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3 Ways to Prepare for the Inflationary Cycle of 2024 and 2025
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3 Ways to Prepare for the Inflationary Cycle of 2024 and 2025

If you have enough patience to buy at specific moments, you stand to gain a lot

Jul 02, 2023
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Asymmetric Finance
3 Ways to Prepare for the Inflationary Cycle of 2024 and 2025
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A Single Bread Costs 4.6 Million During Germany's Hyperinflation in 1923 |  History Daily
Source: History Daily

Let's go back a couple of years and remember how J. Powell repeatedly stated that inflation was "transitory." We heard this statement countless times for several months.

At Asymmetric Finance, we argued that he was mistaken. We had experienced the largest liquidity injection in history, which meant that the impending inflation would not be transitory. And indeed, we began to witness how the price of lumber tripled, how commodities skyrocketed, and how many people couldn't afford basic goods.

Life became more expensive, and there wasn't much that could be done about it.

This resulted in the highest inflation in the past 40 years. For many of us, this was unprecedented. As a result, the Federal Reserve (Fed) and other central banks, such as those in Europe and the UK, took action and started raising interest rates.

As always, these actions distort the economy and affect middle and low-income families, exacerbating the social divide between the rich and the poor.

What will happen from now on? A few weeks ago, the Fed announced that they expected to implement a couple of additional interest rate hikes. From our perspective, this action doesn't make much sense, as the current inflation stands at 2.46%.

Truflation Timeframe 
Truflation Rate 
1M 
USA Truflation 
ID 
26 / 06 / 2023 
US govt reported rate: 4.0% 
2.41% 
YTD Low 
6.31% 
YTD High 
12% 
11% 
10% 
9% 
8% 
7% 
6% 
5% 
4% 
3% 
2% 
JUL 
AUG 
SEP 
OCT 
NOV 
DEC 
JAN 
FEB 
MAR 
6M 
APR 
YTD 
MAY 
JUN

Regardless of what the Fed does, it appears that our indicator, which we presented a few months ago, continues to hold true.

US Empire and Philly Price Pressure Composite - 5-Month Lead 
US CPI YoY% (RNS) 
60 
40 
20 
-20 
2010 
10% 
8% 
6% 
0% 
2012 
2014 
2016 
2018 
2020 
2022 
Source: Refinitiv Datastream 
2024 
G/oba/ Macro Investor

If our indicator keeps working as expected, it's highly likely that we'll approach near-zero inflation, or even deflation. This would lead the Fed and other central banks to halt or even reduce the interest rate hikes.

Precisely, this action would stimulate the economy and keep us in a clear cycle of economic growth during the next year, as we have discussed in all these articles:

Article 1

Article 2

Article 3

It's evident what we stated several months ago (in November), when we affirmed that cryptocurrencies and the markets had reached their lowest point and would begin to grow significantly from that moment.

https://substack-post-media.s3.amazonaws.com/public/images/896f3243-884e-43e5-ad05-fe620e6131fd_1924x1085.png (1924×1085)

It's not that we are gurus; rather, we understand macroeconomics. The markets are completely distorted, and if you have enough patience to buy at specific moments, you stand to gain a lot. We firmly believe that in approximately 40 weeks, the indices will tend to rise due to simple factors such as the decrease in interest rates we just mentioned and the reintroduction of liquidity into the markets.

That's why we are investing in indices like the S&P 500.

We are in a very similar cycle to the 1970s when we experienced several inflation peaks, and we believe this is a highly plausible possibility. As seen in the graph below, we went from 2% to 12.5% inflation in just two years, only to retrace the same path in another two years.

Now, we have gone from 0% to 9% inflation in just 2 and a half years, and we are seeing how we are returning to previous levels at a similar pace.

This means that the second peak will be even worse than the first.

Today, we are going to share three ways to prepare for the next two years and what we consider appropriate for the near future. Additionally, we will share our portfolio with you.

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