Darius recently hosted our friend Nadine Terman on 42 Macro’s Pro to Pro, where they discussed inflation, the federal budget deficit, China, 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. Are Both Political Parties Likely to Increase The Federal Budget Deficit?
Even if Republicans win and Elon Musk advocates for severe spending cuts, we believe those cuts are unlikely to materialize. While there may be headlines about cutting spending, slashing large portions of the budget carries significant career risk.
Our research shows that the type of wasteful spending Musk might target accounts for less than 1% of federal expenditures. Meaningful cuts would require reductions in defense, Medicare, or Medicaid—areas deeply important to American voters.
Some minor budget trims may occur, but both parties appear committed to profligate spending, with no clear plan to meaningfully reduce the national debt.
2. How Has The Recent Shift In U.S. Monetary Policy Affected Chinese Policymakers?
At 42 Macro, we monitor the growth of the PBOC’s balance sheet relative to the share allocated to FX reserves. When the yuan appreciated sharply in early 2015, its real effective exchange rate (REER) rose significantly, disrupting China’s export model.
As the Yuan became expensive on a REER basis, export growth secularly slowed and foreign direct investment into China slowed, reducing the expansion of its manufacturing base. As a result, the share of FX reserves declined from approximately 83% to just 50% since March 2014.
However, the recent shift to a more neutral U.S. monetary policy, evidenced by the Fed’s decision to implement a 50-basis-point rate cut, suggests less risk of severe yuan devaluation. This change has signaled to Chinese policymakers that they can now begin accelerating monetary expansion.
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 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 the 42 Macro universe.
