I agree with the view that we must be risk-on however struggling with any view that the Fed cuts rates in this environment outside a crisis. Isnt this just evidence that the market has one foot on the gas and one on the brake i.i. Gothilocks and therefore we truck through to 2H2024 with no recession whatsoever but also no need for Fed cuts. Perhaps the right trade is MBS and credit together as long, but this is still negative Russell 2000 (where financing costs eat at equity) and positive Mag 7 where no recession and fortress capital = strong demand/multiples. What upends this? lack of demand for US treasuries therefore spike in 10s? Well with lower inflation and reasonable growth cant see a buyers strike there. Trades? I hate myself for saying this but banks, real estate (per your view) but also perhaps old people stuff versus young people stuff.
Really interesting - so the great Fed experiment that began in the wake of the GFC actually worked. As long as the consumer doesn't weaken too much, buy the dips.
As always, a great article. Thank you, David. But I have a question. In the final conclusion, you mentioned, "Growth panics should be faded for all the reasons above." I'm a bit confused. Does "Growth panic" refer to the concern about inflation and a rise in interest rates again?
I agree with the view that we must be risk-on however struggling with any view that the Fed cuts rates in this environment outside a crisis. Isnt this just evidence that the market has one foot on the gas and one on the brake i.i. Gothilocks and therefore we truck through to 2H2024 with no recession whatsoever but also no need for Fed cuts. Perhaps the right trade is MBS and credit together as long, but this is still negative Russell 2000 (where financing costs eat at equity) and positive Mag 7 where no recession and fortress capital = strong demand/multiples. What upends this? lack of demand for US treasuries therefore spike in 10s? Well with lower inflation and reasonable growth cant see a buyers strike there. Trades? I hate myself for saying this but banks, real estate (per your view) but also perhaps old people stuff versus young people stuff.
Recession is not my base case in 1H2024.
A reason to cut outside of a crisis is inflation craters. Current policy then becomes too tight and hurts the real economy.
Exactly this. Many housing market still very hot, so any relief in rates and fin cond will very quickly translate into more activity
https://x.com/NewsLambert/status/1725889438222303686?s=20
Bold, but then again that's your deal. Contrarian views backets by sound reasoning. I haven't seen anybody claim that we have landed.
They’re in denial. Cognitive dissonance. It upsets so many assumptions that entire careers are based off of. Like the Phillips Curve.
They also don't want to acknowledge that the Fed got it right this time. Their entire world view is based on the Fed being bumbling buffoons.
They’re in denial. Cognitive dissonance. It upsets so many assumptions that entire careers are based off of. Like the Phillips Curve.
This seems pretty contra rosy to me https://www.forbes.com/sites/greatspeculations/2023/11/18/inflation-fades--incoming-data-disappointsfed-appears-intransigent/. Also how does this massive wage growth in the auto industry affect cpi down the road?
In the aggregate wage growth has been trending down. I don’t think it’ll have much of an effect. The U.S. economy is just so damn big.
Really interesting - so the great Fed experiment that began in the wake of the GFC actually worked. As long as the consumer doesn't weaken too much, buy the dips.
2024 will be a BTFD kind of year.
Excellent.
As always, a great article. Thank you, David. But I have a question. In the final conclusion, you mentioned, "Growth panics should be faded for all the reasons above." I'm a bit confused. Does "Growth panic" refer to the concern about inflation and a rise in interest rates again?
Growth panic refers to recessionary fears.
I got it ! Thanks.
Do you think that this will have a big impact on spot FX? (And if it’s the way I’m thinking, wouldn’t that also act as a tailwind for US stocks?)
Yes and yes.
What's the trade?
Hi, can you expand on how you calculate CPI ex shelter at 1.8% and core CPI ex shelter at 1.2%? Thank you
Which equity sectors do you think do well here?