Stocks have enjoyed an upbeat start to the year on hopes that the Fed will abandon its hawkish rhetoric and pilot the economy to a soft landing. Traders are betting that the Fed will raise its benchmark rate to a peak of 5.1% in July, largely in line with the forecasts of Fed officials.
Many in the markets are spinning a yarn about how the inflation rate will drift lower – bobbing on the wind like a snowflake, melting away to a nice round 2%. Well, I have to tell you, I think that snowflake is in the eye of a hurricane – literally the calm before the storm. This story of a quiet adjustment is a best misleading, at worse an opportunity for others to transfer risk to the unsuspecting and make money off their backs.
A parallel to those property market “experts” who keep saying the property market is about to recover and you should buy now.
All this is fiction, as the macroeconomic backcloth points to something else, and much more destructive – soon the hurricane will be in full force. It is likely that the US economy will be in recession by the second half of 2023. This flips upside down the widely held belief that the 1st half of this year would be weak, but the second half would see a strong rebound in stocks and GDP. With the US there, other economies including Australia will get caught in the downdraft.
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