Is President Trump Engineering A Hard Reset?—Darius Dale on Negocios TV

Darius Dale recently sat down with Víctor Hugo Rodríguez to break down the impact of fiscal tightening, global debt refinancing risks, and the Federal Reserve’s next move. If you missed the interview, here are three key takeaways that may have huge implications for your portfolio:

1) The U.S. Economy Is Slowing Faster Than Expected

Darius warns that the U.S. economy is decelerating more quickly than consensus expects, as both fiscal tightening and policy uncertainty weigh on growth. The economy had been artificially boosted by government spending, but that effect is now wearing off. Meanwhile, the federal deficit has surged by 38% this fiscal year and by nearly 30% on a calendar-year basis, increasing the risk of a faster-than-expected slowdown from this artificial sugar high.

Key Takeaway:
Without policy intervention, the risk of a full blown crash in the stock market is rising. The Fed’s response will be crucial in determining whether the market can stabilize. We do not currently anticipate the Fed will be proactive enough.

2) The Global Debt Refinancing Crunch Could Trigger Forced Deleveraging

Roughly 20-25% of global non-financial sector debt must be refinanced in 2025, creating a massive liquidity gap. The key question: Who will absorb this debt? With investor balance sheets stretched and the Fed unlikely to launch QE soon, liquidity shortages could force asset sales and amplify volatility.

Key Takeaway:
Investors should watch credit markets closely—signs of stress here could signal broader market fragility and a sharp repricing of risk assets.

3) Defensive Positioning Is Critical in a Liquidity Vacuum

Darius argues that investor expectations remain too optimistic, despite sizable downside risks to growth. In this environment, capital preservation should take priority. Defensive positioning includes raising cash, rotating up in credit quality, and shifting toward defensive equities like consumer staples and utilities.

Key Takeaway:
The safest sectors in this environment are defensive dividend stocks like utilities and consumer staples, while high-beta cyclical assets tied to trade remain vulnerable.

Final Thought: The Fed’s Dilemma Will Define 2025

The Fed faces a tough choice: stick to its 2% inflation target or intervene with liquidity support to stabilize markets. If inflation reaccelerates while growth slows, the Fed may need to revise its inflation target higher to justify adequate monetary easing. The macro landscape is shifting fast—investors must stay ahead of these critical developments.

If you are not confident your portfolio is positioned correctly for the evolving macro landscape, partner with 42 Macro for data-driven insights and proven risk management overlays—KISS and Dr. Mo—to help you stay on the right side of market risk.

THE MACRO CLASS

No catch—just real insights to help you stay ahead in the #Team42 community.

Best of luck out there,

— Team 42

Is Trump Crashing The Market On Purpose?

Is Trump Crashing The Market On Purpose?

Darius Dale, 42 Macro Founder & CEO, joined Anthony Pompliano on The Pomp Podcast to break down the potential market impact of Trump’s economic policies, the Fed’s inflation dilemma, and why the government might be engineering short-term pain for long-term gain. If you missed the podcast, here are three key takeaways that may have huge implications for your portfolio:

1) Is Trump “Kitchen-Sinking” the Economy to Rebuild It?

Darius likens Trump’s approach to President Reagan’s 1980s strategy—short-term pain to reset the system. By implementing tariffs, restricting immigration, and perpetuating maximum uncertainty among investors, consumers, and businesses, the administration appears to be forcing a hard reset toward a supply-side economy. While the long-term goal may be economic expansion, markets are reacting to the immediate downside risks, as uncertainty weighs on growth and sentiment relative to elevated expectations.
Key Takeaway:
While short-term pain may lead to long-term gains, the adverse sequence of policy implementation should not be ignored.

2) Policy Uncertainty Is Freezing Consumer & Business Confidence

Consumer spending has slowed despite rising disposable income, as people increase savings due to economic uncertainty. Businesses are also holding back on investment, with Q4 real business investment contracting over 3%. This hesitation is already showing up in slowing growth data, and if uncertainty lingers, it could push the U.S. into a deeper slowdown than previously expected.

Key Takeaway:
Without clarity on fiscal policy—especially tax cuts and deregulation—the economy and asset markets may struggle to sustain upside momentum.

3) Will the Fed Quietly Raise Its Inflation Target Again?

Darius’ secular inflation model suggests the U.S. equilibrium Core PCE inflation rate has shifted to 2.7-3.3%, making the Fed’s 2.0% target increasingly unrealistic.If growth continues to slow and inflation trends higher in 2025, the Fed will be forced to either tighten policy, risking recession, or revise its target higher to provide more flexibility for market support.
Key Takeaway:
A shift in the Fed’s stance on inflation could be one of the biggest market catalysts of the year, dictating liquidity trends and risk appetite. We expect the FED to cave and provide liquidity, but it may not do so proactively—risking a potential crash.

Final Thought: Navigating an Era of Economic Reset

Markets are in a tug-of-war between short-term economic uncertainty and long-term economic prosperity. A successful shift to a supply-side economy could sustain the economic expansion, but near-term turbulence may be unavoidable. Liquidity trends and Fed policy will determine whether this reset builds strength or triggers deeper downturns. Investors must stay agile and ahead of macro shifts.

THE MACRO CLASS

No catch—just real insights to help you stay ahead in the #Team42 community.

Best of luck out there,

— Team 42

Dale: U.S. Growth Slowing Due To Policy Uncertainty

Darius Dale, Founder & CEO of 42 Macro, recently joined Nicole Petallides on Schwab Network to break down market volatility, the resilience of the U.S. economy, and how investors should be thinking about liquidity, policy uncertainty, and positioning. In case you missed the appearance, here are three key takeaways that could shape your portfolio strategy:

1) Liquidity is Likely To Rescue Markets

Despite concerns over short-term volatility, Darius sees a general uptrend in asset markets driven by accelerating liquidity—both globally and within the U.S. As the Treasury General Account (TGA) declines and net debt issuance is restrained, liquidity conditions should remain supportive for risk assets. With the Fed likely ending the Treasury portion of its balance sheet runoff in the next one to two quarters, markets could see even more relief from liquidity tailwinds.

2) Policy Uncertainty Is Slowing Growth, But Not Breaking the Economy

While corporate confidence remains high due to expectations of business-friendly policies, the data shows a real slowdown in U.S. economic growth. Elevated policy uncertainty—at levels seen only during the Global Financial Crisis and the COVID-19 pandemic—is causing businesses and consumers to hesitate on investment decisions. However, Darius does not see this leading to a recession but warns that prolonged uncertainty could trigger renewed hard-landing fears that weigh on markets.

3) Clarity On Bad Policies + Uncertainty Regarding Good Policies = Risk Assets Struggle

Darius revisits his Triple S Framework—Size, Sequence, and Scope—to assess Trump’s potential economic policies, again, emphasizing that sequence is the critical risk factor. If restrictive measures like tariffs and immigration control are implemented first, they could tighten the labor market, drive up wages, and fuel inflationary pressures. Conversely, if pro-growth policies such as tax cuts and deregulation come later, they may help offset these effects. Ultimately, the market’s reaction will depend on the order in which these policies unfold.

Final Thought: Risk On For Now, But Stay Nimble

Despite policy-driven risks, the current market regime remains risk-on, favoring a buy-the-dip strategy in higher beta and cyclical assets. Emerging markets and international equities have outperformed recently, and relative economic trends suggest that outperformance could continue. But with historic policy uncertainty clouding the road ahead, investors should remain adaptable.

If you are not confident your portfolio is positioned correctly for the evolving macro landscape , partner with 42 Macro’s data-driven insights and risk management processes to help you stay on the right side of market risk.

THE MACRO CLASS

No catch—just real insights to help you stay ahead in the #Team42 community.

Best of luck out there,

— Team 42

Is The Fed Fighting A Losing Battle Against Inflation?

Darius recently joined Charles Payne on Fox Business to discuss why the Fed’s inflation fight is failing, the limits of traditional economic indicators, and how Trump’s potential policies could impact markets. If you missed the appearance, Here are three key takeaways that could significantly impact your portfolio:

1) The Fed’s 2% Inflation Target is Unattainable

Darius has been warning since January 2022 that the U.S. economy’s equilibrium inflation rate is in the high 2% to low 3% range, making the Fed’s 2% target unrealistic. Despite recent disinflationary trends, inflation remains sticky, and the latest data reinforces the idea that the Fed won’t get back to 2% without causing serious economic damage. Rather than continuing its restrictive policy, the Fed should revise its target higher and adjust accordingly.

2) Traditional Economic Indicators Are Outdated

Darius argues that widely used indicators like the Leading Economic Index (LEI) are outdated and less relevant in today’s economy. Decades ago, manufacturing made up 30% of GDP and 50% of employment—today, it is only 10% of GDP and 14% of jobs. This structural shift means that many recession indicators don’t capture the strength of the modern economy, which remains resilient due to fiscal stimulus and liquidity dynamics.

3) Trump’s Policy Agenda Could Trigger Inflationary or Deflationary Shocks—Depending on Its Sequence

Darius outlines his Triple S framework—Size, Sequence, and Scope—to evaluate Trump’s potential economic policies. The biggest risk? Sequence. If tariffs and immigration restrictions are implemented first, they could disrupt supply chains, tighten the labor market, and push inflation higher before pro-growth policies like tax cuts and deregulation take effect. The market impact depends on how these policies are rolled out and whether the positives outweigh the negatives.

Final Thought:

Liquidity is likely to trend higher through mid-2025, which is supportive for asset markets. That said, policy-driven inflation risks and potential Fed missteps remain key threats. Investors would be remiss to rely exclusively on fundamental predictions amid a historically wide distribution of probable economic and policy outcomes.

If your risk management signals are not keeping you on the right side of market risk, parter with 42 Macro and join the thousands of investors benefiting from our KISS Portfolio Construction Process and our Discretionary Risk Management Overlay, also know as “Dr. Mo”.

THE MACRO CLASS

No catch—just real insights to help you stay ahead in the #Team42 community.

Best of luck out there,

— Team 42

Darius Dale on MacroVoices: Investing Amid The Changing World Order

Darius recently sat down with Erik Townsend on MacroVoices for a wide-ranging discussion covering inflation, fiscal dominance, and the impact of the Fourth Turning on financial markets. If you missed the interview, here are three key takeaways that could significantly impact your portfolio:

1) Inflation Is Not Going Back to 2%—And the Fed’s Response Will Be Crucial

Darius argues that inflation is structurally higher in this economic cycle and unlikely to return to the Fed’s 2% target without a full-blown recession. His research shows that inflation is the most lagging economic indicator, typically breaking down only 12-15 months after a recession starts—which is not currently in sight. Instead, inflation is likely to reaccelerate in 2025, driven by tight housing supply, faster credit growth, slowing labor supply, and increased pressure on corporate margins.

Key Takeaway:

The Fed faces a tough decision: stick to its 2% target and risk market turmoil or adjust expectations and let inflation and monetary policy run hotter. The market’s long-term trajectory depends on how policymakers navigate this tension.

2) The Fourth Turning Is Reshaping Fiscal and Monetary Policy

Darius highlights that we are deep into a Fourth Turning, a period of structural great institutional and geopolitical change. Historically, Fourth Turnings bring explosive sovereign debt growth, increased fiscal dominance, and rising inflation, requiring financial repression and monetary debasement to manage oppressive public debt burdens. With deficits spiraling and entitlement spending and net interest growing at a +15% CAGR, fiscal policy is unsustainable and risks a breakdown of the current world order in which the U.S. Treasury sits atop the the global capital structure.

Key Takeaway:

Investors must prepare for an era where monetary easing and inflation become structural tools to manage debt, fundamentally altering portfolio strategies. Holding assets that benefit from financial repression—like equities, gold, and Bitcoin—will be important.

3) Market Regime Shifts Will Drive Investment Success

Rather than making long-term macro predictions, Darius emphasizes trend-following and market regime nowcasting as the best way to stay on the right side of market risk. His 42 Macro Risk Matrix tracks growth, inflation, monetary, and fiscal policy shifts in real-time, helping investors adapt as macro conditions evolve. The biggest risk today? A potential mispricing in bonds and the possibility of term premiums normalizing, pushing yields higher.

Key Takeaway:

Investors need a dynamic framework to manage risk in a fast-changing macro landscape. Relying on old models like 60/40 portfolios won’t cut it—market regime awareness is key to navigating volatility and seizing opportunities.

Final Thought:

The themes discussed—sticky inflation, fiscal dominance, and market regime shifts—all point to a period of profound macroeconomic change. Investors who fail to adapt risk being caught off guard by rising volatility and policy shifts. To stay ahead, it’s essential to incorporate real-time macro tracking and flexible positioning strategies in portfolio management.

Since our bullish pivot in January 2023, the QQQs have surged 82% and Bitcoin is up +293%.

If you have missed part—or all—of this market, it is 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.

Thousands of investors around the world use 42 Macro to confidently navigate market shifts and optimize their portfolios. If you’re ready to incorporate macro into your investment process and stay ahead of these monumental changes, we invite you to watch our complimentary 3-part Macro Masterclass.

The Macro Class

No catch—just real insights to help you stay ahead in the #Team42 community.

Best of luck out there,

— Team 42

Bitcoin And Stocks Are In For A Wild 2025

Darius recently joined Anthony Pompliano to discuss the outlook for global liquidity, the influence of the U.S. dollar on global liquidity, the potential economic impact of Trump administration immigration policies, 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 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 models currently indicate that liquidity is currently moderating—not just globally, but also within most major economies.

We also track the leading indicators of global liquidity, such as stock and crypto market capitalizations, the U.S. dollar and currency volatility, global interest rates and bond market volatility, as well as global growth, inflation, and unemployment.

Our analysis of these leading indicators currently suggests a modest decline in global liquidity over the medium term. Combined with the current downtrend in liquidity across most major economies, this signals an environment that is unfavorable for asset markets from a global liquidity perspective. Rising US liquidity may offset that early in 2025.

2. What Role Will The US Dollar Play In Driving Global Liquidity?

Our research at 42 Macro includes comparing the year-over-year rate of change in our Global Liquidity Proxy to that of the USD Real Effective Exchange Rate and the CVIX. Our analysis indicates there is an inverse correlation between the dollar and global liquidity, as well as between currency volatility and global liquidity.

Currently, the strong U.S. dollar and rising currency volatility are exerting downward pressure on global liquidity. Looking ahead, potential policies under the new administration, such as tariffs and pro-growth, reflationary initiatives, could prompt the Federal Reserve to adopt a less-dovish monetary policy outlook relative to current market pricing, which may further strengthen the dollar.

If these scenarios unfold and we see sustained dollar strength and higher currency volatility, it would create an additional headwind for global liquidity, compounding the pressures already signaled by our leading indicators.

3. How Would Trump Administration Policies On Immigration Likely Impact the Economy?

We have recently highlighted in our research that one positive outcome of open borders and the influx of illegal immigrants has been a significant deceleration in wage growth.

Specifically, the Private Sector Employment Cost Index peaked at around 6% in 2022 and has since slowed to approximately 3%. This decline also drove a sharp deceleration in Unit Labor Cost Inflation, from roughly 6% in late 2021/early 2022 to approximately 1% today.

Reducing the influx of illegal immigrants, even modestly, would likely lead to a tighter labor market, faster wage growth, and higher unit labor cost inflation. Without a corresponding increase in productivity growth, corporate profit growth would likely slow as a result.

Since our bullish pivot in November 2023, the QQQs have surged 42% and Bitcoin is up +176%.

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 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 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 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 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.

Is The Fed On The Precipice Of Another Major Policy Mistake?

Darius recently hosted Unlimited Funds CEO Bob Elliot on this month’s 42 Macro Pro to Pro, where they unpacked the Fed’s asymmetrically dovish reaction function, the impact of the work-from-home phenomenon, their systematic approaches to 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. What Is Driving the Fed’s Expansionary Monetary Policy?

We authored our “Resilient U.S. Economy” theme in September 2022, and since then, we have identified a new contributing pillar: the continuation of expansionary monetary policy.

We believe this policy direction is puzzling, driven largely by the Fed’s belief that no further cooling in the labor market is needed to achieve 2% inflation—a stance we view as highly likely to be inaccurate. Nevertheless, it remains the Fed’s current perspective.

Bob Elliot offered an insightful take on this issue, suggesting that the Fed’s position likely stems from a fundamental disconnect between how academics interpret markets and models versus how practitioners do. This divergence may explain their controversial outlook on the labor market’s role in achieving their desired inflation target.

2. How Is The Work-From-Home Phenomenon Affecting Labor Market Dynamics?

At 42 Macro, we monitor various workforce dynamics metrics, including Nonfarm Productivity Growth and the Private Sector Quits Rate. Our analysis shows that Productivity Growth is currently above trend, while the Private-Sector Quits Rate has declined significantly from its elevated levels over the past couple of years.

We believe this shift toward longer employee tenures is likely a key driver behind the current above-trend rate of productivity growth, as longer retention generally leads to greater employee efficiency. This increased productivity is helping to offset some of the inflationary pressures stemming from higher wages and income growth, and we believe it is likely to persist.

Additionally, the rise of remote work plays a significant role in this dynamic. With the flexibility to live and work from virtually anywhere, employees are more likely to stay with their current employers, further contributing to lower turnover and increased productivity.

3. Why Did We Replace Core Fixed-Income Exposure with Gold in Our KISS Portfolio?

One of the recent adjustments we made in our systematic KISS Portfolio Construction Process was to replace our core fixed-income exposure with gold. This decision reflects our understanding that if our Investing During A Fourth Turning Regime analysis proves true over the long term, it is highly unlikely that bonds will outperform other assets on a real, risk-adjusted basis.

While we recognize that no one—including us—is ever 100% correct on their fundamental views, even partial accuracy in our predictions suggests a strong likelihood that assets like gold, Bitcoin, stocks, and real estate will prove to be far better hedges against accelerated monetary debasement and financial repression than bonds. Indeed, we expect monetary debasement and financial repression to be tools that the Fed employs to address the challenges of excessive sovereign debt and a robust economy that leaves little incentive for buyers of government bonds.

Given this dynamic, we pivoted entirely out of core fixed-income exposure and allocated that portion of our systematic KISS Portfolio Construction Process to gold in October. Our 60/30/10 trend-following strategy now features maximum allocations of 60% stocks, 30% gold, and 10% Bitcoin.

Since our bullish pivot in November 2023, the QQQs have surged 37%. Momentum $MTUM is up +48% and Bitcoin is up +169%.

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.