Darius sat down with Anthony Pompliano last week to discuss the outlook for Bitcoin, global liquidity, reducing portfolio risk, and more. 

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

1. Our Models Indicate Bitcoin Is Likely to Remain Bullish Until At Least Mid-Year

The 42 Macro Weather Model is currently generating a bullish outlook for Stocks, Bonds, and Bitcoin over the next three months. These bullish signals suggest each asset class is likely to experience above-median returns over the next three months relative to baseline. 

Given these favorable conditions, now is an excellent time to take risks in the markets – a stance we have advocated to our audience since November.

2. China Has Been A Dominant Driver of Global Liquidity This Year 

In mid-December, we authored a view that China would front-load policy support at the beginning of this year.

That is what we have witnessed, as the PBOC has been actively implementing monetary policies to support the economy. Its balance sheet is expanding, claims on banks are rising, and it is reducing various policy rates while committing to providing additional lending to specific sectors of the economy. 

However, we believe the positive global liquidity impulse is likely to dissipate in the second half of the year. To stay on the right side of market risk, investors must identify these shifts in global liquidity in real time and position their portfolios accordingly. Our Macro Weather Model and Global Macro Risk Matrix are among the best available tools for that. 

3. Bitcoin Is Best Managed In The Context of A Traditional Multi-Asset Portfolio With Risk Management Overlays

Bitcoin ETFs have seen record-breaking volumes since their launch in January. As of the market close on February 28th, ETFs reached a volume of $7.6 billion, surpassing previous records.

However, investors in ETFs lack the risk management overlays offered by our 42 Macro KISS Portfolio Construction Process. As a result, many may find themselves max-long Bitcoin during significant drawdowns. Bitcoin has experienced four drawdowns of -75% or more and another two in excess of -50%. That is six times investors could have lost half-to-four-fifths of their money in the asset class.

In contrast, our KISS portfolio, a 60/30/10 trend-following portfolio comprising SPY, AGG, and FBTC, has delivered an average annual return of +13% since 2018, with a maximum drawdown of -11%. Without our risk management overlays, investors would have seen similar returns in a 60/30/10 SPY/AGG/Bitcoin portfolio with a maximum drawdown of -26% and three crashes in excess of -20% since the start of 2019.

That’s a wrap! 

If you found this blog post helpful:

1. Go to www.42macro.com to unlock actionable, hedge-fund-caliber investment insights.

2. RT this thread and follow @DariusDale42 and @42Macro.

3. Have a great day!