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My simple framework for understanding risk appetite, gold performance and global liquidity since 2021 is to use fiscal deficit as a percentage of GDP as a quick look at the fiscal stimulus that has dominated global markets since 2021. Mechanistically, a higher fiscal deficit as a percentage of GDP leads to higher inflation, higher nominal GDP, and therefore higher revenue for companies since revenue is a nominal indicator. This is a boon to earnings growth for those companies that can enjoy economies of scale. For the most part, monetary policy has played second fiddle to fiscal stimulus, which has been the main driver of risk asset activity. As this frequently updated chart by George Robertson shows, monetary stimulus in the US has been very weak compared to fiscal stimulus
The US stock market has been the main marginal driver of risk asset growth, wealth effects, and global liquidity, and therefore has become the gathering place for global capital, because capital is treated best in the US. Due to this dynamic of capital inflows to the US, coupled with a large trade deficit, which results in the US exchanging goods for foreign holdings of US dollars, which these foreign countries will reinvest in US dollar-denominated assets, the US has become the main driver of all risk appetite in the world.
For a risk-seeking macro trader like me, Bitcoin feels like the most worthy trade to be in after this run. You can’t impose tariffs on Bitcoin, it doesn’t care what country’s borders it is in, it provides a high beta return to the portfolio without the tail risk associated with US tech stocks, I don’t have to judge whether the EU can solve its own problems, and it provides exposure to global liquidity, not just US liquidity.