What a start to the week, here’s the Market Outlook. Macro continues to hit constant headwinds leading to markets going even further south, a trend that will continue for the foreseeable future. CPI is through the roof, and despite rate hikes and the onset of QT I speculate it will continue to rise — with no amount of Quantitative Tightening (QT) being able to bring it back down in any meaningful way.
The issue is two-fold. Instead of predicting the supply chain disruptions and mitigating them by investing in local or nearshore production facilities and more astutely attempting to lessen the impact of component and food shortages, governments decided to print money and give it away to businesses and individuals. This led to a spending frenzy of goods that were systemically increasing in price, but because the supply of capital was so readily available, consumers consumed, and the economy boomed.
Lacking foresight, governments continued to print and distribute fiat — this was Trump/Biden and the ECBs response to COVID, and prices kept going up — because we never addressed the underlying issues around the supply of goods. Tack on shocks from China’s COVID measures and Russia’s invasion of Ukraine — and the problems are exacerbated even more.
The fed and ECB’s response, rate hikes, and QT will do little to reduce inflation. Instead, we will continue to see systemic CPI increases in an environment with consistently less capital. In short, everyone becomes poorer.
Because Powell lacks the appropriate tools to remedy this, rate hikes and QT will continue through the year leading to less wealth, diminishing earnings in real terms, and increases in the costs of goods, food, and energy will lead. To retain customers, consumer goods companies’ inflation adjustments will be minimal at the expense of profits, potentially leading to smaller workforces and layoffs — all this will eventually hit the housing market. Despite shortages, housing will see a contraction in Q3/Q4 2022, driven by a lack of capital to purchase housing, high-interest rates, and defaults from those who are over-leveraged and took out 30–50% lines to buy BTC/Crypto and tech stocks near all-time highs.
The recession will come, it will be challenging, but it will end. But what it won’t change is the fact that we are living in a golden age of technological innovation. The following transformative technologies to impact humanity and drive innovation will be blockchain, space technology, next-gen computing (quantum), and advancements in biotech/healthcare. And as bear markets go, the smart and fortunate to amass cash will be able to buy into these technologies at relatively healthy entry points. By way of example, BTC is now ~its 200W SMA, which means it’s time to start paying attention to how it moves with the next series of rate hikes and maybe pull the trigger within 2–3 quarters (not financial advice), but my market outlook to 2024.