Darius recently sat down with Michael Gayed from Lead-Lag Report to discuss how the 42 Macro Investment Process differs from other approaches, inflation, the likelihood of a meaningful federal budget deficit reduction under President Trump, 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 Does The 42 Macro Investment Process Differ From Other Traditional Approaches?
At 42 Macro, we take a fundamentally different approach to investment research and risk management.
While many investors rely on predictions, reacting only after those predictions are invalidated by subsequent macro or micro data, we utilize a Bayesian inference process that focuses on nowcasting evolving market conditions to inform our and our clients’ asset allocation and portfolio construction decision-making.
By embracing this Bayesian inference process, we deliver actionable insights that drive better outcomes for our clients. We believe that success in today’s market requires constant observation, adaptability, and the discipline to question assumptions. That is what we do at 42 Macro, and it is why thousands of investors worldwide achieve better investment outcomes with our proven risk management overlays (KISS and Dr. Mo).
2. Will The Fed Achieve Its Inflation Mandate Anytime Soon?
In short, no. We conducted a deep-dive empirical analysis of the business cycle, examining the median path of various indicators relative to recessions.
Our research indicates inflation is the most lagging indicator of the business cycle, historically breaking down durably below trend only four to five quarters after a recession begins.
Based on our deep understanding of how the business cycle works, we do not see a high probability of recession in the medium term. That implies inflation is unlikely to decline significantly from here and may even accelerate in the coming quarters.
3. How Likely Is Significant Federal Budget Deficit Reduction Under President Trump?
Our research indicates that key government spending areas—Medicare, National Defense, Net Interest, and Social Security—comprise 61% of total federal expenditures.
When including additional categories like Medicaid, Welfare, and Veterans’ Benefits—programs unlikely to face cuts under the current political climate—90% of the federal budget becomes effectively untouchable.
The remaining spending accounts for only approximately 10% of federal expenditures. Even if cut entirely, the deficit would still be -4% of GDP, making a balanced budget highly improbable without addressing politically untouchable categories. As a result, we believe a meaningful deficit reduction is unlikely under President Donald Trump – or any president for that matter in a Fourth Turning.
Since our bullish pivot in November 2023, the QQQs have surged 43%, and Bitcoin is up +176%.
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.
