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.
