Business Cycle Update April 4 2024

The Macro Investing Tool
from Raoul Pal and Julien Bittel
The Macro
Investing Tool
RV MIT Business Cycle Update

– April 4, 2024
PAGE: 1 // 16 THE MACRO INVESTING TOOL FROM RAOUL PAL AND JULIEN BITTEL

RV MIT Business Cycle Update

– April 4, 2024
Welcome back to the weekly newsletter of The Macro Investing Tool (MIT). This
product aims to help you position your portfolio for the different ebbs and flows of
the business cycle.
Just as a reminder, here’s what you can expect from Raoul and Julien every month:
In the first two weeks of every month, you will receive a short weekly newsletter (like
this one) where Raoul and Julien will go through the top macro and market charts on
their radar for the given week. In the third week of every month, Raoul and Julien will
write a publication around the updated model outputs to highlight where we are in the
cycle and, based on the new data, help to identify the appropriate asset allocation.
Finally, in the last week of every month, Julien will follow up with a video update (slide
deck included) to discuss the key takeaways from the month.
We will also do regular AMAs with Raoul and Julien to ensure we answer all your
questions.
Okay, let’s dive right into this week’s newsletter and the top macro/market charts on our
radar this week...
ISM vs. US Banks YoY%

If you remember, back in late December / early January, Raoul and I talked about a
broadening out of cyclical performance this year based on our expectations that the
worst of the earnings recession was now behind us and that a capex revival was on the
cards for 2024.
We had been saying that things like Small Caps, Industrials, Materials, Financials, etc.,
were all pricing in the current ISM but nothing forward-looking (easing of GMI Financial
Conditions Index), and we were therefore expecting these equity-style factors and sectors
to perform well in 2024 as the recovery in the business cycle started to accelerate.
Well, fast-forward a couple of months, and US Banks are now starting to price in a
stronger future economy and much higher ISM numbers.
US Banks ETF (BKX)

We also flagged this breakout early on: BKX +9% for the month of March versus just +2%
for SPX...
US Banks ETF (BKX)

Right now, we believe that the path of least resistance is still higher from here and that
$115 is likely to be the most obvious level of future resistance.
It’s still too early to tell, but it feels to me that at $115, we could see some sideways chop
and possibly even a small correction to complete what would be the right shoulder of a
massive three-year inverse head-and-shoulders pattern before the next leg higher.
Something we will be keeping a close eye on...
ISM vs. Russell 2000 YoY%

The Russell 2000 is also starting to price in a sharp turn higher in ISM...
Russell 2000 Seasonality

...and seasonality for small caps is positive into early June, flat over the summer months,
and then extremely positive again starting in Q4...
US Energy ETF (XLE)

We’ve also been tracking the breakout in US Energy stocks, which has been fun to watch.
We originally flagged this chart a couple of weeks back in the MIT publication update
for March. Then, during last week’s MIT video update, we saw XLE poke ever so slightly
above key resistance, which now appears to confirm the breakout.
Perhaps a bit more work needs to be done here, but this is looking good; again, it’s
something to have on your radar screens...
ISM vs. US Energy YoY%

Also, Energy equities are still only pricing current ISM. This makes sense because this
sector is more linked with the “old economy” and, therefore, does not move in line with
the liquidity cycle and easing financial conditions like tech and other top Macro Spring
assets.
US Energy ETF (XLE) Seasonality

Here, too, seasonality is still extremely positive into early June...
Bitcoin Performance Post New All-Time-Highs +12

Months (ATH=100)
We’ve been getting a lot of questions about how Bitcoin behaved after reaching new all-
time highs, so we put this together to help. Only one thing comes to mind here: DFTU...
Gold
Gold bugs were extremely busy on social media last week following the big breakout in
gold prices...
Yes, it looks good. We wrote about it in our annual January GMI Think Piece, which many
of you will have read by now. In there, we mentioned that this breakout was coming and
would target a move to around $2,500, which is still roughly 13% higher than current
levels at the time of writing this.
Interesting for sure, but...
Gold vs. GMI Total Liquidity Index

What gold bugs are missing is that the world really did change back in 2008 and that the
Fed is now expanding its balance sheet at a 15% annualized rate (globally, that number
is 8% per annum).
This means that the hurdle rate for your investment portfolio needs to be at least 8% to
preserve your purchasing power.
But surely this has been gold’s time to shine, right? Gold surely protects against
debasement???? Surely, that is its true role in the world??
Wrong. Gold has not been offsetting the rise in Central Bank balance sheets, and worse
again, it’s been a net destroyer of wealth since 2008.
Do you think that was on most people’s bingo cards?
Probably not...
Gold vs. Bitcoin

Gold is also currently down 98% compared to Bitcoin since 2014. Wowzer!
Annual Cross-Asset Return Table Since 2011

Here’s the last chart that we’ll leave you with to mull over this week.
Crypto has been the best-performing asset in 10 of the last 13 years (11 of 14 if we
include the 2024 YTD performance). Gold, not once.
Key takeaway?
Don’t be suboptimal...
That’s all we have for you this week. We’ve given you lots to think about...
See you all next week for another update!
Take care,
Raoul Pal – CEO, Founder - Global Macro Investor

Julien Bittel – Head of Macro Research - Global Macro Investor
The Macro
Investing Tool

Business Cycle Update April 4 2024

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The Macro Investing Tool

from Raoul Pal and Julien Bittel

RV MIT Business Cycle Update

The Macro Investing Tool

RV MIT Business Cycle Update

ISM vs. US Banks YoY%

US Banks ETF (BKX)

US Banks ETF (BKX)

Something we will be keeping a close eye on...

ISM vs. Russell 2000 YoY%

Russell 2000 Seasonality

US Energy ETF (XLE)

ISM vs. US Energy YoY%

US Energy ETF (XLE) Seasonality

Bitcoin Performance Post New All-Time-Highs +12

Interesting for sure, but...

Gold vs. GMI Total Liquidity Index

Do you think that was on most people’s bingo cards?

Gold vs. Bitcoin

Annual Cross-Asset Return Table Since 2011

See you all next week for another update!

Raoul Pal – CEO, Founder - Global Macro Investor

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