Macro Monitor, December 8, 2024

Under the Macroscope

The weekly Macro Monitor transforms the experience that the wolf of wall street has accumulated over three decades of trading into a simple color-coded table that “normal” people with little time on their hands can quickly understand.

The Monitor has two objectives.

First, as a proprietary trading model, it “forecasts” whether this coming week’s investment environment is “risk-on” or “risk-off.” Risk-on means the algorithm might buy the S&P while risk-off means it might sell it.

This is the Model’s simple color code:

The second objective of the Monitor is to help the wolf of wall street’s eight hundred subscribers visualize the “temperature” of the markets with a passing glance, hopefully enabling them to also make more informed investment decisions, while having a chuckle at some cheesy puns and absurd alliterations along the way.

Here is this week’s Monitor. You can see that it has three parts. On the left is the long-term MACRO FACTOR, in the middle is a summary text of NEWS and market action, and on the right is the SHORT-TERM TREND for that Macro Factor

These are the seven MACRO FACTORS that are evaluated in the Monitor. The factors are colored in the left-hand column based on my assessment of whether the LONG-TERM TREND is risk-off or risk-on.

The first three are the most important and receive a higher weighting in our proprietary trading algorithm.

In order to get a feel for how the LONG-TERM macro factors are evaluated and colored, consider this very big-picture chart of the Fed Funds Rate, US GDP Growth, and the S&P stock index.

This is what the chart shows:

The Fed has started cutting interest rates and the long-term trend of Fed Funds is lower. That makes “Fed and Monetary Policy” a green for risk-taking.

The economy is steady as she goes, making the long-term trend of “No/Soft/Hard Landing” a neutral blue.

The S&P is making all-time high after high, making “Momentum/Sentiment” a long-term trend green.

The next four MACRO FACTORS have less weighting in the algorithm than the first three. This is based on our back-testing of the model.

“US Politics” is blue because Trump likely brings stimulative tax cuts and regulations but also inflationary tariffs and immigration policy.

“China” is red because the economy there is mired in deflation and a real estate crisis that dampens both investor and consumer confidence.

“Earnings/Credits Mkt”s is blue because although earnings have been solid, their rate of growth is slowing.

“Commodities/Geopolitics” is red because of the asymmetric risks posed by Middle East instability and the war in Ukraine.

Now let’s move to the middle and right-hand side of each row, which evaluate the previous week's NEWS and SHORT TERM TREND (see below). The color on the right is based on the summary text in the middle.

You should always take a minute to read this NEWS text every week, especially over the holidays. You will not only be able to make better investment decisions, but you will also be able to cite market data that will impress friends and family even more than your new recipe for egg nog.

Thank you for joining me on this microscopic tour of my Macroscope.

Here is the final version once again, it is in all of its pre-holiday splendor! You can see that this week, like the two previous weeks, there is more Christmas Tree Green than Santa Claus Red, and that means we are expecting a (mild) risk-on environment once again.

Per the algorithm, this will hold until Friday’s market close, when we will reset the table with new SHORT TERM TREND colors, and, of course, with the first egg-nog of the season.

Disclaimer: The content of this post reflects only the views of the author and not necessarily those of Armor Capital.