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The Research HUB: Structural Change In The Economy
Taxes, Interest Rates, and Corporate profits
Part of any good investment process is constantly conducting research on the overall economy. It is easy to get caught up in the specific levels in ES or the monthly view of Crude. Today we are zooming out.
Part of the reason I created this Substack is to show you the research and collaborative process. This is taking place in the Discord (link) where everyone is sharing insights, research, and trades. It is already turning into an amazing community.
One of the papers that was recently shared in the Discord covers the macro changes taking place that are going to be instrumental for trading over the next 5-10 years.
When I read papers like this, it doesn’t make me bearish or bullish. It simply adds further refinement into how I think about the distribution of probabilities that CAN occur and HOW they might play out.
There are 3 major ideas I want to draw your attention to from this paper:
The way in which returns will take place over the next decade will be dramatically different than the last 40 years. Just think about how many people who have been the “experts” during the last 40 years got 2022 and 2023 completely wrong. A true knowledge of macro mechanics will go for a premium over the next decade because active management will be required to maintain positive returns.
It’s not about the 1970s, it's about the mechanics of the system: many people have tried to use past periods of time and try to find parallels. This is incredibly helpful IF it is informed by an understanding of the causal differences. The mechanical nature of macro isn’t changing but the drivers are.
If stocks don’t perform the same way they did in the past, do you have a plan? I am not saying we are going to drop 50% in the S&P500 or that we will have the worst recession in history. No one knows if that will happen. The real question is, do you have a game plan for multiple scenarios or are you just wishing for the best? In retrospect, you always wish you had a plan. The people who benefit from chaos are the ones who are prepared for everything and are indifferent to the outcome.
When you begin hearing the topics of “taxes” “corporate profits” and “unprecedented events” on the news, it will be too late.
Here is a long term chart of the S&P500 to give a little perspective:
We remain in a period of time where inflation is the dominant impulse but that is likely to change as we move into 2024. The long bond trade will come soon and I have already conducted extensive research, built multiple models, and planned my risk management accordingly. I will be sharing it as the events unfold.
In the information age, you simply need to be at the right place, at the right time, with the right information to succeed
If you want a further breakdown of this management process, check out the article I wrote on alpha and beta: