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‘Hiking Into A Boom’: The Paradoxical Tail Risk
For the last two months, I've parroted some version of the "hiking into a slowdown" narrative to des
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Look at the world that Wall Street economists and strategists live in. They are surrounded by wealthy people who did just fine during the Covid rampage, both at and outside of work. So it should be no surprise that they are open to the idea that “everyone” is just chomping at the bit to run out and spend once mask mandates are lifted.
Peleton stock was driven up by the same dynamic = “everyone I know has bought two Peletons!”
Derek. Dead on, sir!
I think this misses the point. The thesis here is that this would be a bearish development — or, more accurately, a scenario conducive to more volatility, given the read-through for the Fed.
More generally, though, this criticism is misplaced. This article in no way seeks to downplay any kind of suffering. If you want to castigate a group of people, try politicians, whose mask policies (and COVID protocols more generally) seem to be dictated more by what Trump says (in 2020) and Biden’s poll numbers (in 2022) than they are by science.
Also, who do you think is worth more? The average sell-side equities strategist / economist, or senior members of Congress?
An interesting take on “plan for the worst hope for the best“ I always wish the best for the real economy
This is a reopening economy and I would not describe it as either a boom or a bust. Unless of course you are Larry Kudlow- who famously described the “Bush” boom right before the economy caved in…..
All of these scenarios seem to ultimately wind up with an unspoken “buy the dip” at the end.
Too-rapid tightening => sell-off => tighter FC => reduced fed pressure for rate action (and/or fed put) => BTD.
Tightening into a slowdown => nasty slowdown => reduced inflation => early end to rate cycle => BTD.
Tightening into a boom => earnings++ => earnings growth “pays for” fed => BTD.
Perhaps I’m simply one of those “conditioned by the bull” dip-buyers that H has described. But I’m in the camp that sees historic one-off inflationary factors receding soon enough and being replaced instead with obvious productivity, efficiency, and oversupply responses. I remember the 70’s, and this just isn’t the 70’s redux. It’s just not.
If this isn’t the ’70s — and I agree it isn’t — and rates are going higher — because of onshoring and a huge wave of millennials entering its household formation years — perhaps significantly so, how will dip-buyers justify a forward PE on the S&P of 26 (or higher)? Or is it different this time?
Onshoring seems a bit of a dream so far as imports into the US are still rising.
This article provides context for a potential 50 basis point rate hike in March imho…
H-Man, I buy the slow down camp because Joe Consumer is out of gas. I buy raising rates are coming. The issue is what the Fed is buying when it comes to inflation. I see a lot of hawk and not much dove.