[FREE] Global Macro – A Masterclass From Capital Flows

The framework for understanding where equities and interest rates are going ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ Forwarded this email? [Subscribe here]() for more --------------------------------------------------------------- [[FREE] Global Macro – A Masterclass From Capital Flows]( The framework for understanding where equities and interest rates are going [Capital Flows](capitalflows) Aug 8 ∙ Guest post capitalflows   [READ IN APP](   From Jack: I’m honored to host a Masterclass from Capital Flows – One of the most, if not the most respected financial expert on this platform. Please check out his [Substack]( if you’re not subscribed yet. Hello everyone, I am the author of the [Capital Flows]( Substack which is the space where I break down every economic data point in the US economy and show WHY and WHERE equities and interest rates are going. When we approach markets, the first question we should ask is, what is the most important thing to know that moves markets the most? The answer to this is macro. Macro changes in growth, inflation, or liquidity are the primary causal factors moving asset markets. If you understand macro, then you can know with clarity HOW to align your actions with the overall environment. This is why I always share the following quote with my Subscribers: In the information age, you simply need to be at the right place, at the right time, with the right information to succeed We might not know the future but we can always know exactly what we should be doing in the present. Macro provides the comprehensive framework for what you should be doing right now. In this article, I am going to breakdown the framework for macro into the following categories: - Why should I be following the macro business cycle? - Why does the macro regime drive equities and interest rates UP or DOWN? - How should I monitor the macrocycle and align my actions correctly? [Check out Capital Flows]( Why should I be following the macro business cycle? The macro business cycle accounts for ALL activity in every domain of the economy and financial market. The most comprehensive measure of all economic activity is GDP. Think of GDP as the total goods and services that are purchased and sold. Here is a long-term chart of real GDP with the recessions marked in red. Why would you care about GDP and WHEN recessions happen? Recessions are when the greatest opportunities exist because financial assets fall the most. Think about how much the S&P500 fell during the 2000 and 2008 recession. The S&P500 fell over 52% in 2008 which was one of the greatest periods of financial stress in American history. If you can nail these big macro moves on the upside AND downside, then all the little moves in the middle matter a little less. The implication of this is that if you can nail the big moves then you don’t need to be in a constant state of worrying about every small move in the market. Why does the macro regime drive equities and interest rates UP or DOWN? How does this macro context connect to the S&P500 and interest rates though? Fundamentally, growth and inflation in the economy drive both stocks and interest rates. Think about it like this: Interest rates are the price of money and inflation in the economy is about how much that money gets you. This is why inflation (blue) and interest rates (white) are highly correlated through the macrocycle: If inflation is about the price of “stuff” then growth in the economy represents how much “stuff” people are actually buying. We monitor the amount of stuff by looking at a broad array of data points in the economy. For example, we can look at data points like the Services PMI (blue) and Manufacturing PMI (white) to get a rough idea of growth in these sectors of the economy. I have overlaid the returns of the S&P500 returns with green and red bars. We can see that if people are buying less stuff (as shown by the PMI’s), this can begin to impact the returns of the S&P500 and cause it to move into a bear market. If this all seems a bit technical, that’s totally fine. The economy is a complex system. However, we can monitor the aggregate economy in several very simple ways. How should I monitor the macrocycle and align my actions correctly? There are several simple ways you can monitor the macrocycle: - You can monitor GDP in real time using the Atlanta Fed GDPNowcast: [Link]( and [Link](. Very simple: If the GDPNowcast estimate is positive then real GDP is expanding. In other words, people are buying and selling stuff which is propelling the economy forward. If we are negative then the economy is contracting as people buy less stuff which can propel the economy into a recession. - You can monitor inflation on a monthly basis using the tools at the BLS: [Link](. We can look at all the categories in the economy and how prices are changing across each sector. This begins to tell us WHERE interest rates are going. - If you want a more in depth breakdown, you can look at the manufacturing and services PMIs. I shared the chart of these above which are reports done by a third party to show how economic activity is changing across a wide variety of metrics: [Link]( These simple data points can begin to contextualize decision-making. The first thing we always need to know is WHERE are we in the macrocycle? Is growth and inflation accelerating or decelerating? Pulling It Together Now you might be asking, where are we right now and how does this impact equities and interest rates? Big picture, growth remains positive throughout the economy across a broad array of metrics. We know that the labor market remains strong and that an outright contraction in growth isn’t happening right now. Overall, it is unlikely that we see a recession in 2024. This means equities are likely to continue rallying and not enter a bear market. Interest rates continue to be a topic of concern for people in the housing market but with the recent deceleration in inflation, we are likely to see them move DOWN as we enter 2025: When we approach these markets (and really any domain of life), things are incredibly complex and dynamic. This means we need to be adaptable and nimble. The greatest way to succeed in the game of life and in markets is always adapting to the changing environment. You don’t need to be an economist to understand the macrocycle. You simply need to be intentional about learning and adapting. If you want to join me on this learning journey, you can follow all of my work on the [Capital Flows]( Substack where I provide a comprehensive breakdown of all data points in the US economy and show how it connects to financial markets in real-time. Check out the synthesis of educational articles I have written here: Capital Flows [Research Synthesis / Direction Of Capital Flows Substack]( Hello everyone… [Read more]( a year ago · 136 likes · 9 comments · Capital Flows Stay nimble and keep adapting! [Check out Capital Flows]( A guest post by [Capital Flows](capitalflows?utm_campaign=guest_post_bio&utm_medium=email) Capital Flows is a private research publication on financial markets and the economy [Subscribe to Capital]( Join almost 1 Million investors trading with the US Stock Insider and win a Tesla [Upgrade to paid](   [Like]( [Comment]( [Restack](   © 2024 Daily Moat, LLC 1111b South Governors Avenue, Dover, DE 19904 US [Unsubscribe]() [Get the app]( writing]()