Nothing Destroys Inflation Like a Recession | Darius Dale
Mar 27, 2022
01:02:50
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Quick takeaways
The US economy is showing signs of slowing down with a reasonable probability of a recession in the next 12-24 months.
Asset markets have not fully priced in the slowdown in the US and global economies, leading to more volatility and market pricing adjustments by the middle of the year.
Investors should monitor risk management indicators, such as the Cross-Asset Correction Risk Indicator, and consider safe havens like cash while selectively trading risk assets like Bitcoin and Ethereum.
Deep dives
US economy slowing and recession risk
In the long term (12-24 months), the podcast suggests that the US economy is slowing down and there is a reasonable probability of a recession. Although it's still early to determine if a recession is imminent, several indicators are pointing in that direction, with the risk peaking around the first half of 2023.
Unpriced growth slowdown in asset markets
From a medium-term perspective, the podcast highlights that the slowdown in US and global economies is not yet priced into asset markets. While growth remains robust when viewed as a coincident or lagging indicator, leading indicators are showing signs of slowdown, such as declining consumer and business confidence. The consensus is expected to wake up to this growth slowdown by the middle of the year, leading to more volatility and market pricing adjustments.
Short-term risk management indicators
In the short term, the podcast mentions the importance of monitoring various risk management indicators. The Cross-Asset Correction Risk Indicator, for example, has shown positive signals recently after a period of bearish sentiment, potentially indicating a durable bottom in the stock market. Another indicator related to crowding analysis suggests a lack of reward for shorting risk assets. While short-term upside potential may exist, the overall perspective remains cautious until the Federal Reserve adopts a more dovish stance.
Investing in Gold and Bitcoin
Gold tends to perform well in a slowdown with tightening by the Fed. Bitcoin has historically thrived during tightening cycles and growth acceleration. However, current market conditions indicate a potential breakout for Bitcoin and positive performance for defensive assets like gold.
Market Outlook and Asset Allocation
The S&P 500 is expected to decline in the next six months due to a structural bear market and negative cyclical indicators. Investors should consider safe havens like cash and selectively trade risk assets like Bitcoin and Ethereum. Financials and high-beta growth stocks, including ARK ETFs, may face challenges, while commodities, such as oil, can offer potential opportunities. Investors should expect lower returns overall and adopt defensive strategies.
On today's episode of Forward Guidance, Jack Farley welcomes returning guest, Darius Dale of 42Macro. Darius sits down to discuss the current macro environment from recession warning signals on the horizon, stock & bond correlations during market sell-off's, the outlook for commodities in this environment, ARKK & other high beta assets and the mechanics driving inflation & the yield curve.
42Macro website: https://42macro.com/
Darius Dale on Twitter: @42macroDDale
Jack Farley on Twitter: @JackFarley96
Blockworks’ Twitter: @Blockworks_
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For more information, please visit https://bcbgroup.com/jack.
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