I am a subscriber of the view at that sometime in the late 90’s we went “upside down” and flipped the script (sorry for the metaphors) — the asset markets drive economic indicators, instead of the other way around. And because of what the three authors (L, L, C) wrote in the Rise of Carry (volatility suppression from the CBs, ETF passive bids), the trends in asset markets persists far longer, which means recessions become less frequent and shallower. But when you have an external disrupting agent like Trump, the volatility machine can start to malfunction, so the odds of recession becomes higher. So whether one “sees” or “not sees” recession, that may imply wehether one “see” or “not see” a severe market correction/crash. If there is a severe market correction/crash, then there will be a recession.
reasonable - but I see governments have lashed their balance sheets to the private sector to keep asset prices high. Its only when we have a government debt crisis do we get recession...
I agree; this is a practical and pragmatic article about what must happen in this economy! When you have an administration that is printing monopoly money with reckless spending, you have a "dilapidated house that needs remodeling." Over regulation and destroying the petrodollar in the name of climate change did not help in 2021 with Bidenomics and getting lectured like children that the economy is transitory while they were destroying it didn't help either.
I always look at the homebuider ETF XHB and that is rolling over as is emplyoment in the constr sector, LEN, HOV, KBH all off 20% or more from peak levls and that is concerning, tariffs do not help either and at some point FED/BoJ/ECB will start YCC (FED already scaled back on QT as far as I know from JP's comments last time) and if YCC starts gold/silver miners will skyrocket and that is the BEST hedge I have on...
I have heard people getting very bearish on housing... but I have been amazed at how well home builders have done since 2023 even with rates higher. My base view is unemployment wont rise much - but I could be wrong on this
Ty for the suggestion. It's admittedly a small % of my portfolio, but I did well trading TLT puts Q4 last yr. Exited those positions early Jan and testing the waters again now.
Risks to my thesis (that persistent inflation will force yields higher) include the federal gov't debt/deficit issues being miraculously resolved, which seems slightly more likely than before. Another risk is the Treasury doing their own form of YCC by issuing more bills and fewer coupons - something they had been doing under the previous admin.
But I think the Fed has wisened up about inflation and is taking it seriously, and somewhat ironically the pause in rate cuts is what pushed down longer term yields. There was maybe a wee bit of bond vigilantism going on with the recent rate cuts as each one produced higher yields.
Well to be honest - I just dont see it flowing out of EU or Japan anymore - whether it goes back is a much harder question - but I just dont see it flowing to the US anymore
I am a subscriber of the view at that sometime in the late 90’s we went “upside down” and flipped the script (sorry for the metaphors) — the asset markets drive economic indicators, instead of the other way around. And because of what the three authors (L, L, C) wrote in the Rise of Carry (volatility suppression from the CBs, ETF passive bids), the trends in asset markets persists far longer, which means recessions become less frequent and shallower. But when you have an external disrupting agent like Trump, the volatility machine can start to malfunction, so the odds of recession becomes higher. So whether one “sees” or “not sees” recession, that may imply wehether one “see” or “not see” a severe market correction/crash. If there is a severe market correction/crash, then there will be a recession.
reasonable - but I see governments have lashed their balance sheets to the private sector to keep asset prices high. Its only when we have a government debt crisis do we get recession...
I agree; this is a practical and pragmatic article about what must happen in this economy! When you have an administration that is printing monopoly money with reckless spending, you have a "dilapidated house that needs remodeling." Over regulation and destroying the petrodollar in the name of climate change did not help in 2021 with Bidenomics and getting lectured like children that the economy is transitory while they were destroying it didn't help either.
I always look at the homebuider ETF XHB and that is rolling over as is emplyoment in the constr sector, LEN, HOV, KBH all off 20% or more from peak levls and that is concerning, tariffs do not help either and at some point FED/BoJ/ECB will start YCC (FED already scaled back on QT as far as I know from JP's comments last time) and if YCC starts gold/silver miners will skyrocket and that is the BEST hedge I have on...
I have heard people getting very bearish on housing... but I have been amazed at how well home builders have done since 2023 even with rates higher. My base view is unemployment wont rise much - but I could be wrong on this
I don't personally believe the recession narrative either.
TLT puts are cheap right now. I've been cost-avging into a position with EOY expiration and $86 strike.
I would find a hedge in case they decide on yield curve control
Ty for the suggestion. It's admittedly a small % of my portfolio, but I did well trading TLT puts Q4 last yr. Exited those positions early Jan and testing the waters again now.
Risks to my thesis (that persistent inflation will force yields higher) include the federal gov't debt/deficit issues being miraculously resolved, which seems slightly more likely than before. Another risk is the Treasury doing their own form of YCC by issuing more bills and fewer coupons - something they had been doing under the previous admin.
But I think the Fed has wisened up about inflation and is taking it seriously, and somewhat ironically the pause in rate cuts is what pushed down longer term yields. There was maybe a wee bit of bond vigilantism going on with the recent rate cuts as each one produced higher yields.
Where will capital flow? China and/or EU?
Well to be honest - I just dont see it flowing out of EU or Japan anymore - whether it goes back is a much harder question - but I just dont see it flowing to the US anymore