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Darius Dale, founder & CEO of 42Macro, discusses their Weather Model, the impact of global conflicts on US fiscal policy, and how investors can navigate different outcomes. They analyze the current economic regime, compare the geopolitical significance of Russia-Ukraine and Israel, and explore the implications of geopolitical threats on the economy.
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Quick takeaways
- The Weather Model created by 42 Macro provides insights into the US economy, indicating accelerating growth, lower inflation, and increasing unemployment, with mixed signals for S&P sales and earnings growth.
- Geopolitical conflicts like the one in Israel can impact financial markets, leading to a shift from risk-on to risk-off regime with increased volatility and credit spreads; closely monitoring market reactions is crucial for potential impacts on debt and interest rates.
Deep dives
The Weather Model and its Signals
The Weather Model created by 42 Macro is a powerful tool used to understand and manage position sizing in various asset classes. It consists of 10 principal components that contribute to the overall signals. The model indicates that growth is accelerating in the US economy, while inflation is expected to trend lower over the next 12 months. The unemployment rate is projected to increase, while sales and earnings growth estimates for the S&P vary. Fiscal policy shows a widening budget deficit, and the US dollar is trending higher. Liquidity is decreasing, credit growth is slowing down, and benchmark policy rates are rising globally. The aggregate positioning across different asset classes shows an extreme bullish signal for the dollar, extreme bear signals for US rates and commodities, and a neutral signal for equities.
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