Darius recently joined our friend Anthony Pompliano, where they discussed the 42 Macro Global Macro Risk Matrix, the outlook for the global economy, AI-related productivity growth, and more.
If you missed the interview, here are the three most important takeaways from the conversation that have significant implications for your portfolio:
1. What Does Our Global Macro Risk Matrix Indicate About The Direction of Asset Markets?
We are currently in an era of peak noise. At 42 Macro, we help our clients cut through the noise, and our Global Macro Risk Matrix is one of the most powerful tools we have built to do that.
Looking at our Global Macro Risk Matrix, we have seen a battle between GOLDILOCKS and DEFLATION since the end of June. Currently, DEFLATION has the highest share of confirming markets, but the strength of that signal is low—only in the 27th percentile of data going back to January 1998.
This suggests that market participants are still uncertain which Market Regime will prevail. We expect this debate is likely to resolve in favor of GOLDILOCKS, but we could see asset markets price in DEFLATION over the short term.
2. How Will The Global Economy Influence Asset Markets Over The Medium Term?
At 42 Macro, we provide historical data and forward projections for the Bottom-Up GRID Regime across major global economies.
According to our models, many economies are in or moving toward a GOLDILOCKS regime through the end of this year.
In our view, this shift could create positive momentum for asset markets in the medium term. Although the U.S. economy’s GRID sequence generally carries more weight than the rest of the global economies, it is promising to see global economies providing tailwinds rather than the headwinds experienced from mid-2021 to the end of 2023.
3. How Will AI Impact Asset Markets Moving Forward?
Productivity growth is positive for asset markets because it allows the economy to grow with disinflationary pressure. When productivity rises, you typically see margin expansion, which supports labor market growth without triggering the inflationary impulses that would cause corporations to cut jobs – a dynamic that persists today.
However, we believe we have not yet seen substantial productivity gains from AI.
As a result, we do not believe AI will be the dominant driver of asset markets in the near term. That said, if AI turns out to be as significant as many expect, it will have an enormous impact on the future of the economy.
That’s a wrap!
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