I found interesting Jim Bianco scenario, and I think this is probably much more likely than the so-called “Soft landing”.
He thinks a “no landing” is the most likely scenario(the economy does not stop growing), but he does not see this as being bullish as most people think, because a strong economy will mean sticky inflation for longer and higher for longer rates than the markets expect. Currently market is pricing 3/4 cuts in 2024, which would not be realistic in this scenario.
Some of his comments:
- He sees 1 more rate hike this year, and thinks 2024 rate hikes are not out of the table
- This will increase competition for stocks, and increase the likelihood of a “event” happening. To know where a credit issue unfolds is very difficult, there are always signs, but is difficult to have certainty.
- He thinks the FED could increase the terminal rate for 2024 in this week’s meeting, eliminating some cuts in their forecast.
- While high energy prices at first only affect headline inflation, if sustained it will have an indirect effect on input prices. Demand for oil is very strong currently.
- Current rate levels don’t seem to be restrictive enough for the economy, the current level seems to be only the fair value for the nominal growth still very high
- The economy seems to have fundamentally changed after the pandemic, and some indicator signals could not work the same due to this reason
- Some sectors are probably experiencing a recession, but other sectors are more than offsetting this. The last broad recessions we have experienced are always accompanied by an exogenous shock. For now, we don’t have this.
https://www.youtube.com/watch?v=tM2QXNeD2us
https://www.youtube.com/watch?v=cnkpzlMqE1U