Incredible pointers from Raoul on investment and macro picture. Here are the highlights
Raoul believes that in 4-5 years time there wont be a macro investor who sit there and analyse the trends and predict forecast. It simply wont be possible. AI productive units would have taken over lot of those and a human will essentially be competing against AI which will be an uneven battle. So this Macro, crypto, technology trade is a life time opportunity which will play out in the next 4-5 years and if one can stay in the narrative it will be life secured financially. Future doesnt seem to be favouring a just one for whole of humanity with such uneven forces such as AI.
Larger business and liquidity cycle AND everything code
Macro investment with indicators:
Russel 2000 reflects ISM (Institute of Supply Management) index which is present day
Crude Oil also represent current demand supply situation also lives in the present day
Central Banks tend to be reactive and their interest rates and responses live in the past
Risk assets such Crypto, tech, stocks live in the future
Number of US states with decreasing coincident activity MoM above 26 is typically recession
ISM new orders - inventory taking a sharp turn
GMI Financial conditioning index - 11 month lead (predicting a sharp rise)
GMI ISM leading index - 5 month lead (also predicting a sharp rise)
ISM will influence asset prices - when it rises so does asset prices
For Inflation CPI index, the leading indicator is Adjusted Supply CPI index which is come down sharply in the negative territory, indicating inflation goes to zero, this is even more true for European region, definitely interest rates will be cut by ECB
Inflation, Unemployment & Quantitative Easing!!!
Stimulus will start with inflation coming to close to zero by end of 2024
Secular trends of reitrement and demand collapse:
Inflation won't come back up again in an environment of retiring baby boomers who hold the assets and cash and wouldn't want to spend it
Job vacancies would be higher because there is shortage of workers, which will lead to wage inflation, but however because of the baby boomer retirement effect inflation won't grow back up again
S&P500: Coming to risky assets, S&P500 shows a trend of upward trajectory following major peaks in the CPI across 12 historical episodes. Sharp increase typically over the 52 weeks from the point inflation has peaked
Job openings: It will start to come down and it could be pretty sharp down trend resulting in unemployment to pick up which will be a territory when central banks would be willing to let stimulus of some kind to be applied into the market leading into asset price inflation
Small business hiring plans is another indicator of unemployment levels, which leads by 10 months going by the chart above. Its an inverted chart so its obviously trying to say the opposite
Umployment 12 month rolling deviation hit a high 0.5% (the threshold for hitting a recession) and then it started going down indicating that we are narrowly avoiding a recession
Fed may cut the rates sharp depending upon how much above 0.5% figure 12 month rolling average of unemployment variation goes. Since Its already going below this threashold there may not be a series of cuts coming but more gradual changes in interest rates
Liquidity
Global Liquidity is going up (indicated by M2 money supply) and it will result drive up asset prices. At this point its showing a sharp turn, indicating a bull cycle coming. Its about 3-4 years the liquidity cycle lasts.
This is another index created by GMI (Global Macro Investor) showing the liquidity of private and public sector funds
Another indicator is Fed's net liquidity YoY% which is also going up, the rate of change which is important here - rate is at about 10%, when it goes to 20% it will turn into a full blown bull market with accelerating change
GMI Global Financial Condition Index which is showing 20% in 7 months time. This is a leading indicator for Global Liquidity index YoY%.
NASDAQ dont directly correlate with liquidity cycle due to the secular nature of the technology sector, however over time it does correlate to overall liquidity cycle. With liquidity already growing and potential rate slashes it is likely to see further momentum.
Everything code: US Balance sheet needs to respond to its interest payment needs. With so much debt created in the last 3-4 years and with last 1 years interest rate hikes, the interest payments are going to balloon. Fed needs to reduce the rates eventually to sustain itself, so it will do at the earliest possible date, barring inflation and unemployment. Even then, the interest rates cant be financed by new debt issuance, that means some kind of currency debasement is necessary once again to chip away those mountains of debts. Its a 3-5 year cycle which plays out becuase thats the typical debt issuance cycle. Therefore we have here a 36 month leading indicator on central bank quantitative easing. QE will further inflate asset prices. This process creates a highly predictable cycle with a very predictable frequency (3-5 years). Not just that leading or lagging all asset classes experience the effects of this cycle. Its a uni polar world at least in terms of the currency dominance, so its effect anyone or any asset class can hide from. That also gives an opportunity to focus on fewer asset classes and then focus on the ones which are best adjusted for the risk factor. Crypto and Tech falls into this space.
The Secular Cycles
Crypto: Long term logarithmic trend is very much upward. And with liquidity cycles it takes huge swings. But here with high level of liquidity coming and potential currency debasement crypto has the highest potential for a huge run. The extent of US currency debasement is what is going to accelerate this process of movement of more funds into crypto system. Added to that US regulatory easing can serve us further boost to this asset class. Once institutional investors are able to get into this market it will be a different ball game.
Tech trends: NASDAQ which represents the technological progress is on an even more smoother trajectory with a logarathmic scale. No huge ups and down, just relentless progress. Except for 2000 boom/bust its just been so smooth. There is unlikely to be any disruption to this curve - no regulation, no country, no power can resist or change course of the technological progress, there is only one direction. With digitalisation, AI, self drive, 3-D printing, micropayments, mobility, robots are all going to drive hjuge productivity change and social changes, this trend will only strengthen.
Now S&P500 is increasingly falling behind the NASDAQ. The long term out performance of 5% now standing at about 15% with possibility of an increasing divide.
Bitcoin: Bitcoin specifically will outperform everything if the liquidity positions will go high. Look at the targets set by GMI - 500K in 2-3 years time, ETFs and Bitcoin halving will further enhance these trends and therefore the momentum is highest here. GMI hasnt really discussed environment impacts of a high throughput mining process and all the challenges associated with the fee etc. But here you go.
ETH: ETH is likely to benefit most from the ETF introduction into crypto. There are business which can prop up based unlike Bitcoin which is only an a currency.
Altcoins: They will outperform overall crypto market, but then who knows which altcoins to buy. So its for the people who knows and have the time to study these coins
SOLNA: The only real alternative to ETH as a smart contract platform. SOLNA could outperform ETH because its lower transaction price and business need an alternative which doesnt exist today
Overall this macro trend is for 2025 end. Thats when this will peak, no selling when 40% or 100% returns, just hold till gets to 2025. That aligns with business cycle, bitcoin halving cycle, regulatory cycle, presidential election cycle etc which we are in. 30%-40% corrections can be expected but they are only buying opportunity for keen investors. No leverage, no sell and buy back, no investment in high risk altcoins, just hold to the secular trend and there will be huge profit to make.
Coinbase: Coinbase is a reflector of the overall crypto industry as the only exchange which seems to have a credible market and regulatory positioning over the last 10 years. Coinbase tend to peak with liquidity cycle and outperform NASDAQ.
Tesla and Apple: Tesla particularly will break into the a 5X cycle - there are AI, EV, Self Drive, Robots all encapsulated in that cycle.
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