# 2025 Macro Outlook and Strategy

**Author**: *Joshua Cheong*

*Disclaimer*

This is copyright content and cannot be reproduced without permission from Joshua Cheong.
All information provided by this document and over the recorded meeting in its associated forms is for information purposes only and is not, and does not constitute or intend to constitute, investment advice or any investment or financial advisory service. Such information also is not and should not be deemed to be an offer to purchase or sell or a solicitation of an offer to purchase or sell, or a recommendation to purchase or sell any securities or other financial instruments or assets. It is for general purposes only and does not take into account your individual needs, investment objectives and specific financial circumstances. The content on within is based on sources that are considered reliable. No guarantee is provided on its accuracy, correctness or completeness either express or implied. The information provided is purely of an indicative nature and is subject to change without notice at any time. The information provided does not confer any rights. This is not financial or investment advice. Results achieved in the past are no guarantee of future results. The presenters and participants of the discussion and (possible) other providers of information to this content do not accept any responsibility for damage related to use of this content and the information presented, or damage related to inaccessibility of this website and the information presented.
All posts and views for the content are personal views and do not necessarily represent the postings, strategies or opinions of his employer or affiliated organizations.

## 2024 Hindsight
- **US Immigration was the macro surprise**
As always I've expected demographics especially on US labor force participation to push USA's debt-to-gdp further however there seems to be a deviation of trend especially in 2024 (More debt than anticipated with labor force participation which is also a surprise recovery).
This is especially obvious with the surprise increases in labor force participation from Biden's administration and yet Fed net liquidity did not tighten.
This chart highlights why as more immigrants came legally or illegally to contribute to GDP growth and a stronger US economy. However this is not without social costs (increased feeling of US nationalism and frustration with inflationary pressures). Also note this immigration influx situation is one-time and may be reversed due to Trump's presidency.

- **US Federal Reserve and Treasury changed the profile of liquidity ("Not QE's QE")**
Through issuance of shorter term maturities (T-bills) by the US Treasury department (Janet Yellen), and drawing down on the Reverse Repo facility (Jerome Powell). The Fed Reserve and Treasury created liquidity since March 2023.
More and more T-Bills in 2024. This is a strategic execution from Janet Yellen (current Treasury secretary) that Scott Bessent (Treasury secretary nominee) strongly disagrees with.
Draining for the reverse repo facility since March 2023 (Silicon Valley bank crisis). This RR facility has already been basically drained and there is no more opportunity to drain it anymore.

- **The activities above resulted in USA exceptionalism**
- No USA recession in 2024
- Recession fears due to Sahm rule did not work (https://fred.stlouisfed.org/graph/?id=SAHMREALTIME)
- Yield curve inversion did not work (https://fred.stlouisfed.org/series/T10Y2Y)
- Treasury yields did not come down as much as traders thought (the market was pricing in 4 rate cuts for 2024 but in reality only 2 rate cuts materialized) and dissapointed fixed income prices.
- Continued outperformance of the Magnificent 7 (>30% concentration of the top 7 stocks in the S&P500)
- Surprise win for Trump in reaction to the illegal immigration "no-policy"-policy and widening inequality related frustrations

## 2025 Predictions from Banks and Independent Analysts
| Aspect | Joseph Wang | J.P. Morgan | Felix Zulauf | UBS | Bank of America | Mike Howell | Citibank | Luke Groman | Jim Bianco |
|--------------------------|---------------------------------------------|-------------------------------------------------------------|-----------------------------------------------------------|----------------------------------------------------------|----------------------------------------------------------|----------------------------------------------------------|----------------------------------------------------------|----------------------------------------------------------|----------------------------------------------------------|
| **Economic Outlook** | Anticipates a turbulent year due to significant policy changes; does not predict a recession, but expects a slowdown. | High interest rates persist; resilient global economy with sticky inflation. | Initial correction expected due to high valuations; long-term structural issues may weigh on growth. | Optimistic on U.S. stocks and bonds; sees AI as a major growth driver. | Strong U.S. economic performance; productivity growth expected to support GDP. | Cautious on economic stability; anticipates potential systemic risks and market vulnerabilities. | Global growth expected at 2.9%, driven primarily by the U.S. | Rising debts and deficits create unsustainable conditions; anticipate a surprise in early 2025 driving asset prices. | U.S. economy stands strong amidst global challenges; market dynamics show resilience but inflation risks persist. |
| **S&P 500 Forecast** | Projects the S&P 500 to end around 5,500, with volatility and steep declines followed by recoveries throughout the year. | Positive growth; U.S. exceptionalism continues. | Initial decline by about 1,000 points, suggesting a potential level around 5,000 during the low of Q1 2025 followed by potential rally that leads to new highs, potentially bringing the index to levels around 7,000 to 7,500; concerns about bear market in Q4. | S&P 500 expected to reach 6,600 by year-end 2025, driven by falling rates and solid growth. | Expected to reach 6,666 by year-end, with earnings growth of 13%. | Concerns about market overvaluation; suggests potential for significant pullbacks. | Corporate profits anticipated to rise, with broader market participation beyond tech firms. | Projected substantial growth, potentially up to 60%, influenced by inflation and dollar devaluation. | Anticipates moderate growth in S&P 500; potential for concentration in tech stocks may pose risks for broader indices. |
| **Interest Rates** | Predicts the 10-year Treasury yield around 4%, with several rate cuts expected due to economic disruptions and lack of inflation concerns. | Fed to maintain high rates, shallow easing expected. | Predicts initial corrections but potential for rate cuts mid-year. | Major central banks expected to cut rates as inflation normalizes; position for lower rates. | Fed expected to cut rates twice in 2025; yields to remain in a tight range of 4-4.5%. | Warns of possible interest rate hikes if inflation remains sticky; highlights liquidity risks. | Fed may reduce rates to 3.75% by end of 2025 due to declining inflation. | Interest rates likely to rise due to inflationary pressures; Fed may engage in rate cuts as conditions evolve. | Expects Fed policy changes based on inflation data; cautious about sustained low rates impacting economic stability. |
| **Equity Market Dynamics**| Expects foreign investor exposure could lead to outflows and declines in equity prices; volatility anticipated due to public policy developments. | Anticipates dispersion across equities; U.S. remains strong. | Increased volatility anticipated; cautious investor sentiment. | Positive on U.S. stocks, particularly in AI and high-quality sectors; expects international opportunities. | Cyclicals expected to outperform due to productivity cycle and policy changes. | Focuses on sector rotation; recommends defensive strategies due to potential volatility. | Shift in sector leadership anticipated with more sectors contributing to bull market. | Focus on equities over long-term bonds; sectors tied to infrastructure expected to perform well. | Expects equity markets to show resilience but warns of volatility due to external pressures and speculative behaviors. |
| **Currency Outlook** | Highlights potential for a depreciating U.S. dollar and its impact on risk assets; emphasizes geopolitical factors influencing currency dynamics. | Bullish on the U.S. dollar due to favorable trade policies. | Does not emphasize currency much; focus on economic indicators. | Cautious on the dollar’s medium-term prospects; advocates selling it on strength. | Strong dollar expected in H1 2025, depreciation anticipated later due to growth concerns. | Cautions about the dollar's strength but highlights potential shifts based on global dynamics. | Strong dollar likely to influence inflation rates and trade relationships, impacting emerging markets. | Projected weakening of the dollar; potential for official devaluation impacting global dynamics. | Dollar’s strength could be challenged by rising debts; watch for shifts that may impact global trade dynamics. |
| **Commodity Expectations**| Predicts gold will perform well, potentially reaching $3,000 due to ongoing political uncertainty and a weaker dollar; expects increased demand from central banks. | Subdued oil prices expected due to oversupply; bearish on commodities overall. | Not a primary focus; economic indicators are more critical. | Bullish on gold due to geopolitical risks and lower rates; positive outlook for transition metals. | Commodity prices, including oil, expected to soften; gold may peak at $3,000 per ounce. | Expects commodities to face pressure from slower global growth and increased supply challenges. | Geopolitical tensions may influence commodity prices and availability. | Expect significant price increases for gold and Bitcoin as inflation rises; commodities will be positively impacted. | Anticipates gold's price movement closely tied to inflation trends; energy commodities may remain volatile amid geopolitical tensions. |
| **Emerging Markets** | Cautious outlook due to potential turmoil from U.S. policy changes but sees opportunities as dynamics shift away from reliance on U.S. assets.| Cautious due to potential tariff impacts; uncertain but with buying opportunities later.| Risk in EM assets due to U.S. policy uncertainty but may improve with clarity.| Emerging markets face challenges but may benefit from international opportunities.| Expect short-term risks for EM assets but potential rebound once clarity on trade policies is achieved.| Foresees significant risks in emerging markets due to geopolitical tensions and monetary policy shifts.| EMs sensitive to changes in U.S. interest rates and trade policies.| Emerging markets may offer opportunities as dynamics shift away from reliance on U.S. assets.| Emerging markets likely face headwinds from U.S policies; selective investments could yield favorable outcomes despite risks.|
| **Quarterly Analysis** | - Q1: Expect volatility and adjustments based on public policy developments.<br>- Q2: Monitor economic indicators for signs of systemic risks.<br>- Q3: Assess inflation trends and their impact on asset prices.<br>- Q4: Prepare for year-end adjustments based on broader economic conditions.| - Q1: Focus on resilience amid high rates.<br>- Q2: Look for potential easing signs.<br>- Q3: Monitor inflation trends.<br>- Q4: Assess overall market performance and adjustments based on geopolitical events.| - Q1: Anticipate correction; cautious positioning.<br>- Q2: Potential recovery if Fed cuts rates.<br>- Q3: Monitor economic indicators for signs of a slowdown.<br>- Q4: Prepare for increased volatility and potential bear market conditions.| - Q1: Strong start anticipated for U.S. stocks.<br>- Q2: Benefit from AI investments.<br>- Q3: Continued growth in select sectors.<br>- Q4: Expect positive movement in equity markets as year-end approaches.| - Q1: Initial strength in U.S. equities.<br>- Q2: Earnings growth accelerates.<br>- Q3: Monitor for policy changes affecting equities.<br>- Q4: Prepare for potential market adjustments based on global conditions.| - Q1: Watch for early signs of correction.<br>- Q2: Assess liquidity conditions; consider defensive positions.<br>- Q3: Look for signs of systemic risks impacting markets.<br>- Q4: Prepare for possible pullbacks and increased market vulnerabilities.| - Q1: Core inflation expected to decrease; Fed begins rate cuts.<br>- Q2: Focus on corporate earnings growth and geopolitical developments.<br>- Q3: Potential for sustained global corporate profit growth.<br>- Q4: Emphasis on diversified market participation and effects of U.S. fiscal strategies.| - Q1: Monitor early signs of volatility.<br>- Q2: Anticipate significant movements driven by geopolitical events.<br>- Q3: Evaluate inflation impacts on asset performance.<br>- Q4: Consolidation of gains across commodities and equities expected.| - Q1: Expect mixed reactions as equity markets adjust.<br>- Q2: Watch for potential recoveries amidst Fed actions.<br>- Q3: Monitor inflation closely as it affects market sentiment.<br>- Q4: Prepare for year-end adjustments based on broader economic conditions.|

## General observations
- **Economic Outlook:** Store-of-value "end game" is still inevitable. Gold and Bitcoin needs to be held long term. Just expect to buy into weakness which is great for discounts.
- **S&P 500 Forecast:** Sell-side Bank Research are unanimously bullish for 2025 relating to US equities while independent and hedge fund advisory research seem to be more diverse in opinion. I think this would mean leaning into short term Q1 defensive behavior is probably the better non-consensus approach. The ability to buy into weakness is possible in 1st half of 2025.
- **Interest Rates:** Sell-side Bank Research are leaning bullish for bonds (With exception of JP morgan) while independent and hedge fund advisory research seem to be more diverse in opinion due to inflation concerns.
- Pricing in 2 rate cuts seemed like an overeaction as to be too little to monetize the debt. The problem is treasury issuance of too much short duration bonds
- A possible path of action is the following:
1. USD strengthens squeezes a crisis in China or Japan bonds
2. Once new USA administration is elected, they would work to push for either in March or July 2025 to reach a [Plaza Accord type deal](https://en.wikipedia.org/wiki/Plaza_Accord) to devalue USD against Japanese Yen and Chinese RMB.
3. Once this is in place, naturally this would mean more US bond rate cuts and the abililty to monetize debt through Federal Reserve printing.
- The key here is USA rates and USD is seen as a geopolical negotiation tool (watch the DXY, JPYUSD and CNYUSD for any monthly or daily pivots to catch the settlement of negotions)
- This is quite unpredictable unless I am Scott Bessent and the alumnni of Soros Fund and I would stay out of the bond and currency trades. If not there is definitely a very powerful insider trade to make among hedge fund friends.
- **Commodities:** Commodity producers in energy and materials will have targetted opportunities due to inflationary pressures, geopolitical instability, electrification and decarbonization
- **Emerging Markets:** Watch the DXY, JPYUSD and CNYUSD for a pivot towards USD weakness as a indication for opportunities in Japan and China recovery
- **US Inflation** is still a big question and needs to be monitored for reactionary Fed hikes Q3 2025.

## Markets/Indicators To-Act On
- **Global and US Liquidity:**
Longer-term, global liquidity is still positive but it momentum is lost.
Global liquidity looks like it is looking for a bottom. The next "7 long" signal is only possible in July. What is still supportive here is that global liquidity is hitting a 18 year long-term trend line from 2008 that it may break down on bounce up from.
US liquidity looks like it is looking for a bottom. The next "7 long" signal is only possible in march.

- **Currencies: DXY, JPYUSD, CNYUSD**
My problem with this DXY chart is that the short signal was ignored in 20 Dec and the strength of the USD is continuing. This is negative for global liquidity.
- **Fixed Income: China 10 year, US 10/2 year**
The Daily of US 10 year note yield has peaked and may be coming down (which is natural) or breaking out (in that case a crisis that demands a deal with China and Japan).
- **Foreign Ownership as a % in Total US Treasuries** seem to be picking back up since Q3 2023? But downward trend is not broken

- **US M2 supply**
A short signal is forming in March 2025, and from precedence, it shows that it will likely be broken signal and shows more liquidity beyond march. If that does not happen, this is a warning sign.
- [US Central Bank Balance Sheet](https://www.tradingview.com/symbols/ECONOMICS-USCBBS/)
Currently it is in a TD seq countdown suggesting a possible pivot in March or June 2025. In other words, a good sense of timeline on when exactly Federal Reserve will print. This needs to be tied in the same time as treasury bond refinancing and a currency deal with China and Japan.
- Regardless of Q1 or Q2 deal, it means risk assets will outperform in Q3 of 2025 (August as the peak).
- [US Treasury General Account Balances](https://www.tradingview.com/symbols/FRED-WTREGEN/) with the NY Fed. There is about 0.764 Trillion of liquidity to use in the meantime for paying civil servants, government suppliers, debt interest and liquidity needs.
- If you see this going down steadily from now till march, it means no deal is being done until July
- If you see this going flat or up, it means a deal is to be done in March and you should be buying in Q1.

- Store-of-value: Gold and Bitcoin (Store-of-value) price action
- Buy gold on the 7 dailys and Bitcoin on the 3-hr (13 longs until Aug/Q3 2025) charts on weakness.
- Expect weakness in Q1 (Eg. Can expect BTC correction to $75k USD)

- Risk markets: SUI, SOL, ETH
- Buy SUI on the 7/8 signal dailys charts on weakness until Aug/Q4 2025.
- Buy SOL on the 7/8 signal dailys charts on weakness until Aug/Q4 2025.
- Buy ETH on the 13 signal dailys charts on weakness until Aug/Q4 2025.
- Buy HYPE on 13 long signal (1-hr intervals)
- Expect weakness in Q1
- GRVT play may be a repeat of HYPE (although unlikely this is just a risk-adjusted punt)
- One positive sign to it is the Twitter following on Grvt is stronger than Hyperliquid
- One negative structural weakness of GRVT is the lack of something like HLP
- Sign up via my link at: https://grvt.io/exchange/sign-up?ref=WJF0BWS

## Top People To-Watch

- **Scott Bessent (Treasury Secretary Nominee)**
To become treasury secretary when Trump is sworn in on 20th Jan and to stop the short-duration Treasury issuance that Janet Yellen has done which Scott terms as "emerging market" policies.
- **Jerome Powell**
May finally have room to then do proper debt monetization (end QT and consider expanding the Federal Reserve Balance sheet) once Janet Yellen leaves her post and the T-bill treasury issuance/re-financing model stops.
- **Stan Druckenmiller (Ex-boss to Scott Bessent)**
He will be the litmus test on whether we should continue be bullish on US markets as Scott will want to tailor USA financial strategies to encourage Stan's investments.

## Structural Plays

- Gold and Bitcoin as Store-of-value (https://www.linkedin.com/pulse/golds-breakout-vs-bitcoins-range-tale-two-safe-havens-pietro-ventani-1zd4c/?trackingId=DJTf9xauTTap6SJyT6ZCBA%3D%3D)
- Crypto market's Institutional Adoption
- BTC / ETH high APY funding rates
- sUSDe looping strategy and relationship to funding rates (https://app.aave.com/) - watch for this to deleverage in August of 2025
- Microstrategy's Debt funding arbitrage play
- Qualified Custodian adoption and the search for diversity in yield returns
Implication of the ETF inflows and institutional adoption of Bitcoin is the increase in price of Bitcoin and the diminishing of liquid BTC (Such as wBTC to do more ALT-related yield activities).

## References:
- https://www.jpmorgan.com/insights/global-research/outlook/market-outlook
- https://marketinsights.citi.com/wealthoutlook2025/index.html#:~:text=the%20evolving%20risks.-,Continuing%20Growth%2C%20Potential%20Rising%20Profits,forecast%20for%202025%20to%202.4%25.
- https://www.ubs.com/global/en/media/display-page-ndp/en-20241121-year-ahead-2025.html
- https://www.ubs.com/global/en/wealthmanagement/insights/year-ahead-registration.html#:~:text=Top%20investment%20ideas-,We%20expect%20the%20S%26P%20500%20to%20reach%206%2C600%20by%20the,exposure%20to%20Asia%20ex%2DJapan.
- https://newsroom.bankofamerica.com/content/newsroom/press-releases/2024/12/bofa-global-research-expects-2025-to-be-a-year-of-further-equity.html
- Felix Zulauf: https://www.youtube.com/watch?v=MGL3NIKxViM
- Joseph Wang: https://www.youtube.com/watch?v=1nxyONAl1fc
- Mike Howell: https://www.youtube.com/watch?v=YHFPRnMhX2A, https://substack.com/home/post/p-153285819
- Jim Bianco: https://www.youtube.com/watch?v=nsYneg9hxTI
- Luke Gromen:https://www.youtube.com/watch?v=7kUj3sgxJ18
- What Pundits got wrong in 2024: https://www.wealthfront.com/blog/2024-predictions/
- Dan Morehead (Panterra Capital): https://www.youtube.com/watch?v=Q3nj3TTaOV8&t=4174s
- TD Sequential: https://tradingcenter.org/index.php/learn/technical-analysis/328-how-to-trade-td-sequential