2024 Could See The Comeback of Bond Market Whales
The Rasmussen chart is awesome. It's a strange time, we are running on empty, the Fed is holding tight and the animal spirits are running wild. The calm before the storm.
Someone mentioned we have 2 paths ahead. 1 is depressionary deflation, big overshoot on that 3% target, if interest rates don't fall soon, which seems to be what the market is hoping for. 2 is panic when it looks like this is actually happening, followed by massive money printing ahead of the elections and inflation again. Inflation's lower mostly due to falling oil prices, and this is temporary. The "disinflationistas" seem to think that it's only the prices of other people's assets that will pull back, not theirs.
Great correlation scatter plot. In the US core inflation ran low due for a couple decades due to a growing workforce (baby boomers) relative to retirees, increasing globalizations that kept a lid on consumer prices, and constrained energy costs. Each of these multi-decade systematic trends have stopped, if not reversed. This combined with high structural deficits IMO means sustained high inflation over the long term...short term, who knows.
Historical analogies do a good job of explaining what was. Whether or not it'll be "business as usual" is an open question.
Great, reading your last analyses I would say you are betting on the recession and a drop in the stock market. However, looking back on the data one component is stronger at such times in the past and that is the labour market. The winter of the economic cycle could become more relevant however IMHO the FED and also the global market did a pretty good job with the timing and level of the monetary policies applied.
Great stuff Alf 🧠 thanks!
I would summarize in in the following way: Bonds are Back!
Pension funds never stopped to buy due to their mandate and regulations, in fact they are all with negative performances in 22/23...
“Crowding out” means you never need to invent buyers for your bonds. They will be purchased at rates below non-guaranteed debt instruments. Unless, of course, if these non-guaranteed debts become guaranteed--when you get a large rise in rates across the board. Purchasers of risk assets now just hope their debts are the ones to be guaranteed--future cash flows certainly won’t won’t cut it. We shall see.