It is quite curious to me that Powell pivoted so hard given the absence of data indicating the economy is slowing rapidly. while you make an excellent point regarding corporate margins, I fear that is a level of thinking that exceeds the central bank's capacity, or certainly is absent from their reaction function.
FWIW, and that's probably not much, I see H1 of 2024 as a continuation of the current rally as the market continues to buy with abandon, especially if inflation rates continue to slide, however, unlike you, I am in the camp of sticky inflation, where housing prices writ large remain supported, especially if the Fed were to cut, and as such, my greater fear is more of a stagflationary environment in H2 and in 2025 as inflation remains well above the 2% target but growth slides back <1%. in that scenario, I think the rug pull happens in late summer or early autumn and will be quite ugly for many, not least for Biden as it will weigh further on his reelection opportunities.
Ding ding ding. Inflation was holding lots of things together, including corporate profits.
Nice write up, though regarding "lower rates instantaneously send US house prices higher." Tell me what you think about this possibility. Lower rates unleashes existing home inventory, on top of near record spec new builds, at the same time that the lower rates (a sign of a slowing economy) indicates a heightened credit risk re:borrowers. So, could lower rates send home prices lower?
I’m just not seeing the bid into commodities that would be needed for a reflation scenario to play out. Commodities waiting for “something”, unclear what that is now that Powell has pivoted. China? Otherwise goods prices will just continue to unwind.
It is quite curious to me that Powell pivoted so hard given the absence of data indicating the economy is slowing rapidly. while you make an excellent point regarding corporate margins, I fear that is a level of thinking that exceeds the central bank's capacity, or certainly is absent from their reaction function.
FWIW, and that's probably not much, I see H1 of 2024 as a continuation of the current rally as the market continues to buy with abandon, especially if inflation rates continue to slide, however, unlike you, I am in the camp of sticky inflation, where housing prices writ large remain supported, especially if the Fed were to cut, and as such, my greater fear is more of a stagflationary environment in H2 and in 2025 as inflation remains well above the 2% target but growth slides back <1%. in that scenario, I think the rug pull happens in late summer or early autumn and will be quite ugly for many, not least for Biden as it will weigh further on his reelection opportunities.
Ding ding ding. Inflation was holding lots of things together, including corporate profits.
Nice write up, though regarding "lower rates instantaneously send US house prices higher." Tell me what you think about this possibility. Lower rates unleashes existing home inventory, on top of near record spec new builds, at the same time that the lower rates (a sign of a slowing economy) indicates a heightened credit risk re:borrowers. So, could lower rates send home prices lower?
Helpful article, Florian.
I worked when younger at a state psychiatric hospital. We'd get severely ill people right off the street.
I've been getting the same scary vibes from the market as I used to get from completely out-of-control patients about to get violent.
I’m just not seeing the bid into commodities that would be needed for a reflation scenario to play out. Commodities waiting for “something”, unclear what that is now that Powell has pivoted. China? Otherwise goods prices will just continue to unwind.
From what I am seeing in Las Vegas things have calmed there proper for the first time since the first lockdowns of late.
Calmed in what way?