The Growth Scare Is Here

The Growth Scare Is Here

Over the past two weeks (give or take), I've argued that markets were teetering precariously on the edge of a "false optic" growth scare. Positioning unwinds and stop-outs accelerated a burgeoning bond rally, which began to feed on itself. Lackluster summer liquidity appeared to exacerbate the situation. By this week, the risk was clear: Falling yields could be seen as "validation" (from the market) that worries about peak growth were justified. "Delta" variant concerns were fuel on the fire.
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4 thoughts on “The Growth Scare Is Here

  1. A few of us, unbeholden to ancient economic theories, have believed that, until this week, we’ve been in the midst of an inflation scare rather than a growth scare.

    If we are wrong, asset prices will suffer as the Fed overreacts. It looks like a lose-lose to me.

    But what do I know?

  2. John Authers of Bloomberg, had a really good summation of the possible issues related to the growth scare. There is not usually one explanation- a further one is that sentiment has shifted. I give a lot of credit to fears of covid variants. One analyst Marko Kalonovic (JPM) has suggested this fear is overblown. However, I do not think anyone, short of g-d really knows whether or not this will be a major factor- it is an attempt to model a random event (virus mutation) which cannot possibly be modeled. To the extent that affects sentiment- at least- it is a factor. A bull flattening curve more than level of interest rates is concerning.

  3. Tody’s price is tomorrow’s news….I think the moves are getting bigger and shorter in time…This is what happens in relatively high volatility periods..I try not to read too much into it…An extremme example is lumber in the last couple of months

  4. We have inflation so long as we have demand, we have demand so long as we have cheap debt and government stimulus, we have those so long as things are bad… so as soon as things start to go good they’ll go bad faster than the things holding it together can catch it. You need the stimulus and the accommodation until supply catches up with demand… not just until demand begins to hit supply challenges. You don’t drive a car by constantly keeping it so fuel starved it constantly is on the verge of stalling then attempt to recover it again. You want the acceleration to kick in and get to a desired speed before cutting fuel flow.

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