Private Investing 101

Darius recently hosted our friend Kris Naidu, Founder and CEO of Zeacon, on our monthly Pro to Pro, where they discussed the dos and don’ts of private investing.

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

1. What Determines Success in Private Investing?

Having been involved in private tech investing for over twenty years, Chris believes in investing in what you know. 

When investing in private companies, there is less information than in the public sector. The companies are not as well known, and their products are not as defined. 

In private investing, success largely depends on anticipating where the market is headed and assessing whether the team can successfully develop the product or service to align with that direction.

2. How Do Investors Identify Where The Market Is Headed?

Spotting trends in the real world is crucial to understanding where the market is heading. 

For example, AI is emerging as a transformative force, and examining how it will be used to solve real-world problems is important. In industries like healthcare and finance, AI has the potential to modernize outdated systems and outperform the current technologies.

Successfully predicting these trends comes from identifying where AI will have the most significant impact and investing in companies that can quickly capitalize on these opportunities.

3. How Do Investors Get Involved With Private Investing?

After six or seven years as a startup CEO, Chris began investing through an angel investment event in Seattle, where private investments were being pitched. 

That experience provided valuable lessons: Chris learned that by being surrounded by both seasoned investors and newcomers, he was offered insights into what works and what does not. 

For those interested in private investing, you should attend events and network with private investors with more experience so you can learn from their past successes and mistakes.

That’s a wrap! 

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 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 To Win In The 2024 Financial Marketplace

Darius hosted our friend Scott Diddel on this month’s Pro to Pro, where they explored Scott’s comprehensive presentation on understanding the basics of how to allocate assets from a tax-advantaged perspective.

If you missed the interview, here are the three most important takeaways from Scott’s presentation that can help you plan for your financial future:

1. How Do Inflation And Taxes Impact Long-Term Investments?

The impact of inflation and taxes on long-term investments is staggering.

A $1 investment in large-cap stocks from 1926 would have grown to $2,533 today without the impact of inflation and taxes. When taking into account the impact of taxes alone, the amount is reduced to $672. When both taxes and inflation are considered, the value plummets to $48. This represents a shocking 98% decrease from the nominal return to the actual return in your bank account.

Allowing your money to sit idly exposes it to the erosive effects of taxes and inflation. As an investor, you should actively strategize to implement tax-efficient strategies and preserve your wealth over time.

2. What Are The Tax Implications of Different Investment Vehicles?

Investment vehicles are categorized based on their tax treatment: “Tax Later,” “Tax Now,” and “Tax Once and Never Again.”

Qualified plans like 401(k)s and IRAs fall under “Tax Later,” offering tax-deferred growth until you withdraw the investment. “Tax Now” includes outside investments, such as stocks and bonds, which generate taxable income annually. Lastly, the “Tax Once/Never Again” category features options like Life Insurance Retirement Plans (LIRPs), providing tax-free growth and distributions.

Understanding these distinctions is crucial for optimizing your investment strategy. Each category offers unique advantages, allowing investors to tailor their portfolios to their specific financial goals and tax situations.

3. How Can A Life Insurance Retirement Plan (LIRP) Enhance Retirement Distributions?

A Life Insurance Retirement Plan (LIRP) can significantly boost after-tax retirement income.

In a scenario without a LIRP, a desired $250,000 distribution results in only $170,000 after taxes. By incorporating a LIRP, the same distribution yields $208,000 after taxes. This $38,000 annual difference amounts to an additional $760,000 over a 20-year period.

LIRPs achieve this through tax-free growth and distributions, complementing traditional retirement accounts and outside investments. This powerful tool offers a tax-efficient way to supplement retirement income, helping you earn additional income in your retirement years.

That’s a wrap!

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 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 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.

Cooling Inflation Could Create A ‘GOLDILOCKS Vibe’ In Asset Markets

Darius joined our friends at Mornings With Maria on Fox Business last week to discuss inflation, rate cuts, the resilient US economy, and more.

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

Many positive fundamental catalysts are driving the market’s strong performance. Growth has been resilient, the labor market remains robust, and inflation is increasingly behaving in a manner that allows the Federal Reserve to consider policy rate cuts.

• While the economy has been resilient, we believe it is likely to slow over the medium term. However, our research indicates growth is likely to surprise to the upside, and inflation is likely to surprise to the downside. This combination could cause the current GOLDILOCKS Market Regime to persist.
• That said, current market conditions are not an all-clear signal for investors. We are in an adverse spot in the positioning cycle, with various metrics indicating we are in the late innings of the market cycle. Many indicators we track in our 42 Macro Positioning Model are flashing red for medium to longer-term risks despite optimistic calls for the S&P to reach 6000.
• The U.S. economy has experienced a K-shaped recovery, where different segments of the population recover at different rates. The top third of income earners account for 51% of total consumer spending, while the bottom third accounts for only 15%. This disparity has significant political ramifications for this year’s election, and when considering the direction of the stock and bond markets, it is crucial to view the economy in aggregate terms.

That’s a wrap! If you found this blog post helpful, go to www.42macro.com/research to gain access to 42 Macro’s proprietary trading signals, asset allocation recommendations, and portfolio construction pivots.

The 42 Macro Investment Process

Darius joined our friend Tony Sablan on the Unscripted Arena podcast to discuss Darius’ unique background, the 42 Macro risk management process, overcoming cognitive biases in investing, 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. Stop Relying On Predictions If You Want To Make Money In Financial Markets

Making money in asset markets is not about predicting future developments in the economy. It is impossible to generate consistently accurate forecasts for every relevant growth, inflation, and policy catalyst, across economic cycles. Moreover, any investor who believes they can accurately forecast the future with enough precision to position for each meaningful surprise in the data relative to consensus expectations is either a newsletter-writing charlatan or someone who has succumbed to the Illusion of Validity. 

Instead, making and saving money in asset markets is about positioning yourself on the right side of market risk, which equates to being long assets that are trending higher and short or out of assets that are trending lower. 

An overwhelming focus on predicting the future will only hinder your ability to respond to critical inflections in momentum with enough speed and confidence to manage risk consistently and effectively. You don’t have to predict things like “liquidity”, “flows”, etc. to benefit from trends and inflections in those cycles, just as long as you remain disciplined about your risk management process. 

2. Investors Should Position According To The Current Market Regime

The 42 Macro Risk Management Process simplifies complex market dynamics into a clear and straightforward three-step approach:

1. Identify and position for the Market Regime
2. Prepare for regime change using quantitative signals with our Macro Weather Model
3. Prepare for regime change using qualitative signals via our fundamental research

Since mid-November, we have remained in a risk-on Market Regime, currently REFLATION. That means you should have been overweight risk assets like stocks, credit, commodities, and crypto and underweight defensive assets like Treasury bonds and the US dollar every day since. 

As an institutional investor, you should also understand the key portfolio construction considerations for each Market Regime. If you need help understanding these critical factor tilts, we are here to help.

3. Our Macro Weather Model Systematically Nowcasts Momentum Across The Principal Components of Macro

The Macro Weather Model is our process for analyzing several principal components of macro and translating those components into a 3-month outlook for major asset classes, including stocks, bonds, the dollar, commodities, and Bitcoin.

This model monitors indicators that reflect both the real economy cycles and financial economy cycles:

• Real economy cycles: growth, inflation, employment, corporate profits, and fiscal policy
• Financial economy cycles: liquidity, credit, interest rates, and market sentiment indicators ‘fear’ and ‘greed.’

Currently, the Macro Weather Model suggests a bearish three-month outlook for stocks and bonds, a neutral three-month outlook for commodities and Bitcoin, and a bullish three-month outlook for the US dollar. In totality, our Macro Weather Model currently suggests the Market Regime has a moderate risk of experiencing a RORO phase transition (i.e., risk-on to risk-off, or vice versa) to a risk-off Market Regime within three months. 

That’s a wrap! 

If you found this blog post helpful, explore our research for exclusive, hedge-fund-caliber investment insights you can act on today.

How Much Longer Can The Bull Run Last?

Darius joined our friend Paul Barron this week to discuss the outlook on inflation, Bitcoin, the US economy, 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. Inflation Is Likely To Decline Over The Next Three To Six Months

At 42 Macro, we find it more insightful to track inflation using three-month and six-month rates of change than the year-over-year rate, which tends to meaningfully lag the market cycle. 

Using the three-month rate of change, our analysis indicates a significant increase in the rate at which shelter CPI and housing PCE are decelerating, indicating that the general trend of inflation is heading lower over the medium term.

However, if asset markets remain buoyant, the anticipated disinflation priced into consensus expectations and forecasted by the FOMC may not materialize over the medium term.

2. Although Bitcoin Is Likely To Reach High Valuations, The Path To Get There Is Uncertain

In the interview, Darius and Paul watched a clip from the All-In podcast in which Chamath Palihapitiya, the founder, and CEO of Social Capital, discussed potential price targets for Bitcoin over the next 18 months. Darius agreed with two aspects of Chamath’s analysis: omitting data from the first cycle and including time horizons for the price targets. 

However, we believe his analysis lacked a critical component: the path Bitcoin takes to reach those targets. To that point, we have yet to experience the typical median max drawdown seen in liquidity cycle upturns. Our research indicates that the median max drawdown for Bitcoin in a liquidity cycle upturn is around -61%. 

A decline of just half of that magnitude will cause many investors to exit their positions prematurely. At 42 Macro, our goal is to help investors stay in the market while avoiding significant drawdowns of their portfolio along the way.

3. Growth And Inflation May Pose Risks To Markets As We Reach Q1 2025

As we head into 2025, two primary risks loom over the markets. 

First, growth is likely to slow to levels that would worry many investors by Q1 2025. Second, inflation is likely to bottom out sometime in Q4-Q1 at a level inconsistent with the Fed’s 2% target.

Overall, we remain in a risk-on Market Regime and do not yet believe it is time to book the significant gains we and our clients have achieved since we called for the bull run at the start of November. However, after the next three to six months, forward-looking markets will likely recognize that growth and inflation trends in 2025 may not be as supportive as they are now.

That’s a wrap! 

If you found this blog post helpful, explore our research for exclusive, hedge-fund-caliber investment insights you can act on today.

Renewed Fears Of A No-Landing Scenario

Darius joined our friend Nicole Petallides on Schwab Network last week to discuss 42 Macro’s risk management signals, the resiliency of the US economy, the outlook for asset markets, and more.

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

The Divergence Between Fed And Treasury Policy Creates A Complex Environment For Investors And Requires An Increased Reliance On Risk Management Signals Over Fundamental Predictions

• When policymakers are not in sync, investing becomes more challenging. In an environment where all central banks row the boat in the same direction, investors experience a more favorable landscape. However, when signals across global growth, inflation, and policy are inconsistent, managing risk becomes significantly more complex.
• The US consumer remains resilient, continuing to spend robustly. Our “Resilient US Economy” theme, which we authored in September 2022, is supported by the strong consumer balance sheets and income dynamics we have seen recently. This resilience has been a key driver of the risk-on Market Regime investors have experienced since November.
• While the market impact of the policy divergence between the Treasury and the Fed remains uncertain, successful investing does not require you to predict the future; what it does require is an effective risk management system, which can help you navigate these uncertain times and stay on the right side of market risks. If you would like to add our proven risk management overlay to your investment process, we are here to help.

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!

What Comes Next for the Economy?

Darius joined our friend SpotGamma last week for their ‘PNL for a Purpose’ interview series to discuss our Macro Weather Model, Liquidity, the US economy, 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. Our Macro Weather Model Currently Indicates A Poor Three-Month Outlook For Asset Markets

At 42 Macro, we monitor several crucial economic cycles simultaneously. We track five Real Economy Cycles: growth, inflation, the labor market, corporate profits, and fiscal policy. Additionally, we track five Financial Economy Cycles: liquidity, credit, interest rates, and investor positioning from both a fear and greed perspective.

We have developed our Macro Weather Model to systematically assess our position within these cycles and their potential impact on asset markets over the medium term.

Currently, our Macro Weather Model forecasts a bearish outlook for both the stock and bond markets, a bullish outlook for the US Dollar, and a neutral outlook for commodities and Bitcoin.

2. Up Until Recently, The Treasury Department Had Been Contributing To Positive US Liquidity Dynamics In This General Election Year

We track US Liquidity via our 42 Macro Net Liquidity model, which is calculated by taking the Federal Reserve Balance Sheet and subtracting the Treasury General Account (TGA) Balance and the Reverse Repo Program (RRP) Balance.

Since Q2 2023, the Treasury has been drawing down the RRP balance to finance itself, reducing the balance from $2.5 trillion to $506 billion. This reduction has positively influenced asset markets.

However, since last month, the decline in the RRP balance has stalled out and is no longer supportive of liquidity, contributing to the recent correction observed in asset markets.

3. A “No Landing” Remains Our Highest-Probability Economic Scenario For The US Economy On A NTM Time Horizon

We forecast growth and inflation using our statistical models, which predict growth to be above consensus and inflation to remain above the Fed’s 2% mandate over the next year. 

While we are not concerned about a recession, we are wary of the potential for asset markets to reprice the forward rate curve, similar to what happened in 2022. Currently, significant rate cuts are being priced in: two cuts in 2024, two in 2025, one in 2026, and one or two more for the longer term.

However, the forward rate curve could flatten over the medium term if the Federal Reserve and Treasury ceased supporting asset markets with dovish net financing policies and dovish forward guidance.

That’s a wrap! 

If you found this blog post helpful, explore our research for exclusive, hedge-fund-caliber investment insights you can act on today.

Navigating Conflicting Economic Data

Darius joined Charles Payne on Fox Business last week to discuss the US economy, inflation, the Fed, and more.

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

Recent Economic Data Gave Conflicting Signals To Investors. A Systematic, Rules-Based Investing Approach Is The Best Method To Generate Positive Returns In Today’s Confusing Macro Environment.

• Although growth is slowing from the well-above-trend pace we saw last year, the economy remains resilient. We currently see a low probability of a developing recession in the US economy, but that may change in the coming weeks/months per the latest data. 
• If inflation persists above trend, the Federal Reserve may postpone any dovish measures. Coupled with the Treasury’s policy of tighter net financing conditions, this scenario could cause a shift to a risk-off Market Regime.
• During most of the bull run that occurred since late October 2023, monetary and fiscal policies were aligned, supporting asset markets. Currently, however, monetary policy remains dovish, largely disregarding inflation data, while the Treasury’s net financing policy has become more hawkish at the margins. As we move into the third quarter, this policy shift could become burdensome for asset markets.

That’s a wrap! 

If you found this blog post helpful, go to www.42macro.com to unlock actionable, hedge-fund-caliber investment insights.

Could The Election Make Assets Explode?

Darius joined our friend Anthony Pompliano this week to discuss the Q2 Quarterly Refunding Announcement, US Liquidity, the outlook on asset markets, 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. Janet Yellen Sent A Hawkish Message To Investors Via The Q2 Quarterly Refunding Announcement

This week’s release of the Q2 Quarterly Refunding Announcement sheds light on the Treasury’s net financing estimates for both the current and upcoming quarters, projections for the Treasury General Account (TGA) balance, and more.

Within the announcement, two key data points stand out: the Privately Held Net Marketable Borrowing totals for the current and next quarters, and the Treasury General Account Target Balance. For the current quarter, the Federal Reserve estimates a need to borrow $243 billion in net marketable borrowing from the private sector, marking a $41 billion increase compared to the previous Quarterly Refunding Announcement.

Looking ahead, projections for privately held net marketable borrowing for the next quarter have surged to $847 billion, representing a significant $604 billion uptick from the preceding quarter. This increase coincides with a notable $100 billion raise in the TGA account target balance. These figures paint a picture of a Treasury issuing a decidedly hawkish signal to market participants.

2. US Liquidity Dynamics Shifted Negatively In April

We track US Liquidity via our 42 Macro Net Liquidity model which is calculated by taking the Federal Reserve Balance Sheet and subtracting the Treasury General Account (TGA) Balance and the Reverse Repo Program (RRP) Balance.

Throughout much of 2023, the Treasury adopted a net financing strategy aimed at accessing the surplus funds held on the Federal Reserve’s balance sheet, primarily through the reduction of the RRP balance. Beginning last year at $2.5 trillion, the RRP balance has steadily decreased to its current level of $506 billion. This move notably bolstered asset markets.

However, since the start of April, both the RRP and TGA balances have shifted in a manner less supportive of liquidity, actually draining it. This trend has contributed to the recent correction observed across asset markets.

3. The Backdrop For Asset Markets Is Becoming Less Bullish At The Margins

Our “Resilient US Economy”, “Green Shoots Globally”, and “China Front Loading Stimulus” themes persist, all of which are supportive of asset markets.

However, our “Sticky Inflation” theme is now a dominant driver of asset markets. Moreover, the US Dollar has broken out to a bullish condition according to our Volatility Adjusted Momentum Signal. This is significant as the Dollar’s movement is inversely correlated with global liquidity on a coincident basis.

Presently, we are witnessing a transition from a simultaneous dovish stance in both Fed and Treasury policy towards one that is net neutral, given the Treasury’s hawkish pivot this week. This shift represents a less bullish environment for asset markets.

That’s a wrap!

If you found this blog post helpful, go to www.42macro.com/research to unlock actionable, hedge-fund-caliber investment insights.

Have a great day!

Risk On Or Risk Off?

Darius joined our friend Anthony Crudele last week to discuss the current market regime, the 42 Macro Positioning Model, 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. Our Positioning Model Nailed The Correction In Risk Assets 

Heading into this month, our 42 Macro Positioning Model, which tracks several short-term tactical indicators, including the AAII Bulls-Bears Spread, S&P 500 Implied Correlations, and AAII Cash Allocation, flagged an elevated risk of a tactical pullback.

These indicators suggested the market was overextended from a short-term perspective.

Whether a geopolitical catalyst occurred or not, we expected a pullback. 

2. The “Immaculate Disinflation” Theme Is Dead

The latest March PPI and CPI figures supported our “Sticky Inflation” theme. Super Core CPI surged to 7.9% on a three-month annualized basis, three times the pre-COVID trend and well above the Fed’s 2% inflation target.

Across most sub-categories of CPI and PPI, as well as leading indicators like NFIB or the UMich surveys, there is an array of disconfirming evidence in the “Immaculate Disinflation” narrative. At this juncture, we believe that the “Immaculate Disinflation” theme is over.

3. “Sticky Inflation” Is Not Bearish In Isolation 

Our “Jay And Janet Want A Soft Landing” theme hinges on two key factors. First, the Federal Reserve is more dovish than necessary. Second, Treasury net financing policy is contributing to favorable liquidity dynamics in this general election year. 

Given these ongoing dynamics, we maintain that investors need not worry about inflation pressures in isolation. Unless the Fed or Treasury takes action to address sticky inflation, we believe asset markets can continue to perform well over a medium-term investment horizon.

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!