Darius recently sat down with our friend Jason Shapiro from Crowded Market Report, where they discussed how to effectively use macro, the 42 Macro investment process, the outlook for 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. What Is The Optimal Way to Incorporate Macro Into An Investment Strategy?

We would argue that many investors incorrectly incorporate macro into their investment strategy because they are not paying enough attention to what the market is signaling.

One of the most advanced tools we have developed for our clients is our Global Macro Matrix, which allows us to nowcast the current Market Regime and analyze what the market is signaling at any given moment. The tool also allows us to spot durable inflections in asset market momentum in real-time, thus providing 42 Macro clients the best chance to remain on the right side of market risk. 

This insight is crucial because the Market Regime dictates dispersion within and across asset classes, ultimately shaping the returns we all experience as investors. By following what the market tells us, we can help our clients align their portfolios with what the market is actually trying to price in, not with what they hope it prices in. Note the difference.

2. What Proven Quantitative Techniques Influence The 42 Macro Process? 

At 42 Macro, we stand on the shoulders of giants who came before us. Our research incorporates strategies that have stood the test of time on global Wall Street:

  • Regime Segmentation – Introduced by Ray Dalio in the 1970s
  • Bayesian Inference – Applied to Wall Street by Daniel Kahneman and Amos Tversky in the early 2000s
  • Volatility as a Leading Indicator for Price – Pioneered by Benoit Mandelbrot in the late 70s and early 80s

Our investment approach leverages these proven quantitative techniques, allowing us to deliver superior outcomes that meet our clients’ needs more effectively than alternative strategies.

3. What Is The Outlook For China?

We believe China is either in or sliding into a balance sheet recession, forcing Beijing to ease monetary and fiscal policy aggressively. Here are the three core factors behind this view:

  • Excessive Debt: Private non-financial sector debt in China stands at 205% of GDP—similar to Japan’s overly indebted level prior to its balance sheet recession, which remains the clearest example outside of the post-GFC U.S. economy.
  • Poor Capital Allocation: China’s investment-to-GDP ratio is 42%, far surpassing Japan’s peak before its real estate bubble burst. A similar bubble has plagued China for the past ~15 years.
  • Shrinking Labor Force: China’s old-age dependency ratio is rising faster than in most countries, leading to two critical challenges—a shrinking labor force and an aging population.

While we remain cautious about China’s long-term outlook due to these structural issues, we do expect positive returns from Chinese assets in response to ongoing policy support. However, we do not recommend staying indefinitely long. 

Instead, we advise aligning your China exposure with our Discretionary Risk Management Overlay, aka “Dr. Mo,” which pivoted clients into a max position in China on September 17th. Since then, the FXI ETF—a proxy for Chinese stocks—has rallied about 24%, even factoring in the recent pullback. At some point, Dr. Mo will instruct 42 Macro clients to book gains in China. To date, it has not yet done so.

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.