The Shock That Surely Isn’t ‘Priced In’
If you were so inclined, you might argue that two of this year's three shocks are already "in the price," so to speak.
Regular readers are tired of hearing this, but most of 2022's equity selloff comes down to de-rating. The contraction in multiples has moved in lockstep with the rise in real yields. The rise in real yields is a function of policy expectations. And policy expectations are a function of elevated inflation.
Taken together, that suggests both the inflation shock and the rates sho
Dust off the traditional recession playbook, then adjust for this recession by screening at industry and stock level for lower exposure to inflation (supply chain and labor), higher rates, tighter credit, weaker consumer spending, etc. High level, a couple of sectors/industries present themselves pretty quickly as worthy recipients for work.
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The traditional playbook is well known, e.g.: https://astorim.com/which-sectors-are-defensive/ Then one could look at the subindicies or ETFs for each sector or subsector, and study some representative companies in the sub-sectors that look most interesting, to judge if the traditional playbook might work this time.
H-Man, if this blows down to 3,500 – 3,200 their will be a dead count bounce.
I prefer your nuanced take on inflation and the possibility of recession. I was reading about Larry Summers and he seems to be to simplistic by saying that you have a 100% chance of a recession if in two years you have inflation above 4% and the 10 year below 4%.
He also blames this recession on Biden’s stimulus package saying it was too large, maybe it was, but I contend that it is truly impossible to gauge how much is the proper amount to deal with a once on a lifetime pandemic.
It’s truly impossible to gauge much of anything when it comes to economies larger than small towns. That’s one (of many) problems with economics. I doubt seriously our capacity to accurately measure even the most ostensibly straightforward indicators of activity.
“One way or another, I’ve never been less confident in the notion that it’s all going to turn out ok, where “ok” just means the system isn’t going to break down entirely.”
This is a devastating assessment coming from Walt
It is devastating. At the risk of making “Walt” angry, he is starting to understand.
I know he is god. I wouldn’t keep reading if he stopped being god.