February 2024 Market Update

Leading U.S. economic data continues to suggest the economy is on path toward recession. The level of the total U.S. monetary base peaked in q3 2021, but began rising again in q3 of 2022, when interest rate cuts began to get priced in due to the market forecasting economic weakness.

Consequently, this increase in liquidity from the monetary base has caused bitcoin to lead all major stock market indices higher since q3 of 2022. Valuations of assets have detached from fundamentals. The markets have decided to completely ignore leading economic indicators, yield curve inversion, manufacturing data and fundamental valuation analysis.

In hindsight, this might end up being the most telegraphed recession in U.S. history, but the market currently perceives this as bullish since a recession could cause interest rates to decline, the federal reserve’s balance sheet and money supply to expand, and the price and performance of bitcoin to continue to outperform every asset in the world, including the S&P500.

One must question, if this behavior of ever-increasing government spending continues driving deficits and GDP higher, why investors would continue buying stock indices such as the S&P500 when bitcoin routinely outperforms on an annualized basis. Bitcoin is an indicator of the health for the U.S. financial system. The more liquidity the U.S. financial system needs to remain stable, the higher bitcoin rises.

However, with negative net national savings, if a recession comes and the government increases spending in response, it could consequently raise borrowing rates on corporations and individuals with declining growth rates trying to borrow to expand and provide a self-defeating outcome to any increase in government spending.

In other words, we do not believe the markets current expectations/assumptions of a fiscal and monetary response to a recession, which would theoretically drive spending, deficits, GDP, and bitcoin higher, can at this point, with negative net national savings, actually prevent employment from continuing to decline and would alternatively contribute to an even lower economic growth rate. We believe the current market narrative/assumptions of an economic recession being bullish or a positive for risk assets such as stocks, real estate, and bitcoin, will persist until NFP (non-farm payrolls) begin to surprise on the downside. We expect negative NFP surprises to begin as early as the next data release on Friday, March 8th.

Historically, the inverted yield curve carries 100% odds of predicting recession. The yield curve has now been inverted for 21 months. Yields on bonds are now greater than the yield on stocks. The equity risk premium is nearing negative territory. The last time this occurred in 1999, bonds beat stocks over the next decade 2000-2012, while avoiding a -30% bear market.

In summary, stock investors are being given an incredible opportunity to lock in gains and reallocate capital toward assets which experience benefits during real economic weakness. Our recommendation since January of 2023 has been to position portfolios to endure a recession, in a defensive manor, risk off and in cash, T-bills, money market funds, fixed income duration extended in September 2023 from 0-5 year to 0-30-year U.S. Treasury bills and notes, 10-year minus 2-year yield curve re steepening and select low duration U.S. equities.

Getting paid to wait for growth assets to be priced at discounts, while being positioned to benefit from bond price appreciation as interest rates decline from downward economic pressure, continues to be a profitable and rewarding strategy.

We remain patient and focused on managing risk through 2024.

Disclosure: Investing involves risk, including the possible loss of principal and fluctuation of value. Past performance is no guarantee of future results. This letter is not intended to be relied upon as forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date noted and may change as subsequent conditions vary. The information and opinions contained in this letter are derived from proprietary and nonproprietary sources deemed by Macrovex Capital, LLC to be reliable. The letter may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projection, and forecasts. There is no guarantee that any forecast made will materialize. Reliance upon the information in this letter is at the sole discretion of the reader. Please consult with a Macrovex Capital, LLC financial advisor to ensure that any contemplated transaction in any securities or investment strategy aligns with your overall investment goals, objectives, and tolerance for risk. Additional information about Macrovex Capital, LLC is available in its current disclosure documents, Form ADV and Form ADV Part 2A Brochure, which are accessible online via the SEC’s investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using CRD #300692. Macrovex Capital, LLC is neither an attorney nor an accountant, and no portion of this content should be interpreted as legal, accounting or tax advice