I got away for a few days of golf before the semester starts. It is an inflection point for me as I move from vacation mode to school mode. It is also an inflection point for the markets
I think we might be looking at a Wall Street recession and not a Main Street recession. This might be quite the opposite of the post GFC period - the jobless recovery. Now maybe it is a job-ful recession!
I appreciate how much time you put into these articles! It seems like higher rates have not destroyed the world, at least yet. I understand the monetary lag though, so if the full effect of rate hikes is going to manifest it should probably start before too long.
This market has been emotionally difficult for me. I'm largely in cash but I experience stress every time we get one of these big rallies.
One interesting point to make about difference of inflationary 1970s and today is to look at inflation expectations. Tips starts circa 1998, but the NY Fed has created a theoretical breakeven going back to 1970. What jumps out is that for whatever reason the market today just does not feel as if the inflation threat is on par with that in the 1970s. It seems as if the Fed's 2023 core PCE forecast of 3.5% is looking too high so it will be the case that the market will want to anticipate a revision to that at the next SEP set of forecasts in March. Having said that the reopening of China, obviously full of starts and stops, seems likely to put upward pressure on energy prices, so the inflation picture is certainly muddled. But at this point the Fed has put a lot of emphasis on this services ex rent inflation which for all its importance is about 30% of the total index. I am in the soft landing camp, but am worried that a sharp move in the oil price to $130 might challenge my view and particularly, it might be time to be very careful about bonds if surging breakevens which mechanically follow the oil price do not get a real yield decline offset.
Great Logo and Interesting perspective! I have two arguments to make:
1) I think that this is different from 70s because 70s was a unique period as there were “persistent” energy shocks at regular intervals and the energy prices weren’t back the whole time. Furthermore, the inflation expectations were deanchored. This time the energy shock didnt last for long, and the inflation expectations are well anchored. Though I believe the “second” shock might come if Chinese demand comes back and the Western recession doesn’t reduce the demand as expected.
2) The main point that most of the Wall Street analysts are missing is that the “real” return on equities in Europe and the US has been deeply negative for the last two years. As a result, the “real” earnings for S&P has now moved to $187. Though this is hard to digest but therefore the equities have a limited downside because the nominal growth for this year might still remain at 5-6% and if pricing power sustains, we might see growth in earnings for domestic facing stocks (though profit margins remain elevated).
One quick comment about the new logo: I like the new one very much. I do not think the old one did not really represent your character unless you have dramatically changed since almost 40 years ago. Now the only thing is that the old Moody picture still apears in your e-mail. Just in case you are not aware.
I think we might be looking at a Wall Street recession and not a Main Street recession. This might be quite the opposite of the post GFC period - the jobless recovery. Now maybe it is a job-ful recession!
New logo looks great. Thank you for putting all the time into this post, very well thought out, and helpful.
I appreciate how much time you put into these articles! It seems like higher rates have not destroyed the world, at least yet. I understand the monetary lag though, so if the full effect of rate hikes is going to manifest it should probably start before too long.
This market has been emotionally difficult for me. I'm largely in cash but I experience stress every time we get one of these big rallies.
One interesting point to make about difference of inflationary 1970s and today is to look at inflation expectations. Tips starts circa 1998, but the NY Fed has created a theoretical breakeven going back to 1970. What jumps out is that for whatever reason the market today just does not feel as if the inflation threat is on par with that in the 1970s. It seems as if the Fed's 2023 core PCE forecast of 3.5% is looking too high so it will be the case that the market will want to anticipate a revision to that at the next SEP set of forecasts in March. Having said that the reopening of China, obviously full of starts and stops, seems likely to put upward pressure on energy prices, so the inflation picture is certainly muddled. But at this point the Fed has put a lot of emphasis on this services ex rent inflation which for all its importance is about 30% of the total index. I am in the soft landing camp, but am worried that a sharp move in the oil price to $130 might challenge my view and particularly, it might be time to be very careful about bonds if surging breakevens which mechanically follow the oil price do not get a real yield decline offset.
Great Logo and Interesting perspective! I have two arguments to make:
1) I think that this is different from 70s because 70s was a unique period as there were “persistent” energy shocks at regular intervals and the energy prices weren’t back the whole time. Furthermore, the inflation expectations were deanchored. This time the energy shock didnt last for long, and the inflation expectations are well anchored. Though I believe the “second” shock might come if Chinese demand comes back and the Western recession doesn’t reduce the demand as expected.
2) The main point that most of the Wall Street analysts are missing is that the “real” return on equities in Europe and the US has been deeply negative for the last two years. As a result, the “real” earnings for S&P has now moved to $187. Though this is hard to digest but therefore the equities have a limited downside because the nominal growth for this year might still remain at 5-6% and if pricing power sustains, we might see growth in earnings for domestic facing stocks (though profit margins remain elevated).
Love the new logo. Congrats to your daughter for her artwork and her pursuit of a STEM career.
I agree with you on the conflicting signals from all corners of the markets and the economy. We will have to nimble while staying vigilant. Cheers!
Thank you very much for your analysis, but am I only one who likes old logo more ?
Maybe do some poll about it 🤔
One quick comment about the new logo: I like the new one very much. I do not think the old one did not really represent your character unless you have dramatically changed since almost 40 years ago. Now the only thing is that the old Moody picture still apears in your e-mail. Just in case you are not aware.
Are we looking at a segmented recession? Lots to digest here. Well thought out, as always. Love the logo. #Zorro