October 2024 Market Update

It’s Halloween, the Presidential Election is just a handful of days away, promises have been made and the markets expectations and valuations are very high. We are prepared for a buy the rumor, sell the news election outcome, as both candidates have promised more government spending, but only one has plans for economic growth and efficiency.

The government has been spending like crazy and cornering America into higher debt and deficits. The past few years Americans have watched as the cost to buy a vehicle, a home, and food has soared. These bi-partisan debt and deficit driven policies are contributing to America's declining birth rate and decline in the working age population growth rate. This will lead to a lower economic growth rate. These are structural economic issues which need reform. Adding debt is not a valid option for growing the population. Neither is ignoring the law and allowing illegal immigration.

As Government has grown as a % of total economic output ...

Chart: government expense as a percentage of total economic output.

and deficits have risen resulting in less purchasing power ...

Chart: Gold in yellow vs Surplus/Deficit in black. Golds inverse relationship with the deficit. From 1981-1997 the deficit was flat and so was gold. From 1998-present Gold has skyrocketed with the deficit.

The cost of living has risen, resulting in less births ....

Less births has resulted in a declining working age population growth rate ...

These debt and deficit driven bi-partisan policies are damaging long term economic savings and output, and have resulted in lower working population and economic growth rates.

Chart: The U.S. economy does not sustainably grow at or above 3% anymore. Government is too large a percentage of total economic output.

The governments over reliance on the “Wealth Effect” to produce federal tax receipts has damaged the American dream, and in our opinion, is on pace to soon deliver the unintended consequence of lower for longer economic growth and stock market returns.

The high cost of living stemming from debt fueled government policies to keep the stock and housing market up, is most likely what causes the S&P 500 to drift from a 10% annual return down to a 5%-6% annual return in the future. As the chart below depicts, the higher the valuation you pay for an investment, the lower the future return.

The big question for markets right now is whether inflation (CPi) will resurge or not. Many expect China to export inflation to the U.S. after implementing stimulus measures to re-ignite their economy back in September. We are skeptical and believe the outcome will be based on America's policy choice regarding energy. China’s main weapon against the U.S. is yuan depreciation. The Yuan/USD is inversely correlated to the price of oil. “If” Trump wins, he could delink the China yuan peg to the USD by reforming US energy policy. We believe this is a good reason to look for the USD/JPY currency pair to decline in the months ahead. Reflecting an overall decline in global growth and relative strength from America in comparison to the rest of the world.

The U.S. stock market (S&P 500) is currently NOT at all reflective of the economy. The stock market is priced for high growth and the economy is on a path of lower growth. Market liquidity from the increase in the total monetary base through covid has been distorting valuations and creating wide divergences in various growth proxies. The S&P 500 valuation at 5,800 or 26.5x trailing earnings, is smoke in mirrors.

For the reasons mentioned above, 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, 10-year minus 3-month yield curve re-steepening added September 2024, Short USDJPY from 153, 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.

We encourage all Americans to take some time to decide for themselves and their families what they desire America's future to look like. Bi-partisan swamp policies have kept the American population and birth rate in constant decline while the long term economic growth rate stagnates. The future is a policy choice. Please get out and vote!

Source: WSJ, BBC, US Bureau Labor Statistics

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