Albert Edwards And The ‘Wholly Unexpected’ Recession
Earlier this week, in "2018 Redux?", I talked a bit about a possible parallel between Q4 2021 and the infamous mini-bear market that played out three years ago at the end of what, if you measure from the post-GFC lows in the shadow rate, was among the most acute Fed tightening cycles in history.
If there's an analogue, it involves the Fed (and other central banks) tightening into a slowdown with equities perched near record highs on extreme multiples.
BofA thinks it's at least possible that st
H-Man, you have to love Albert, perma bear frozen in the arctic, but always great data to back up the opinions and then, always, a touch of history.
I was amusing myself last week trying to estimate the empirical duration of some FAAMNG stocks based on the last couple of months. It was huge, like 20-30 I think. Those stocks do discount substantial (impossible) terminal growth rates, if you do a reverse DCF. But not enough for that level of duration. So either their duration is super non-linear (convex) or most of their correction so far reflects something other than mere yields (sniffing a recession?)
The energy shortages in China and Europe feel somewhat self inflicted. China is trying to reduce domestic coal mining while boycotting Australian coal, UK has hardly any NG storage (or native gasoline lorry drivers?), Europe competes with UK for NG, energy price controls muffle conservation signals, fragmented and deregulated utilities whose plan B is to go BK. Reminds one of Texas, people freezing and seeing deregulated utilities go BK while neighboring states had plenty of electricity.
Meanwhile, US storage levels look okay, but much of the embedded energy we consume is in imports. I do think energy prices are a bigger inflationary threat than higher wages for waiters and cooks. The Fed’s job is getting harder.
I know the models show what they show, but somehow the idea that 2.4% on the long bond would crash tech stocks is logically silly to me. Besides,those stocks need a bit of a house cleaning anyway.