RE:RE:RE:Just waiting for the tide to turn
Tan4646 wrote: With month over month industrial production decreasing by .7% as opposed to the estimate .1 it seems to me that the Fed is going to have to rethink the level of the terminal rate and look realistically at pausing.
I obviously am just speculating but I don't see how the u.s. can absorb rates this high. Once all this travel and experiences spending is done the us consumer should be flat on its back.
Of course I have a bias against those who piss money away on experiences instead of tangible products that have long term value add.
I'm not quite bullish on inflation falling just yet. There are volatile components that can swing the m/m readings. If you strip out volatile components you get inflation running at 5% annualized. Both median Cpi and median 16% trimmed Cpi came in at 0.4% m/m which gives a reading of 5% for the year. If one looks at median Pce, a preferred measure by Jerome Powell then inflation is 0.3% m/m or 3.65% annualized.
To put in a nutshell, Jerome Powell wants the Fed funds rates to be 100 basis points above expected inflation to reach restrictive territory. If inflation is running at 4% and you add 1%, you get a terminal rate at 5%. If we use median Pce numbers then restrictive territory takes us to 4.65 %
I will caution by saying the following: In every single inflationary recession, the Fed funds rate always surpasses the earnings yield on the S&P 500. With a PE ratio of ~ 20 and an earnings yield of 5%, history suggests the rate can exceed 5%.
I'll summarize what I think will have to happen:
Inflation is tied to wages. Bring inflation down by increasing the unemployment rate. An increase in unemployment reduces real economic output. Lower output equals lower GDP equals a recession. Market bottoms during a recession and the next bull market begins.
Sangoma to $50 :)
Canada will follow close to the US but our economy is more rate sensitive than the US.
https://www.clevelandfed.org/indicators-and-data/median-cpi
https://www.clevelandfed.org/indicators-and-data/median-pce-inflation