42 Macro LLC’s Post

Transcript

Happy Tuesday out there Team 42 Inch, your skipper here, Darius Dale to present our Macro Minute for Tuesday, December 3rd, 2024. As always, we'll start with the executive summary from today's learning note. If you would like to review the analysis supporting these conclusions as well as what specific changes you need to make in your portfolio to remain on the right side of market risk, you need to be a client of 42 Macro. So today's key macro question is what will disrupt the Santa Claus Rally Part 2. Our answers are that could very well be the key macro question for all of December with the S&P 500 notching its 54th. Record high yesterday, closing up 27% year to date. Around this time last year, I was claiming to be the most bullish I had ever been in my career. We hope you paid attention to our kids and doctor most signal since they would have helped you participating in asset markets to capture the bulk of these uptrends. That is precisely what they're designed to do, which is captured the bulk of uptrends while sidestepping most of the downside. These institutional grade trend following processes rarely if ever. So the exact top or buy the exact bottom. If you're cool with these prior 3 sentences, then 42 macro research or 42 macro is the risk macros management partner for you. Elsewhere, copper is climbing in the news that the Chinese government will start its annual Central Economic Work Conference next Wednesday. At the conference, China's top government officials will codify the nation's economic targets and stimulus plans for 2025. The announcement could commencements could be disappointing, but China stimulus efforts have already disappointed investors this fall. We highly. Without any disappointment will be enough to derail the year end performance chase we were calling for this summer when bear **** purveyors were busy convincing millions of gullible retail investors to sell the lows. Shame on them. Transitioning to our 42 macro dashboard. As always, wrap up the question from our community. This was not really a question, but I'm going to turn it into a question for the sake of our babe. So it says tariffs says to me the reading the question says to me, it looks like Trump doesn't really want tariffs. He uses that as a bargaining chip because if he wanted to. Years he wouldn't be saying do this and you don't get tariffs on your goods the speaks that he is more interested in advantages rather than terrorists themselves. Completely agree 100% agree with that you know clearly President Trump you know going back to his previous administration and you know what has been bandied about on the campaign trail again this guy literally is in a different town campaigning every single day for like the past four years talking about tariffs clearly his mission to is not to you know create some. Significant economic hardship for the US and global economy visa vie tariffs. That's not his goal. His goal is to transfer, you know, units of employment from China, from Mexico and from US trading partners to the United States so that we can have raise our overall level of total employment and ultimately more likely raise the share of national income that is, you know, currently being allocated to to to to the labor. Now the problem with that is is assuming that China. Mexico and our US and our and our major US trading partners, Europe, Canada are going to sit idly by and allow their economies to deflate while our economy at, you know, our economy to reflate at the expense of their economy deflating. It seems very unlikely to me that they just go along with the ride and say, guess what? We're so concerned about the threat of tariffs that we're just going to give you what you want with minimum friction and allow this to, to, to do, you know, you know, allow us to sort of basically take it on the chin so that, you know, President Trump can make good. This campaign promises. I'm an American citizen. I'm rooting for that outcome, by the way. I hope that this doesn't go poorly. You know, doesn't matter who's in the office. I'm rooting for them to do well from an economic standpoint. The problem with assuming that is assuming that, you know, the leaders of China, the leaders of Mexico, the leaders of Canada, the leaders of Europe are going to sit idly by and allow the US to essentially strong arm them into deflating their economy so that we can reflate our industrial economy. It just strikes me as something that that doesn't seem very. Assuming that that Pollyannaish outcome is the base case scenario. See, to me that's not the base case scenario. It is a potential outcome. It is a right terrorist outcome that we avoid tariffs and we just Donald Trump gets everything that he wants in the form of, you know, USC more U.S. economic exceptionalism at the expense of our key trading partners. But to me it just seems very unlikely that that is the highest probability outcome now again. Does this all really matter? Again, we talked about this in the context of our triple S theme. You know, you have to be concerned as an investor about the size, the sequence and the scope of, you know, President Trump's, you know, second administration policy implementation. It could be the case that the size, sequence and scope sort of net out to a generally positive, you know, outcome for the economy and for asset markets. It could also be the case that the size, sequence and scope, more importantly, the sequence, you know, kind of Nets out in a way that could potentially cause some problems for asset markets, you know, and, you know, just from a sequential standpoint. You know, especially considering where we are in the positioning cycle. So again, we don't have all the answers here. No one has all the answers. Donald Trump himself doesn't have all the answers here when it comes to tariffs and they, you know, the response of the rest of the world. Obviously his cabinet doesn't either. So we're all sort of at the, you know, kind of the whim of the most volatile president in U.S. history, you know, sort of waking up, you know, true social. We're at the whim of how, you know, the the leaders are going to respond to this economically. And so, you know, there are certainly scenarios that are positive and we don't want to dismiss. Those potentially positive scenarios with perspective, but the size sequence and scope of policy implementation. But there are also scenarios that are quite negative with respect to the size sequence, scope and of policy implementation. So you gotta be focused on those 3 assets. You gotta be especially focused on how they're going to impact the five cycles that actually matter to markets, which are growth, inflation, policy, liquidity and corporate profits. And then obviously, the positioning cycle acts as an accelerant to any one of those five cycles when they inflect as it relates to those infections causing problems or causing. Positive outcomes and asset markets. So this is a lot of moving parts here. This is why folks like me get paid the big bucks is because, you know, we have to, you know, think about all these scenarios and ultimately make, you know, strong, arduous and accurate risk management decisions to, you know, guide our portfolios to safety. On the other side of all this, you know, great geopolitical and political change that we're about to experience. So we're wrapping up there. There are still presenting our Macro Minute for Tuesday, December 3rd, 2024. Everyone have a wonderful day out there. Best of luck. We'll catch you back here tomorrow. Cheers.