Like minds is my first thought. Believe there is a massive short covering rip, possibly this week. Just back from holiday, and as usual, markets upchuck during them and often recover when back, so there is that. One feature of the last year or so is that extreme sentiment have made for poor timing indicators as they have persisted which I believe is due to the domincance of momentum strategies which keep fueling the trend even if in prior times it might have caused a near-term reversal. Finally, wonder what you think of the argument that is made that is a counter to the recession is looking inevitable idea, namely the cash in bank deposits, low financial obligations ratio, high net worth to GDP, if coming down a bit, relatively low inventories, with a few notable exceptions, so no need for those to cause a big downshift in IP, and finally, can you really have a recession with peak in terminal real rates at a NEGATIVE level?
Great points as always! Momentum strategies and passive money dominance definitely contribute to the time it takes to see any sort of reversion. If I knew you were going on holidays I would have really pressed the bear argument last week. I think there are a number of drivers that can keep the economy stronger than expected. The wildcard to me is are all Fed hikes priced in? If so, we might be at the worst case scenario now. It won;t get a ton worse for multiples, earnings can be supported with an economy that doesn't go into recession and we might be at peak bearishness on China for now too. Some may say that peak terminal real rates being negative is the new normal. I am with you that it just means easy money is here to stay and inflation is a persistent issue.
Awesome reading. Always a pleasure to be back here and read your takes on markets.
Like minds is my first thought. Believe there is a massive short covering rip, possibly this week. Just back from holiday, and as usual, markets upchuck during them and often recover when back, so there is that. One feature of the last year or so is that extreme sentiment have made for poor timing indicators as they have persisted which I believe is due to the domincance of momentum strategies which keep fueling the trend even if in prior times it might have caused a near-term reversal. Finally, wonder what you think of the argument that is made that is a counter to the recession is looking inevitable idea, namely the cash in bank deposits, low financial obligations ratio, high net worth to GDP, if coming down a bit, relatively low inventories, with a few notable exceptions, so no need for those to cause a big downshift in IP, and finally, can you really have a recession with peak in terminal real rates at a NEGATIVE level?
Great points as always! Momentum strategies and passive money dominance definitely contribute to the time it takes to see any sort of reversion. If I knew you were going on holidays I would have really pressed the bear argument last week. I think there are a number of drivers that can keep the economy stronger than expected. The wildcard to me is are all Fed hikes priced in? If so, we might be at the worst case scenario now. It won;t get a ton worse for multiples, earnings can be supported with an economy that doesn't go into recession and we might be at peak bearishness on China for now too. Some may say that peak terminal real rates being negative is the new normal. I am with you that it just means easy money is here to stay and inflation is a persistent issue.