Friday Chart Book
March 21, 2025
Today marks the vernal equinox in the Northern Hemisphere. It's significant because it's the first day of spring when day and night are nearly equal in length. Symbolically, it represents renewal, balance, and the transition from winter to the warmer months ahead. Many cultures celebrate it as a time of new beginnings, growth, and the awakening of nature after the winter dormancy. If we follow this analogy, macro markets have indeed woken from their winter slumber and are testing every investor’s resolve and belief.
A lot has changed over the past month, and new macro forces are entering our overall framework, most notably the recently announced German deficit spending. What hasn’t changed? If you haven’t already listened to or watched the All-In episode with Scott Bessent, I would urge you to listen to the full thing. If pressed for time, start at minute 20. See below.
One thing that hasn’t changed and won’t for a while is the new administration’s push for change on all fronts. Deficit reduction and tariff policies to rebalance trade and ultimately help blue-coloured US workers prosper again. Look at the “elephant” chart below from the Worldbank that shows income growth by income distribution. The trough of the “trunk” shows how the “middle class” bracket in the Western World has been left behind.
The speed of the current adjustment is also unprecedented; they are moving fast. While results on savings and overall impact are still relatively small, it would be foolish to extrapolate current success rates forward. Some people argue that Trump and Co will cave or even u-turn on their mission if equity markets fall further from here. This again proves to me that people are underestimating the government’s ambitious plan. As I have argued before, moving away from their strategy would make them look weak and could result in even more uncertainty in markets. Similarly, tariffs have admittedly seen a bit of a strange tactic, with rates and dates being moved around. I don’t think the upcoming April 2nd deadline will be a nothing burger. Kicking the can once again will lessen the intended overall impact the government is trying to achieve. My vision, in short: Don’t fade or underestimate this government’s intentions and goals. They will go for it.
As for markets, it was noteworthy that this week we started to see some unwinds in short USD and long European equity trades that grew popular over the past few weeks. The nature of this macro environment is that any reasonable trades, especially those that have worked well, will also be tested. Only gold remains the only harbour of stability out there, although our reversal signal is also flagging a high chance of a reversal soon (see Chart Book below). Macro D will have more detailed thoughts on all central bank movements this week, which are further behind the paywall below, but I quickly wanted to comment on this week’s FOMC meeting.
As laid out in a note to subscribers, I correctly anticipated a more dovish stance simply because Powell didn’t want to fuel further uncertainty. This, however, comes with consequences as the markets will have to look past their stance. The FOMC has no idea where things are going to land. Growth and inflation trajectories will be highly volatile, so I wouldn’t be surprised if they do nothing while awaiting a reliable outlook. Bond markets took their stance as a dovish shift where, in fact, not much has actually changed. We are pricing almost 3 cuts into year-end (see table below). I wouldn’t view this pricing as extreme if one is considering a recession, but it’s somewhat inconsistent with the latest drawdown in equities.
The current front-end repricing looks shallow when compared with the previous two episodes. From here, risk/reward is balanced if you believe we stabilise in risk and price out the recent cuts. Alternatively, if you anticipate returning to September 2024 lows, you have a similar distance to run. What is very certain for me is that we won’t end at the current level in a few month’s time.
Long-time readers will know where my bias is. Our asset allocation model is positioned appropriately and is tilted towards capital preservation. Our momentum, reversal and intra-day models are working in providing us with timely set-ups. The newly launched intra-day model is especially useful in this current market environment. Below is NQ on Thursday. Sell high, buy low works. But I am planning more. How do you invest in stagflationary times? Your normal balanced risk parity type of investment style won’t cut it. I’m working on those elements currently.
Paper Alfa’s 2025 portfolio is closing in on +9% YTD. Not bad for a buy-and-hold portfolio. It holds no US equities, unsurprisingly.
This is a reminder that you can now also use my models in TradingView scripts, which I made available for subscribers to use on their charts. This is not for free and incurs an additional cost.
If you are interested, ping me an email with your TV username. Note that only paying subscribers will be granted access. No exceptions.
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Let’s now go into more detail and read what my friend Macro D has in store for us. We then scan the multitude of charts I have updated below. 250+ charts, plenty to scan through.
Let’s go!