1/5. The last 10 years, financial markets outperformed the real economy. Why? $9 Tn QE.
Return to capital > return to labor.
That is reversing. Real economy now outperforming financial markets. Jobs up, tech crash.
#macro
Return to capital > return to labor.
That is reversing. Real economy now outperforming financial markets. Jobs up, tech crash.
#macro
2/5: But, that also means the pricing of labor is more entrenched…
Inflation is more entrenched.
What started as asset price inflation has spilled into goods and sticky wage inflation.
The remedy? Fed policy is tighter for longer.
Inflation is more entrenched.
What started as asset price inflation has spilled into goods and sticky wage inflation.
The remedy? Fed policy is tighter for longer.
3/5: Also consider - outstanding mortgage debt is priced at a much lower rate (say, 3%). To create an impulse to housing via refinance, rates would need to ease to those levels before it had a significant effect.
Initial monetary easing will be ineffectual and delayed.
Initial monetary easing will be ineffectual and delayed.
4/5: …and if policy makers want to normalize rates (eg, avoid ZIRP) as they should - expect no real monetary impulse.
Therefore fiscal stimulus would need to step up. But Congress is divided.
Don’t expect stimulus until the next
Presidential election
Therefore fiscal stimulus would need to step up. But Congress is divided.
Don’t expect stimulus until the next
Presidential election
5/5: What’s the bottom line? This is late cycle.
Assets are re-pricing. We are in a transition from P/S to P/E multiples. High yield will actually mean ‘high yield’ one day as spreads continue to widen.
The investment maxim to focus on is preserve wealth. Stormy seas ahead.
Assets are re-pricing. We are in a transition from P/S to P/E multiples. High yield will actually mean ‘high yield’ one day as spreads continue to widen.
The investment maxim to focus on is preserve wealth. Stormy seas ahead.
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