Darius recently joined Gavekal’s David Hay to discuss the current Fourth Turning, #inflation, the relative attractiveness of Treasury Bonds and Gold, 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. How Can Understanding Fourth Turning Economic And Policy Dynamics Help Investors Position Their Portfolios?
At 42 Macro, we conducted a deep-dive empirical study on Fourth Turnings to identify trends across economic, market, and policy indicators during these transformative periods.
Our research revealed that Fourth Turnings are consistently marked by explosive growth in sovereign deficits, rising debt levels, expanding government size, and soaring costs of financing deficits. These periods also see a sharp deterioration in sovereign fiscal balances—a trend already unfolding in the current Fourth Turning.
As investors, understanding how these indicators are likely to behave during Fourth Turnings is essential to properly positioning your portfolio and staying on the right side of market risk.
2. How Does Inflation Typically Behave In Fourth Turnings?
Our analysis of Fourth Turnings reveals that Democrats have historically emphasized government social benefits to supplement household incomes, while Republicans have prioritized lowering corporate tax rates. These opposing approaches have converged to fuel the accumulation of significant public debt.
We foresee the Federal Reserve is likely to be drawn into the equation, effectively forced to monetize rising public sector debt and deficits.
We believe the explosive growth of public sector debt plus the Fed’s likely choice to monetize a considerable portion of that debt is likely to catalyze sustainably above-trend rates of inflation, aligning with our research that indicates inflation tends to accelerate sharply during Fourth Turnings.
3. How Can Investors Best Protect Their Wealth Against Explosive Growth In Sovereign Debt And Sustainably Above-Trend Inflation?
Our KISS Portfolio Construction Process is our systematic trend-following strategy designed for retail investors, with a core allocation of 60% Stocks, 30% Gold, and 10% Bitcoin.
Recently, we pivoted from Treasury Bonds to Gold, which we believe is a better choice for investors in the context of the current Fourth Turning. Gold has consistently performed well across various Market Regimes, serving as a reliable hedge against inflation and economic uncertainty—particularly during Fourth Turnings, when sovereign debt and inflation tend to surge.
Since our bullish pivot in November 2023, the QQQs have surged 40% and Bitcoin is up +174%.
If you have fallen victim to bear porn and missed part—or all—of this rally, it’s time to explore how our KISS Portfolio Construction Process 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 macro insights to help you grow your portfolio—our way of saying thanks for being part of our global #Team42 community of thoughtful investors.
