My Macroeconomic Perspective:
In this market, I remain uncertain of the current movement of the #SP500 and #Bitcoin.
Macroeconomics should be used in tune with fundamental investments.
/THREAD 🧵
In this market, I remain uncertain of the current movement of the #SP500 and #Bitcoin.
Macroeconomics should be used in tune with fundamental investments.
/THREAD 🧵
In a research paper conducted by the IMF,
Overly optimistic growth expectations for a country "induce economic contractions a few years later.
"This mechanism appears to run through excessive accumulation of both public and private debt"
Let's simplify this...
/1
Overly optimistic growth expectations for a country "induce economic contractions a few years later.
"This mechanism appears to run through excessive accumulation of both public and private debt"
Let's simplify this...
/1
If a country in general is too positive about economic growth.
The expectations of growth will far exceed the actual growth taking place.
Over a period of time, individuals will see growth metrics showing their optimism was unjustified.
Metrics such as inflation...
/2
The expectations of growth will far exceed the actual growth taking place.
Over a period of time, individuals will see growth metrics showing their optimism was unjustified.
Metrics such as inflation...
/2
The USA is a good metric for how markets perform.
Obviously exceptions such as war between Russia/North Korea can affect markets in general.
However, unjustified growth will harm markets and cause an economic contraction
/3
Obviously exceptions such as war between Russia/North Korea can affect markets in general.
However, unjustified growth will harm markets and cause an economic contraction
/3
In October 2021, the US 12-month CPI inflation rate reached its highest level in the US since 1990, at 6.2 percent year-on-year.
A key question of policy debate is whether the increase in US inflation will be just temporary, as in 2008...
/4
A key question of policy debate is whether the increase in US inflation will be just temporary, as in 2008...
/4
Where a start of a prolonged period of inflation above the 2 percent target, or worse still whether inflation will continue to escalate as it did in the 1970s and early 1980s.
The Federal Reserve has revised up projections for annual inflation for both this year and next.
/5
The Federal Reserve has revised up projections for annual inflation for both this year and next.
/5
Think about how much was borrowed during the coronavirus period.
It had to be paid back. You may see this through tax/insurance increasing by a few percentage points.
Let's talk about the macroeconomics of the November crash.
/6
It had to be paid back. You may see this through tax/insurance increasing by a few percentage points.
Let's talk about the macroeconomics of the November crash.
/6
In cohesiveness with the Bitcoin falling.
The FED reduced its monthly purchases of Treasury securities and mortgage-backed securities in a policy known as tapering.
This is a projection path for inflation, though this is based off of a number of factors.
/7
The FED reduced its monthly purchases of Treasury securities and mortgage-backed securities in a policy known as tapering.
This is a projection path for inflation, though this is based off of a number of factors.
/7
The most interesting feature of these scenarios is that all three point to annual inflation staying close to 5 percent in the next few months.
Year-on-year inflation only returns to two percent at the end of next year in the benign case.
However- these are only projections.
/8
Year-on-year inflation only returns to two percent at the end of next year in the benign case.
However- these are only projections.
/8
If inflation hits 5 percent the Federal Reserve will need to step up its policy communications.
Arguing that the increase in inflation is only transitory and convince households, companies, and financial markets that they will return to lower rates of monthly inflation.
/9
Arguing that the increase in inflation is only transitory and convince households, companies, and financial markets that they will return to lower rates of monthly inflation.
/9
Bond prices will be driven by how central banks respond to higher inflation, through a combination of ending quantitative easing and higher policy rates.
Let's talk about the Goldman Sachs outlook for 2022, to gage how Wallstreet are thinking...
/10
Let's talk about the Goldman Sachs outlook for 2022, to gage how Wallstreet are thinking...
/10
"For 2022 as a whole, global GDP is likely to rise 4½%".
"When the Fed hikes get underway, some advanced economies (including the UK and Canada) should be well into the interest rate normalization process"
They did not anticipate however for the 2021 goods inflation surge.
/11
"When the Fed hikes get underway, some advanced economies (including the UK and Canada) should be well into the interest rate normalization process"
They did not anticipate however for the 2021 goods inflation surge.
/11
As much as Bitcoin Maximalists hate to admit it.
Large money flows from institutions. Money comes with economic growth or increases in subsidisation.
It is important therefore to keep an eye on these factors as we move into an uncertain market.
/12
Large money flows from institutions. Money comes with economic growth or increases in subsidisation.
It is important therefore to keep an eye on these factors as we move into an uncertain market.
/12
My baseline forecast is that the global economy gradually transitions from a highly unusual pandemic recovery to a more normal expansion starting in 2022.
The rebalancing process will cause volatility within the markets however...
/13
The rebalancing process will cause volatility within the markets however...
/13
We are unlikely to revert fully to the pre-pandemic macroeconomy.
New monetary policy frameworks, more ambitious fiscal policy, green investments, and healthier household balance sheets all point to stronger aggregate demand for a longer period of time.
Risks?
/14
New monetary policy frameworks, more ambitious fiscal policy, green investments, and healthier household balance sheets all point to stronger aggregate demand for a longer period of time.
Risks?
/14
The most important risk for me is as follows:
Higher inflation because of tight goods supplies and excessive wage pressure.
Lack of willingness to get vaccinated against strains.
This is what I would be watching closely from the sidelines for the next few months or so.
/15
Higher inflation because of tight goods supplies and excessive wage pressure.
Lack of willingness to get vaccinated against strains.
This is what I would be watching closely from the sidelines for the next few months or so.
/15
I hope you enjoyed this thread.
If you like to read threads like these, please give me a follow:
@crypto8fi
And if you like to read longer-form content around investing safely, check out my Medium linked below:
medium.com/@crypto8fi
If you like to read threads like these, please give me a follow:
@crypto8fi
And if you like to read longer-form content around investing safely, check out my Medium linked below:
medium.com/@crypto8fi
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