Good Morning! The market has pretty much advanced close to script...albeit a little fast, but if your strategy was blown up because of a low order of magnitude speed difference, I would want to talk to you about your trade planning. Overall I expect the same for the next week.
So how about the week after? I have been saying that I'm expecting a downturn. In this thesis I invite all dissent, as it is only through dissent that theses get sured up, right? Socratic Method is a useful tool, even though he goes down in history as an ugly ass.
From macro standpoint, trillions of dollars have been given away via fiscal policy over the past two years to fight a deflationary pandemic period. Now that the economy reopened, the result is an inflationary period. There are typically two reasons for inflation:
Economic growth or currency devaluation. The labor market is recovering in an uneven manner, and while labor rates have increased, as the last of the fiscal stimulus goes away (Child Credit), the economy will squeeze the most vulnerable class of American.
Right after an expensive time to be a parent. Do you realize that over 30% of families with <18yo children are single parent families? 75% of those are headed by the mother. Coincidentally mothers are leading the drop in labor participation. Childcare costs have skyrocketed
The Build Back Better plan was supposed to extend the credit, but that seemingly won't happen. So the fiscal tap will come to a full stop. Currency inflation (which has taken place already) will happen as fiscal deflation happens. That's a recipe for a recession.
The thesis is as we unwind from the Nov/Dec volflation, we are more susceptible to market downturns. As consumption declines (Nov report), deflation occurs, more people need to go to work, childcare goes up further in price as demand increases. A rough cycle that needs to happen.
Curing inflation always results in recession. The Fed and the govt. are naive to think they can prevent that. I think the initial drops are soon to come, but may result in more fiscal stimulus. we will patch our way to a top that will eventually lead to a carry crash for the ages
As for now, it is time to hedge your portfolios, as the tremors will happen at any time. I believe January, and there are no vol signs for immediate drop yet, but I want to be hedged as this can unravel fast.
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