A touch of “uncommon sense”
November has been a golden month for investors, as both bonds and stocks have soared, fuelled by the hope of a soft landing and a central bank dovish pivot. Inflation decided to take a nap, and while growth has slowed down, it's proven to be resilient especially in the US. As we approach the end of the year, the excitement is building up, and even the slowpokes are being dragged into the party. It's called window dressing, and it's the financial world's version of putting on your fancy clothes and pretending everything is perfect.
But here's the thing: market prices are as sensitive as a diva's mood swings. They can be easily swayed by expectations, so it's important to figure out what's already baked into the cake as we peek into 2024. And guess what? The market is currently expecting the Fed to slice interest rates like a master chef, cutting a juicy 100 basis points over the next year. That's like four rate cuts of 25 basis points each, with a nearly 50% chance that the first cut will happen as soon as next March. If only our economies could land as smoothly as those giant Airbus A380 planes!
?But hold your horses, my fellow investors. Let's not get carried away by this forecast. The market consensus has been predicting rate cuts of various sizes for the next 12 months since forever. It's like waking up every morning and expecting a unicorn to deliver your coffee. Unless the Fed starts taking advice from the likes of Bill Ackman and goes on a rate-cutting rampage, these wishes might just remain that… wishes.
?And here's a little reality check: if the Powell-led Fed decides to aggressively cut interest rates during an election year, it could spell trouble. We certainly don't want the economy and risk assets to end up in pieces like a broken porcelain collection, do we?
?As we venture through the exciting realm of modern finance, let's stay alert and distinguish between wishful thinking and reality. A touch of “uncommon sense” as the late Charlie Munger (RIP) states can save us from a disastrous outcome. So, fasten your seatbelts, hold on, and enjoy the thrilling ride with a blend of humor and caution.
CEFA EFFAS Financial Analyst
1 年Great post, thanks Mussie?? Macroeconomic policies thus need to remain tight to anchor expectations and maintain subdued demand. This would coax firms to accept a compression of the profit share and #realwages could recover at a measured pace. Energy prices and commodities are going up again vs lower prices one month ago. The global economy is still resilient and China will grow again for the next two years an average of 4,5% GDP. EEUU and EUR are likely that the real GDP for 2024 could be around 0,8%. Therefore, commodities might start a new bull market as a hedge against sticky inflation. Priced for perfection is a human behavior that is guided by an overconfident view, and sometimes it is an illusion of control. The overconfidence transmission hypothesis, predicts that individuals calibrate their self-assessments in response to the confidence others display in their social group. In conclusion, I expect significantly higher volatility and some portfolios are not prepared for that. https://www.dhirubhai.net/posts/enric-a-b7a68b172_inflation-monetarypolicy-activity-7136487428583735296-wTTR?utm_source=share&utm_medium=member_android