Our primary job as macro investors is to adapt as the macro regime shifts.

To do that, we need to recognize which regime we're in and then estimate what regime we could be in tomorrow.

1/5 What does this process tell us today? 2/5 Using a blend of fundamental & market data, we can try to estimate which of four regimes we can be in:

1. Rising Growth + Falling Inflation
2. Falling Growth + Falling Inflation
3. Rising Growth + Rising Inflation
4. Falling Growth + Rising Inflation

We expect to be in a mix of 1 & 3. Regime probabilities:

Rising Growth + Falling Inflation = 64%
Rising Growth + Rising Inflation = 36%

Macro Mechanics🧵

The best information we can ever provide investors is the mechanics of how we think about macro conditions over time rather than what we think about them at any particular time.

Below we share a list of our most comprehensive Macro Mechanics notes. Enjoy!⬇️ 1. Why Does GDP Growth Matter?

We offer our thoughts on what we consider table stakes in trading markets and a precise understanding of why Growth markets to investors.

Link: prometheusresearch.substack.com/p/why-does-gdp…

The best information we can ever provide investors is the mechanics of how we think about macro conditions over time rather than what we think about them at any particular time. We share our framework for thinking about bonds and how to time them. 🧵 Bonds are fixed-income assets issued by the government that offer compensation as a reward for migrating from cash. In turn, cash seeks to entice savers by offering a return that largely neutralizes the depreciation of money caused by inflation.

The best information we can ever provide investors is the mechanics of how we think about macro conditions over time rather than what we think about them at any particular time.

We share our framework for thinking about stocks and how to time them. 🧵 Before discussing how we think about making bets on the stock market, we briefly provide an overview of what a stock is. A stock represents a share of ownership in a company. When you buy a stock, you are a partial company owner.

Prometheus ETF Portfolio 3.0

1/ Prometheus ETF Portfolio was our first retail strategy, launched in November 2023. The strategy has achieved our goal of achieving strong risk-adjusted returns relative to cash with limited capital drawdowns in depth and duration: 2/ Prometheus ETF Portfolio aims to allow everyday investors to access an investment solution that combines active macro alpha, passive beta, and strict risk control, all in an easy-to-follow, low-turnover solution. Thus far, we have been successful in generating these outcomes.

While Labor Markets Weaken? 🧵

Employment growth has begun to deviate meaningfully from GDP numbers. This is unlikely to persist.

Will output come down to meet employment, or will labor markets accelerate?

1/23 Thread. 2/Employment & output are at odds. To understand what’s driving the gap between them, we examine each individually. We then reconstruct the gaps between spending & employment for major industries, allowing us to assess 1) what’s driving divergence, & 2) its sustainability

What Drives Inflation?

Thoughts on inflation mechanics 🧵

1/20 At its core, inflation is a simple concept: the change in the overall price level in the economy. This price level can be measured in various ways: CPI, PCE, PPI, GDP Deflator, etc. 2/20 Like economic growth, inflation represents a mechanical framework that has more power than any specific definition.

Why Does GDP Growth Matter to Macro Assets?

Growth conditions have a nuanced transmission mechanism to various asset classes.

1/ A thread on what we consider table stakes in trading markets and a precise understanding of why Growth markets to investors. 2/ The exact measure & definition of growth are less important than conceptually understanding why growth matters to macro assets, i.e., stocks, bonds, commodities, constantly experience price changes to reflect ongoing shifts ..

We're going through our Macro Monitor for this month. I'm going to drop A LOT of data here and some observations on each. Not a synthesis. 🔽 Daily growth guages showing softness. More makes us more bearish

Are We In A Recession Yet?

A recession is a persistent and pervasive decline in output, spending, income, and employment.

1/14 A thread looking across a wide range of measures to see whether we meet these criteria... 2/ Let's start with GDP numbers. Our current GDP Nowcast currently shows a nominal GDP of about 5.3%, while real GDP accounts for about 2.5%. Not close to recessionary.

Mind that these are Nowcast numbers, so they are fairly timely, unlike the official numbers:

There are many reasons that we expect a Slowing, But Growing economy.

One of them is that the economy has run a little hot relative to the ongoing fundamental trends in the labor market.

1/10 We look through where the pressures are concentrated... 2/ The labor market is dominant in driving variation in overall economic activity. While business cycle pressures may originate in other areas of the economy, the labor market is the ultimate transmission mechanism for cyclical conditions to aggregate spending and income...

Growth Views 📉

1/4 For the latest data through July, our systems place Real GDP growth at 3.91% versus one year prior, driven primarily by a sequential acceleration in Private Investment. 2/4 However, upon zooming in we observe that most of this acceleration is attributable to current inventory dynamics which are volatile and not durable.

What's Moving Markets? 🧵

1/6 Over the last week, markets have moved in a manner consistent with a slowing but growing economy. After a large volatility shock, markets have now moved to price these regime conditions consistently over the last week. 2/6 Over the last week, macro market rose in aggregate. Equities and gold rose significantly, bonds were modestly positive, and commodities fell significantly.

Prometheus Substack: Going Paid 🔥🤖🚀

Prometheus was founded to bring the best & most actionable macro tools to everyday investors. Today, we're very excited to launch a comprehensive suite of systematic tools for retail investors.

1/6 Details on all we offer on Substack⬇️ 2. Prometheus Asset Allocation:

Prometheus Asset Allocation is the easiest way to add macro to your investment portfolio. Using our proprietary systematic process, our asset allocation program rotates between three liquid ETFs just once a month.

The Equity Bubble?🧵

The economy remains in an expansion, but there has been some moderation in the labor force. But equity markets remain extremely elevated in price and valuation.

1/14 Can equity markets continue this historic rally? ⬇️ 2/ Let begin with the basics. The return on stock is equal to the return on cash, the dividend yield, and the price appreciation of the equity in excess of cash. Prices can appreciate because the expectations of earnings rise or investor simple allocate more risk to equities…

Prometheus Alpha Strategies 101 🧵

1/12 Alpha Strategies reflects the best parts of our understanding of macro, markets, and portfolio construction. The purpose of Alpha Strategies is simple: to provide durable and consistent return streams independent of beta. 2/12 These strategies span equities, fixed income, and commodities, combined into a single portfolio accessible exclusively to Prometheus institutional clients. Beta is a risk parity combination of stocks, bonds, and commodities, where our process begins.

The Observatory - Employee Compensation 🧵

1/5 Our estimates for real incomes showed a sequential increase of 0.02%. Nominal income increased marginally, primarily driven by real wage growth. 2/5 However, a reduction in the total number of hours worked posed a significant headwind. This was most prominent in the Construction sector.

ALL ACCESS WEEK CONTINUES

Some big picture updates….

1/4 Yesterday, we shared our positions coming from our Alpha Strategies. & our labor market monitor. Today, we’ll translate those labor market conditions employee into income measures. 2/ This economic cycle has seen extremely strong income growth, so evaluating where we are in the income cycle is essential. The synopsis here is that economy has not gone into recession over the weekend.

Where Are We In The Economic Cycle?

The Fed has tightened policy to levels not seen in decades. Yet, the economy has stayed strong & equity markets are at highs. Is the traditional recession template useless?

1/30 We explore the mechanics & share our outlook. 2/ This set of circumstances is largely inconsistent with the archetypical progression of business cycles. Before we dive into our assessment of current conditions, we outline the mechanics that drive a typical recessionary process.

Asset Allocation Views 🧵

The economy is “Slowing, But Growing”— a significant change for markets. These dynamics continue to support stocks, increase support for bonds, and reduce support for commodities.

1/25 We share a wide range of data we use to triangulate these views. 2/25 Our growth monitor continues to point to positive GDP conditions, though we have begun to see some weakness in our sequential tracking of conditions.

What's Moving Markets? 📈

1. Markets continue to price outcomes consistent with an economy in expansion with rising liquidity. These conditions remain consistent with ongoing fundamental conditions which indicate regime stability.

2. Over the last week macro asset markets were flat in aggregate. Stocks showed the smoothest path of gains. Commodities and gold followed. Treasuries fell prey to concentrated losses.