Jan

1

Many of the richest in the country have 2nd homes here in Hawaii. Each year I count how many private jets come in as a gauge of the economy. The place is packed to overflow full of big new G5's with custom paint jobs. All is good as might be expected at new ATH's. No DC8's with restrictions on Saudi's with Covid.

The place is crawling with tourists and not just the usual grossly obese. This year the crowd is younger and more stylin' with the nice braids and cool leisure suits and headphones and thong bikinis.

SP 5000 next year?

Allen Gillespie writes:

The most applicable economic question for private jets and politics right now are the "Green New Deal" policies. Wall Street loves a free money subsidy. Fundamentally, the Greens seek to raise the price of energy to encourage substitution and conservation while subsidizing their donors. If you disagree you get locked up so you are forced to conserve. Obviously, this creates the paradox of Progressives following regressive economic policies and fascist political policies with a little mix of Cultural Revolution.

It has been well established that oil price "shocks" as defined by a 10% move above 3-year average have preceded 11 of 12 US Recessions by an average of about 5 months. This Bernanke paper suggests if the Fed reacts to the shock, then their actions will account for 2/3 of the damage - Powell indicated in Nov the central bank will be reacting.

In 2018, we had such a breakout and the yield curve later inverted by May with a curve shape indicating that Nov 2019 would be the peak, and the curve straightened out late April 2020.

We had another such energy breakout this October. The yield curve has not inverted this time but it has flattened but I think people are now substituting MEGA cap stocks for bonds which is why the largest of the large outperformed despite the dismal long-term track record of buying the largest companies.

Mid and Small Cap stocks made 60 day lows in December, which would be the minimum objective necessary to discount a recession. If a recession is defined as two consecutive quarters of negative GDP, and stocks lead by 3-6 months, then a 60 day low would represent the potential mid-point. I think the trade in 2022 would be long small and mid-cap name and short MEGA caps if they have been used as bond proxies once the recession is discounted. That trade may have started on The Almanac's January effect by date of the Dec options expiration.

Nature of recession - I believe 2022 will bring a inflationary growth recession. We are at the low point on the demographic U (peak Baby Boom 1957/1958 - low Gen-X birth year 1972/1973) (life cycle spending peak Age 50) - and millennials well into workforce. The exist of the Boomers and China production unreliability are driving up labor costs and goods costs likely in a structural way.

The Fed is reacting to the inflation data, but the 10-year realized inflation rate is 1.82% and the short-term numbers are much higher, so while they will move in the direction of tightening, at the end, we will likely still be left in a negative real interest rate environment. Once they blink, probably in late 2022 because of politics, crypto might have the biggest move yet unless Americans are able to completely roll the fascists.


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