Synthetic Systems 2024

Synthetic Systems Quarterly and Annual updates have been posted for 2024.00 and 2024 respectively. On the site Menu, click Market Analysis.

We’ve been taking SS projections with an extra large grain of salt for the past few quarters. Occasionally a plot change catches SS off guard and we have to wait until it shows evidence of having regained sync before according it any validity at all. We now have tentative evidence it is doing so.

The 2023.75 forecast is the first in some time that’s had more hits than misses, suggesting we can take 2024.00 with a bit smaller grain of salt.

(I don’t want to leave the impression though that the focus of the Quarterly updates is the imminent quarter itself though. “Quarterly” refers to the frequency of the updates; in terms of its forecasting validity “quarterly” is around the lower limit of its resolution.)

I want to highlight the areas in which it seems least and most likely to succeed. Magnitudes would fall into the former category. In broad directional strokes, its projections are more plausible, as is usually the case. Its bullish bond outlook is consistent with the fundamentals we’ve been articulating. The scale of the projected rally, however, is not.

The mega-bullish impression left by the Bond plot isn’t as mega-bullish as it first may appear though. This is a plot of hypothetical infinite maturity bonds, approximated in real life by only the longest dated issues. In order of declining fit, they would approximate funds such as EDV, TLT, and VGLT. Few if any but the most avid speculators would actually allocate large portions of their assets to these most volatile and risky of Treasury instruments. 

The Notes plot is the more realistic representative of the Treasuries, corresponding to a broad portfolio of the entire nominal Treasury market from zero to thirty years maturity. The more meat-and-potatoes GOVT fund is a pretty good fit. Yet I still think it looks more bullish than the fundamentals justify. The more conservative – and supported by the fundamentals – takeaway is that the monster cyclical bear market in Treasuries is over. SS does not speak to the longer term secular outlook.

The Gold plot, on the other hand, I suspect may understate its bullish prospects. The Copper plot seems most out of line with the fundamentals. For reasons discussed in prior posts, I suspect we are looking at a deflationary jag some time in the next couple of quarters or so, but it wouldn’t last as long as SS seems to think. Any palpable deflationary squall would be swiftly met with an orgy of rate slashing and printing, the Fed’s rhetoric about keeping a lid on inflation notwithstanding. The first and third quarter selloffs SS has pencilled in for Stocks seem plenty plausible.

The broader message is consistent with that of the fundamentals in the previous post …  “stagflation”. Although official stats may see positive growth by virtue of using understated inflation data, generally it’s inflation as far as SS can see with no or negative real growth.

Synthetic Systems 2024.00

Synthetic Systems 2024

Happy New Year!

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