Give us your take on what we saw this week is, as I say, there were some
indications the markets were getting a little nervous about risk.
So I think the the economic data was at least on the margin, weaker than
expected PPE. Obviously came out a bit hotter than
expected. And I think that there's just more
realization that the path from here is to slower growth, whether we ultimately
find it's declared an official recession, as you and I have talked
about. I think we're in already a form of
recession. It's just of a rolling variety.
We've seen the hit areas like housing to certain segments within the good side of
the economy. The areas that had the big surge in the
early stage of the pandemic, that was also the breeding ground for the
inflation problem we're still dealing with that then went into recession type
conditions, disinflation in the good side of the economy.
Housing related. But we've got the offsetting lift on the
services side, which services is a larger employer.
So that has kept the labor market afloat.
But I think we're going to continue to see weakness roll through the economy.
And I think whether it's ultimately declared an official recession is almost
an academic exercise at this point. And looking back on it, I think it's
fair to say we had asset inflation before we had real price inflation for
consumers. Has the Fed been successful in pricking
the bubble on some of the assets, as you mentioned, housing, for example?
We have cryptocurrency certainly taking a hit, for that matter.
Big tech has come down. We certainly see some of those asset
bubbles at least deflate a bit crypto specs and F T's certain, if not most
pockets of the housing market, to your point.
Big tech, other narrative driven, speculation driven areas like heavily
shorted stocks, non profitable, all of those what what we've been calling micro
bubbles undoubtedly have gotten not just pricked, but they sort of popped in
spectacular fashion. You know, the good news is, is a lot of
that speculative excess, even when we were in the heights of those bubbles,
had not fully filtered over into the traditional market areas.
And that's what we were always saying was very distinct from the current
environment or the most recent environment and say 1999, 2000, where
the speculative excess was concentrated in the major averages.
It's been just a little bit outside that mainstream safe for some of the big cap
tech names. And I think it's just a valuation
compression that was necessary in large part due to the inflation backdrop.
And yet, are we really fully seeing the effect what the Fed is doing and saying
in the overall inflation numbers? As you said, people document a little
hot this week. You miss consumer sentiment was sort of
mixed, had been in with the shorter term or longer term.
And now we have CPI next week and the Fed, when we start to see a real effect
on inflation, do they? Well, in the case of a metric like CPI,
of course, it's got a large component that is shelter related.
So you've got their rent, a primary residence, you've got owners equivalent
rent. They should start to those components
should start to rollover because there are sort of real gauges, actual rent
gauges that we can all track that Zillow has one apartment, last real page that
have shown a significant rolling over in actual rents, disinflation and rents.
It just takes a while for it to feed into the calculation of a metric like
owners equivalent rent. So I think it's coming, but it hasn't
come as quickly as many would like to see.
And there's other services oriented components of the inflation data that
just tend to be stickier. So we are seeing disinflation in some of
the goods areas. We're just have not yet seen the
rollover in the services area. Now we've got another lift in wage
growth, which is probably a bit unsettling for the Fed.
So one more here. If I could lose and that is unfairly
what we know a week from today, we don't know today.
We've got CPI, we've got the Fed coming out.
We think we know what the Fed is going to say in terms of the rates going to be
50 basis points. Will there be things that will actually
materially affect investor a week from date?
We don't know that. I think anything as it relates to the
Fed or probably during the press conference.
I think those are always a bit more interesting than what you glean from the
statement. But also, remember, it's a December FOMC
meeting. So we'll get new dots plot.
We'll get a new summary of economic projections.
So we'll get a sense of what the collection of opinions at the FOMC is
about the directory that doesn't serve as a roadmap by any means.
But I wouldn't be surprised if it Powell starts to get peppered more in the press
conference, not about what is the terminal rate.
When do you think we'll get there? The notion of of a step down.
Will you do another 50? Assuming they do 50?
But I think he's going to start to get more questions about the length of the
pause and not just how long do you think it'll be, but what are the conditions
under which the Fed, once they pause, would see a green light to consider.
Easing policy. I think that will be the next call it's
set of questions that will probably be more prevalent in something like the
press conference.