The four stages of the Merrill Lynch clock: recovery, overheating, stagflation and recession. Which stage do we belong to now, and what are the opportunities for making money in the cryptocurrency circle under the four stages?

Based on the high and low levels of the two indicators of GDP and CPI, the Merrill Lynch clock divides an economic cycle into four stages: recovery, overheating, stagflation, and recession. GDP represents the economic growth rate, and CPI represents the inflation rate.

Description as follows:

Recovery period: high GDP and low CPI

The recovery period is the cyclical repair stage of the economic cycle. With the policy stimulus of expanding domestic demand and promoting economic growth, the profits of enterprises have gradually increased, and the investment returns of stocks in major asset classes have performed best. Secondly, due to the low interest rate, the bond price is inversely related to the market interest rate, so bonds become the second configuration option after stocks.

BTC market is similar to the period from April 2020 to the end of 2021 (may even last until March 2022)

Overheating period: high GDP + high CPI

The overheating period is the rising stage after the recovery period. The rapid development of the economy and the expansion of downstream demand have been driven by the substantial growth of investment, which has caused commodity prices to rise sharply. At the same time, in order to prevent the economy from overheating, the central bank will generally introduce a policy of raising interest rates to tighten the economy, which will lead to rising interest rates and falling bond prices, making it a cold winter period for the bond market.

BTC market is similar to around April 2022 to September 2023

Stagflation period: low GDP + high CPI

The stagflation period occurs after the overheating period, when the market economy has experienced high inflation, and corporate investment and profits have changed from rapid growth to stagflation and contraction, causing the stock market to suffer a blow, while the higher market interest rates brought about by the interest rate hike are still unfavorable to bonds. In addition, with the continued upward trend of inflation, the sales and profits of commodities have been improved, but because the economy has shown signs of fatigue, cash has become the best investment option.

Now? Now?

Recession period: low GDP + low CPI

The recession period is a downward phase from the economy entering a contraction. Its stage characteristics are economic weakness and further decline in corporate profitability. At this time, the central bank generally promulgates stabilization policies such as interest rate cuts and easing, resulting in a downward interest rate, which in turn triggers the heat of the bond market. In addition, the decline in prices due to the contraction of consumer demand has caused the commodity market to perform poorly.

Here, it is easy for everyone to think of the BTC market similar to the period of Q1 and Q2 in 2020. Time goes back to this cycle. If it is stagflation now, will there be a recession next?

This requires attention to the following macro data, such as the CPI data of each month, and the GDP quarterly rate in July; as well as the unemployment rate, PCE data, etc.

So based on the above four stages. First of all, it should be noted that the Merrill Lynch clock can help investors identify important turning points in the economic cycle, so as to correctly identify the turning points of economic growth and realize profits by converting assets. More importantly, each economic cycle has its own uniqueness, and the real market will not necessarily rotate simply according to the Merrill Lynch clock. Therefore, investors also need to make a comprehensive analysis based on the actual situation of the market in order to make rational investment decisions.

Back to BTC (crypto assets), the current situation is definitely not recovery and overheating. As for whether a recession will come. As mentioned above, it is necessary to pay attention to the real-time data later, but interest rate cuts, even defensive interest rate cuts, will have a callback effect on the stock and BTC markets. And defensive interest rate cuts do not mean that there will be no economic problems later. For example, in the last macro cycle, the first interest rate cut in July 2019 was defensive. At that time, the market did not have much correction (BTC fluctuated between 9,000 and 13,000), but the outbreak of the epidemic in the United States in March 2020 led to a major recession, and everyone knows the market situation afterwards.

So in the macro cycle, this is why I said that the current situation is very similar to the market situation in mid-2019 (May and June). As for whether the next defensive interest rate cut will start like the one in July 2019 or directly, it feels like Fed Chairman Powell is waiting for a recession. This requires walking and watching the data.

Therefore, before the next recovery to overheating, there is still a chance to buy the bottom. A simple and rough summary of the crypto market money-making opportunities in these four stages is as follows:

Recovery to overheating is a stage of leveraged long and spot appreciation. After overheating, interest rate hikes are not spot, but leveraged shorts. Then the time comes to the end of 2022. After closing the short position, it is the time to buy the bottom, and it is also the end of the first stage of interest rate hikes. Then the market gets rid of the decline and starts to rise. Then the second phase of rate hikes comes. There will be a pause in rate hikes until September 2023.With the self-narrative of BTC in the crypto market, spot ETFs passed. And until now everyone knows it. Here is another sentence that the suspension of interest rate hikes is good for the stock market in the historical cycle.

So based on this summary: This is also why it is mentioned above: Each economic cycle has its own uniqueness. The real market will not necessarily rotate simply according to the Merrill Lynch clock. Therefore, investors also need to make a comprehensive analysis based on the actual situation of the market to make rational investment decisions.

Ending: I hope everyone can seize the opportunity to buy the bottom later and recover to the overheated market.

PS: Based on the understanding of the economic cycle, I hope that everyone can combine the actual situation of the market. Can stabilize their emotions and improve trading cognition. Maybe you can get rich by luck. But wealth security, preservation and appreciation need to rely on cognition. Rely on strength. Thank you everyone

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