I think I'm with you, but I'm hoping for a short, sharp recession in the next quarter or two. The reason is that I think everything is over-extended and it needs to deflate and kick the malinvestment to the curb to refresh the economy for another boom cycle. Also from a market perspective, it would be great to buy at more reasonable prices. What will be interesting is the actions of the Fed will determine the timing of this next recession...and this next recession will determine who the next President will be. If the recessions happens in 2019 and rebounds in 2020, then Trump will sail in as the champion of the economy. If it happens in April 2020, as you believe may be the case, then that could linger into the election time, which will make it hard for Trump to win. We'll see how that goes.
I noted that everyone is talking about a curve steepener now, but I keep watching the front end of the interest rate curve and I still see inversion. Makes owning short dated Treasuries a no brainer. I've been picking up some additional bonds down the curve in the anticipation of the end of QT and renewed QE. My belief is the Fed has a lot less wiggle room than most think. They are going to have to do some kind of stealth QE to sop up all the treasuries that are getting floated from the deficits this country is running. There's not enough global demand for those treasuries, so money printing is the only way to ensure there's not an unruly upward move in yields across the entire curve. That would be awkward for the Fed to handle and would put make borrowing for everyone a lot more expensive, putting the brakes on the economy. So I think the Fed is already getting ahead of that.
As Rarebird and I discussed, I think the Fed will announce the plan to slow down or end QT and will hold pat on rates. If they raise them, then we may experience a small correction. Not sure if it will be sustained, though. It depends on what the Fed says beyond that. One and done? If so, it could be short. |
