Macro Matters To Get Rich (and A Lot)
Markets are adulterated
There is no need to discuss again that since the gold standard was discontinued, macroeconomics is what guides the course of the markets.
It is a game of discounting future expectations and trying to "guess" what will happen in the future with present events.
This week has been one of the most critical in the stock market (this year). On the one hand, Tuesday's expected CPI was between 7.5-7.8%. However, it was 7.1%. We have already warned you about this. When inflation rises to happen as quickly and disproportionately as it has this year, they are bound to plummet again (and will continue to do so).
Markets soared at the time of the announcement, sending the S&P 500 up as much as 3%. This is precisely because of what we have just told you. Suppose the market understands that this data will benefit the markets in the future. Everything goes up. If the opposite were true, everything would go down.
Wednesday was the second important event of the week and the most important between now and the end of 2022. It was the interest rate hike. After Tuesday's good data, it was expected that perhaps the FED would be a little more conservative and only raise rates by 0.25%. This was not the case, and the market moved lower at the time of the announcement.
The following image best describes the markets.
We live in a fully adulterated market, and knowing how to read them can make you a lot of money. These three assets will be the ones that will triumph in the coming year.
What will the FED do in the future?
According to estimates, the FED will reach a rate of 5.1% in 2023. This seems a bit high after Tuesday's reassuring inflation data.
However, these forecasts have never worked out. Last year's estimates for interest rates were 0.9%. Ultimately, we ended up at 4.5%.
On the other hand, their actual forecast was 2.6%, and we ended up at 7.1%.
What will happen next year? What has always happened, everybody expects a horrible recession and maybe a flash crash, but most likely, the opposite will happen.
Scott Sumner surveyed in 1990, a decade after one of the worst inflationary cycles in history (we have discussed this several times). Most Americans thought, in that survey, that inflation was even higher than it was in 1980. But in reality, inflation had dropped from 13% to 4%.
This is how the average citizen behaves, predicting a horrible recession while the market recovers.
The key data
Liquidity in the market. Liquidity in the market has been subdued after the 2020 money surges. US M2 YoY is where it was in 2018. In 2018, interest rates and QE last reversed. Just the same scenario as what is happening today.
This has not only happened in the US. Liquidity has fallen worldwide. However, one country is a breakthrough against the monetary policies of the rest, and that is China. And what is China doing? Back to printing.
This could trigger us to see market highs again in 2023-2024.
As you can see, macro dictates everything. It doesn't matter whether you choose Apple or Microsoft. When there is no liquidity, everything goes down. And when there is liquidity, everything goes up.
But regardless of what happens in the markets, as you know, we have a very robust asymmetric portfolio. It can benefit from any economic situation. We already gained more than 30% in 2021, and this year we beat the index by more than 20%.
We will show you.