypto market caps, US dollar, FX volatility, interest rates, fixed income volatility, and global growth, inflation, and employment.

Currently, our model analyzing those indicators indicates a modest increase in global liquidity over the medium term, suggesting the supportive backdrop for asset markets is likely to persist into early 2025.

Since our bullish pivot in November 2023, the QQQs have surged 43% and Bitcoin is up +175%.

If you have fallen victim to bear porn and missed part—or all—of this rally, it’s time to explore how our KISS Model Portfolio or Discretionary Risk Management Overlay aka “Dr. Mo” will keep your portfolio on the right side of market risk going forward.

Thousands of investors around the world confidently make smarter investment decisions using our clear, accurate, and affordable signals—and as a result, they make more money.

If you are ready to learn more about how our clients incorporate macro into their investment process and how you can do the same, we invite you to watch our complimentary 3-part macro masterclass. No catch, just high-quality insights to help you grow your portfolio—our way of saying thanks for being part of our global #Team42 community of thoughtful investors.

Financial Repression Survival Tactics

Darius recently sat down with Exploring Prosperity’s Robert Dewey, where they discussed the new wave of populism, the impacts of the U.S. regional banking crisis, the U.S. dollar, and more.

If you missed the interview, here are the three most important takeaways from the conversation that have significant implications for your portfolio:

1. Is There A Material Difference Between Either Presidential Candidate From A Fiscal Policy Perspective?

Regardless of which candidate wins the upcoming election, we believe we are likely to see even more populism, or the promotion of policies that reflect the concerns of the people, regardless of the economic or institutional impact those policies have.

No matter what form this new wave of populism takes, it is likely to drive US public sector debt growth that forces the Fed to remain asymmetrically dovish.

Our view is that we are all frogs being slowly boiled alive in a pot of monetary debasement and financial repression, driven by Fourth Turning-style fiscal dominance. We have called for continued financial repression, which we have already experienced—and in our view, it is likely to accelerate throughout this Fourth Turning.

2. How Has The Focus of Policymakers Shifted Since The U.S. Regional Banking Crisis?

During the U.S. regional banking crisis in March 2023, the forward rate curve inverted and has remained persistently negative ever since.

This deepening inversion signaled to investors that financial stability concerns had taken precedence—reflecting Fourth Turning-style financial repression, in which stabilizing sovereign debt markets is the central focus for policymakers.

The persistent inversion has profoundly impacted the Fed’s balance sheet and overall U.S. liquidity. As the Fed responded with dovish measures during the crisis, trillions of dollars flowed out of the reverse repo (RRP) facility and into financial markets. In our view, this liquidity flow remains ongoing and is likely to extend into Q1 2025.

3. How Will Global Reliance on The US Dollar Change Over The Next Decade?

Our research indicates the U.S. dollar currently plays a dominant role in the global financial system:

50% of currencies with pegs are anchored to the dollar (by GDP).
60% of global FX reserves are held in dollars.
60% of cross-border bank lending is conducted in dollars.
70% of international debt securities are dollar-denominated.
79% of global trade is invoiced in dollars.
88% of foreign exchange transactions involve the dollar.
99% of stablecoin reserves are backed by the dollar.

In our view, these numbers will decline over the long term as countries reduce their reliance on the dollar. We believe the continuation of aggressive populist fiscal policies in the U.S. poses significant risks for investors, with the most important risk being how the Federal Reserve responds to the global shift away from the dollar, as this transition will have profound implications for financial markets. We think the Fed will print money to monetize US deficits, filling the increasing void left behind by international investors and central banks.

By now, you’ve likely realized that piecing together an investment strategy from finance podcasts, YouTube videos, and macro “gurus” on 𝕏 is not delivering the results you know you deserve.

This kind of approach only leads to confusion from conflicting advice, frustration from mediocre returns, and exhaustion from the emotional rollercoaster of your portfolio swings.

If you don’t change your process, how can you expect to get better results?

Over 2,000 investors around the world confidently make smarter investment decisions using our clear, actionable, and accurate signals—and as a result, they make more money.

If you are ready to learn more about how our clients incorporate macro into their investment process and how you can do the same, we invite you to watch our complimentary 3-part macro masterclass.

No catch, just macro insights to help you grow your portfolio—our way of saying thanks for being part of the 42 Macro universe.

Why Listening to The Market Beats Macro Predictions Every Time

Darius recently sat down with our friend Jason Shapiro from Crowded Market Report, where they discussed how to effectively use macro, the 42 Macro investment process, the outlook for China, and more.

If you missed the interview, here are the three most important takeaways from the conversation that have significant implications for your portfolio:

1. What Is The Optimal Way to Incorporate Macro Into An Investment Strategy?

We would argue that many investors incorrectly incorporate macro into their investment strategy because they are not paying enough attention to what the market is signaling.

One of the most advanced tools we have developed for our clients is our Global Macro Matrix, which allows us to nowcast the current Market Regime and analyze what the market is signaling at any given moment. The tool also allows us to spot durable inflections in asset market momentum in real-time, thus providing 42 Macro clients the best chance to remain on the right side of market risk.

This insight is crucial because the Market Regime dictates dispersion within and across asset classes, ultimately shaping the returns we all experience as investors. By following what the market tells us, we can help our clients align their portfolios with what the market is actually trying to price in, not with what they hope it prices in. Note the difference.

2. What Proven Quantitative Techniques Influence The 42 Macro Process?

At 42 Macro, we stand on the shoulders of giants who came before us. Our research incorporates strategies that have stood the test of time on global Wall Street:

Regime Segmentation – Introduced by Ray Dalio in the 1970s
Bayesian Inference – Applied to Wall Street by Daniel Kahneman and Amos Tversky in the early 2000s
Volatility as a Leading Indicator for Price – Pioneered by Benoit Mandelbrot in the late 70s and early 80s

Our investment approach leverages these proven quantitative techniques, allowing us to deliver superior outcomes that meet our clients’ needs more effectively than alternative strategies.

3. What Is The Outlook For China?

We believe China is either in or sliding into a balance sheet recession, forcing Beijing to ease monetary and fiscal policy aggressively. Here are the three core factors behind this view:

Excessive Debt: Private non-financial sector debt in China stands at 205% of GDP—similar to Japan’s overly indebted level prior to its balance sheet recession, which remains the clearest example outside of the post-GFC U.S. economy.
Poor Capital Allocation: China’s investment-to-GDP ratio is 42%, far surpassing Japan’s peak before its real estate bubble burst. A similar bubble has plagued China for the past ~15 years.
Shrinking Labor Force: China’s old-age dependency ratio is rising faster than in most countries, leading to two critical challenges—a shrinking labor force and an aging population.

While we remain cautious about China’s long-term outlook due to these structural issues, we do expect positive returns from Chinese assets in response to ongoing policy support. However, we do not recommend staying indefinitely long.

Instead, we advise aligning your China exposure with our Discretionary Risk Management Overlay, aka “Dr. Mo,” which pivoted clients into a max position in China on September 17th. Since then, the FXI ETF—a proxy for Chinese stocks—has rallied about 24%, even factoring in the recent pullback. At some point, Dr. Mo will instruct 42 Macro clients to book gains in China. To date, it has not yet done so.

This kind of approach only leads to confusion from conflicting advice, frustration from mediocre returns, and exhaustion from the emotional rollercoaster of your portfolio swings.

If you don’t change your process, how can you expect to get better results?

Over 2,000 investors around the world confidently make smarter investment decisions using our clear, actionable, and accurate signals—and as a result, they make more money.

If you are ready to learn more about how our clients incorporate macro into their investment process and how you can do the same, we invite you to watch our complimentary 3-part macro masterclass.

No catch, just macro insights to help you grow your portfolio—our way of saying thanks for being part of the 42 Macro universe.

Here Comes The Liquidity

Darius sat down with our friend Maria Bartiromo on Fox Business last week to discuss the probability of a soft landing, the outlook for global liquidity, China, and more.

If you missed the interview, here is the most important takeaway from the conversation that has significant implications for your portfolio:

We Believe A Soft Landing Is The Highest Probability Outcome Over The Next 12 Months

While the stock market fundamentals might disappoint over the medium term, we believe the key driver of asset markets will be rapid liquidity growth.
China is injecting an estimated $400 to $500 billion of liquidity over the next 6 to 12 months. Additionally, we expect around $700 billion in TGA spend-down during the first three to four months when the debt ceiling moratorium ends early next year. This anticipated surge in liquidity is not a force you want to bet against as an investor. If you are bearish, we suggest holding off on that view and revisiting it in Q2 of next year.
Credit debt is currently an issue, especially for small businesses and low-income consumers. However, the U.S. economy is a very K-shaped, top-heavy economy. If financial conditions remain easy, we believe wealthy consumers will continue spending.

This kind of approach only leads to confusion from conflicting advice, frustration from mediocre returns, and exhaustion from the emotional rollercoaster of your portfolio swings.

If you don’t change your process, how can you expect to get better results?

Over 2,000 investors around the world confidently make smarter investment decisions using our clear, actionable, and accurate signals—and as a result, they make more money.

If you are ready to join them, we are here to support you.

When you sign up, you’ll get immediate access to our premium research and signals—and if we’re not the right fit, you can cancel anytime without penalty.

Threading The Macro Needle

Darius recently joined our friends Nadine Terman and Ben Brey, where they discussed the Market Regime outlook, our “Resilient US Economy” theme, #inflation, and more.

If you missed the interview, here are the three most important takeaways from the conversation that have significant implications for your portfolio:

1. Is A Transition to A Risk-Off Market Regime Likely Over The Medium Term?

A transition to a risk-off Market Regime is typically caused by one or more of three factors:

A sharp, unexpected, and prolonged deceleration in growth
A sharp, unexpected, and prolonged acceleration in inflation
A sharp and unexpected tightening of monetary and/or fiscal policy – usually both

In terms of our fundamental outlook, we do not believe any of these scenarios is highly probable in the medium term.

As a result, we believe the path of least resistance in risk assets is likely to remain higher until one or more of these factors comes to fruition.

2. What Is Upholding Our “Resilient US Economy” Theme?

We expect growth to remain resilient and surprise consensus expectations to the upside.

There are five pillars upholding that view:

A historically strong household sector balance sheet
The “West Village Montauk Effect”
A historically strong corporate sector balance sheet
Limited exposure to the policy rate
Limited exposure to the manufacturing sector

Additionally, there is little evidence of capital misallocation or adverse selection in the current business cycle. Specifically, the U.S. private non-financial sector’s debt-to-GDP ratio has been declining during this business cycle, indicating that economic growth is outpacing credit expansion.

3. What Is The Outlook For Inflation Over The Medium Term?

Our models indicate inflation is likely to bottom in 2H24.

However, as we head into Q1 of 2025 and beyond, our models diverge from consensus estimates and suggest inflation is likely to reaccelerate from the cyclical low observed in 2H24.

We believe there are three major factors that are likely to cause inflation to reaccelerate:

Easing base effects;
Inflation is the most lagging indicator of the business cycle and we do not anticipate a recession over a medium-term time horizon; and
Incrementally populist fiscal policy.

This kind of approach only leads to confusion from conflicting advice, frustration from mediocre returns, and exhaustion from the emotional rollercoaster of your portfolio swings.

If you don’t change your process, how can you expect to get better results?

Over 2,000 investors around the world confidently make smarter investment decisions using our clear, actionable, and accurate signals—and as a result, they make more money.

If you are ready to join them, we are here to support you.

When you sign up, you’ll get immediate access to our premium research and signals—and if we’re not the right fit, you can cancel anytime without penalty.

2025 Warning: Slowing Growth, Rising Inflation, and Productivity Could Squeeze Markets

Darius recently joined our friend Jeremy Szafron on Kitco News, where they discussed the recent decline in housing starts, the U.S. economy, inflation, and more.

If you missed the interview, here are the three most important takeaways from the conversation that have significant implications for your portfolio:

1. What Does The Recent Housing Market Data Indicate About The Broader Economy?

Recent housing starts and building permit data, along with last week’s NAHB homebuyer market sentiment report, suggest an accelerated decline in the housing market, with housing starts and building permit data at levels not seen since summer 2020. This is concerning because the housing cycle has historically been a persistent leading indicator of the broader business cycle.

As a result, we anticipate growth will slow in the coming months. However, we do not advise investors to position for a developing recession in the U.S. economy.

Specifically, the latest retail sales and industrial production data, and other persistent leading indicators of the business cycle, currently indicate a recession is unlikely to materialize over a medium-term time horizon (3-12 months). Instead, we are currently observing a meandering off the top of the growth curve, which we believe is likely to persist over the next year or so.

2. How Is The U.S. Economy Transitioning From Its Growth Cycle Upturn?

The U.S. economy has been in a growth cycle upturn since the summer of 2022 when we authored our ‘Resilient U.S. Economy’ theme. We are now observing an economy that is merely getting less resilient.

Current data suggests a softening labor market, potentially at a faster rate than in recent quarters. However, our comprehensive analysis of leading indicators—including jobless claims, temporary employment, cyclical employment, layoffs, discharge rates, productivity, and corporate profit growth—does not indicate an impending severe downturn that would pose significant market risk.

While growth is likely to slow over the medium term, we do not anticipate the U.S. economy will decelerate as rapidly as the consensus currently expects. As a result, we believe the rate cuts presently priced into the 2025 forward rate curve in the U.S. are unlikely to materialize. A reconciliation is likely to occur near the year, but for now, we maintain a relatively optimistic outlook for asset markets – especially through year-end.

3. What Economic Challenges Might Emerge In 2025?

Our research suggests the inflation cycle will hit its low in the coming months before rising throughout 2025. This scenario implies growth potentially slowing to a below-trend pace in early 2025, with inflation bottoming at a level inconsistent with the Fed’s 2% target before reaccelerating.

Concurrently, we might observe a moderation or significant slowdown in productivity growth. The combination of slowing growth, rising inflation, and reduced productivity could lead to a margin squeeze and a significant slowdown in earnings. From a timing perspective, we view the first half of next year as the period with the most market risk.

Investors will likely need to reset their expectations for 2025 earnings lower during this time. However, we do not believe the markets need to debate this excessively at present because, historically, markets typically focus only on the next one to three months.

That’s a wrap!

This kind of approach only leads to confusion from conflicting advice, frustration from mediocre returns, and exhaustion from the emotional rollercoaster of your portfolio swings.

If you don’t change your process, how can you expect to get better results?

Over 2,000 investors around the world confidently make smarter investment decisions using our clear, actionable, and accurate signals—and as a result, they make more money.

If you are ready to join them, we are here to support you.

When you sign up, you’ll get immediate access to our premium research and signals—and if we’re not the right fit, you can cancel anytime, without penalty.

How Did Japan Break Bitcoin and Stocks?

Darius joined our friend Anthony Pompliano this week to discuss the JPY carry trade, the 42 Macro Weather Model, the 42 Macro GRID Model, and more.

If you missed the interview, here are the three most important takeaways from the conversation that have significant implications for your portfolio:

1. What Caused The JPY Carry Trade?

The unwind of the JPY carry trade is gaining attention because many global financial institutions have used the low-yield Japanese yen to fund their leveraged positions.

Japanese yields have been significantly lower than those of other major central banks, making it cost-effective to borrow in yen and convert to USD, Euros, or other currencies for investments.

We are starting to see the beginning of that unwind now.

2. What Does Our Macro Weather Model Indicate About The Outlook For Asset Markets?

The 42 Macro Weather Model, which provides a short to medium-term outlook across the five major asset classes, is currently signaling a neutral outlook for the stock market and Bitcoin, suggesting baseline returns and volatility over the next three months.

Various fundamental factors, including an uptrend in global liquidity, projected rate cuts, and a projected decline in the unemployment rate, support this outlook.

However, we remain optimistic about the overall performance of these asset classes, as we don’t anticipate significant economic risks in the US that would force the Fed to cut rates more aggressively, which could otherwise hasten the unwinding of the yen carry trade.

3. What Does The 42 Macro GRID Model Indicate About The Outlook For Global Economies?

Our 42 Macro GRID Model indicates that the US economy is likely to enter a DEFLATION Bottom-Up Macro Regime in the third quarter, with both growth and inflation slowing. Despite this, we are not worried about asset markets. Our GDP growth estimates are significantly higher than consensus, and our deep dive into business cycle analysis suggests there is a limited risk of a recession in the US economy over the medium term.

Moreover, we believe inflation will likely bottom out in Q4 before rising in 2025. That could pose a future market risk, but isn’t an immediate concern at this time.

Global economies are largely diverging from the US, with most of the world likely to remain in a GOLDILOCKS Bottom-Up Macro Regime throughout 2H24, and the growth accelerating + inflation deceleration dynamic is a typically supportive backdrop for asset markets.

That’s a wrap!

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