Yield curve inversion, short to medium term macro predictions

[gzz]

I predict: no recession and rates/inflation decline to market’s implied expected levels.

For inflation ~3.5% as the supply shocks, war, covid etc all get digested. Maybe by mid 2023.

Further out, by about 2026, I think inflation will be back below 1.5% and developed world 10 year bonds will again average about 0.

The likely huge GOP wave in November will be very deflationary. They will slash spending which will start to hit the economy in 2024. It won’t be enough for a recession since the cuts will coincide with inflation dropping and return to normalcy.

I find it hard to think about investing generally since avoiding a certain million dollar capital gains tax and property tax rebasis is so much more important than trying to beat the market. I instead will short RE stocks as a hedge, and likely lose money doing it, but only a fraction of my unrealized RE capital gains.

I think SPG is the best real estate short because malls are dying. But it is also very profitable now and well run. I don’t now how they manage to keep refinancing malls at attractive rates, when malls have repeated defaults and are awful risks. But management is just really good.

Invitation Homes is a way to hedge single family RE. They also seem well run.

[Anonymous]

So inflation is going to magically disappear, without the Fed lowering their balance sheet? Sounds like J Powell’s wet dream.

[The-Shoveler]

I think you left out the cold war.

IMO inflation will keep going but so will economy.

IMO There will be so much stimulus and federal spending that it just buries all the problems with cash.

It will look a lot like the mid 80’s

But that’s just my opinion.

[gzz]

Government spending was gigantic in 2020-2021. PPP, stim checks, extended boosted unemployment, etc.

Going back to normal pre covid spending is deflationary.

What’s interesting is that the inflationary effects of the big spending boost was partially delayed. People got a lot of free fed money in 2020, but they were insecure and pessimistic so banked it, paid off debt, etc. Spending opportunities were also lower because of shutdowns.

This isn’t just a theory, Kevin Drum has been tracking this and showed a sudden huge boost to household savings in 2020 that was spent down in late 2021 and 2022.

[gzz]

Isn’t the fed balance sheet already declining?

In any event, I think people overestimate the power of the fed.

An official quarter point increase, yet a 1.25% mortgage rate increase. And despite more fed rate increases likely coming, I’d guess were are getting close to the top of the 30 year rate cycle.

I happen to think the Fed, Obama, Trump, and Biden have all done a basically OK job on economic policy, which is an extremely unpopular position partly because absolutely zero media outlets or pundits take such a line.

[Anonymous]

You can’t possible overestimate the power of the Fed, they have been controlling the bond/mbs market since 2009. Nothing since the era of QE has been organic or free market.

Look at current Fed MBS holdings, I don’t see much evidence of tapering to this point.

https://fred.stlouisfed.org/series/WSHOMCB

[Coronita]

[quote=deadzone]You can’t possible overestimate the power of the Fed, they have been controlling the bond/mbs market since 2009. Nothing since the era of QE has been organic or free market.

Look at current Fed MBS holdings, I don’t see much evidence of tapering to this point.

https://fred.stlouisfed.org/series/WSHOMCB%5B/quote%5D

You’re back!…

Just in time to post about how bad the markets are so we get a DZ relief rally!!!!

Go dz!!!!

Netflix and Peloton to the moon!

[Anonymous]

[quote=Coronita][quote=deadzone]You can’t possible overestimate the power of the Fed, they have been controlling the bond/mbs market since 2009. Nothing since the era of QE has been organic or free market.

Look at current Fed MBS holdings, I don’t see much evidence of tapering to this point.

https://fred.stlouisfed.org/series/WSHOMCB%5B/quote%5D

You’re back!…

Just in time to post about how bad the markets are so we get a DZ relief rally!!!!

Go dz!!!!

Netflix and Peloton to the moon![/quote]

Yes, put all your money on PTON, can’t miss!

[Anonymous]

And with the recession imminent, NFLX has nowhere to go but up. Great long term play!

[Author]

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