Join institutional investors, analysts and strategists from the world's largest banks: Subscribe today
Already have an account? log in
In Effect Until Recession
If you're inclined to suggest the recession crowd is treading dangerously close to Boy Who Cried Wolf territory, I won't blame you.
The problem with recession forecasting is that because the next downturn is always just a matter of time, anyone predicting a recession isn't actually saying much. The only way to make recession forecasts meaningful is to put expiration dates on them, something forecasters are understandably loath to do.
The same is true with market crashes (and also with the end
With a nod to your fine Contextless Void piece, we all have grown to expect instant gratification. Why be forced to wait a week or month for the nest episode of some series when you can binge watch four seasons worth of another?
The same seems to be the case in the markets. “Hey, companies are still hiring. Where’s the recession?” If a theory or predication is not immediately confirmed, it is dismissed.
The jury is still out on the recession – we could go either way. Time will tell. But for those of us looking for an instant yes or no, the wait is frustrating. Just as it often was years ago when I was dating and instant gratification was a rarity…..
The luxury of “hoarding labor” is the fruit of flexing pricing power, aka margin-maxing. With nothing but a fig leaf (“inflation”), margins have grown, adding to the CPI (sigh).
If only there was a way to subtract from inflation metrics, the contribution of corporate margin-maxing. This would be useful for Fed rate policy discussions. Likely, it would help avoid overshooting on rate policy timing.
Surely a chart of the market-cap weighted net margins of the S&P is out there somewhere. With that, excursions from a trend line (x-day trailing avg) would tell the Fed, et al, that inflation is or isn’t that hot.
As your other articles have pointed out, removing the cash vacuums (FAANvdiaG-M) that are now super powered by AI, many businesses (especially smaller ones) are feeling the ongoing challenge of inflation and are struggling.
Consumers are clearly in debt and housing/HELOs won’t come to the rescue. I can’t see the EU leading an economic charge given they’re still paying quite a bit to push back a thug and China seems to have run into an inevitable wall of challenges: demographics, no immigration, Covid mishandling, and Xi’s centralized economy vise.
I’ve been super tempted by this run and I certainly missed NVDA but I’ll painfully avoid FOMO with 5% Treasuries.
Here is the thing. If you invest, best practice is to weigh probabilities. The probability of a recession is much higher than average right now. This should reduce your appetite for the stock market and credit risk. It does not mean you sell everything and go to cash or 100% ust bonds. The markets are probalistic not deterministic. Smart folks act accordingly