Equity markets have gotten frothy again
Also, why do you think the CFTC S&P 500 large speculator net positions be so negative when other indicators are so bullish? Does this indicator really indicate overall sentiment or just some technicality like market making/hedging (after all, every short there's a long on the other side)?
Hi Florian, hope you are well. Been following you for a while. Thanks for sharing such insightful analysis and commentary, really helpful as always!
China stimulus is for sure coming now and might indicate a trough in china's economic activity (their PPI). Are you entering Chinese equities? What's your view on Chinese equities positioning?
Absolutely fantastic as always Florian. Thank you so much for the wonderful write-up!
Florian, thank you for sharing your thoughts with us. Very generous, as always.
A couple of [open] questions, if I may:
1. The general assumption of this post is that the market follows the economy. Yet, for years now, the market has been impacted by the Fed, via excessive liquidity. Price discovery has occasionally vanished from the face of the earth. Liquidity is key here and they might pump it up again at the first sight of any cracks. Would the market be where it is now without the recent liquidity injection following the banks minicrisis?
2. Recession might still be long time off. Personally I currently am not aware of any significant signs.
3. Core inflation will probably drop fast in a few months if not sooner. They are unlikely to raise as they predict (and prediction, it has been proven, is not their strong side).
4. There are various scenarios that would delay a recession even further -- a drop in energy prices, or China as usual giving up and pumping its supply sectors, which is always deflationary.
5. everyone still hooked on buying the dip, so maybe will get some local low, but it will go back up again, at least for awhile.
thanks for these indicators, very helpful
Thanks Florian, I enjoy your thoughts every time.
One thing to consider about the timing of a coming recession, which wasnt on my radar until recently: the TGA may have been drained and needs to be refilled (--> no more stimulative effect), but that's only on the federal level. With the programs to juice the economy set in motion since Covid, there's a ton of money still to be spent on the local level, which will have a stimulative effect and doesnt show up in any charts the usual macro analysts are looking at.
Mentioned in this interesting interview with Robert Kaplan (previous FED president): https://www.youtube.com/watch?v=YrskWN5bStY
According to this, it might take another 1-1.5 yrs before these extra funds run out as well.