Fed Now Causing Massive Damage To The Economy | Alf Peccatiello

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With inflation starting to head downwards, the markets are getting hopeful the Fed may pivot or at least pause sooner than expected.

And while the Fed is clearly hoping to quell any rampant enthusiasm, investors are busy making up their own minds — which is a big factor why we saw such a massive rally in both stocks and bonds last week after the October CPI number was released.

To get an update on the latest of what the markets

, especially the all-important bond market is telling us right now, we have the good fortune to be speaking with former bond portfolio manager Alf Peccatiello.


Adam’s Notes

The economy is clearly slowing down. If you look at things on a rate of change basis, everything, sales, earnings, inflation — even jobs — are decelerating fast.

Alf expects inflation to increase by 0.3-0.4% MoM for the next few quarters, and thinks it will be down to 4% YoY by mid 2023. He thinks, mechanically, it’s near impossible for CPI to fall faster than that. He thinks it will fall faster in the second half of 2023, with core inflation reaching <2% levels by Dec 2023.

Alf expects a bad recession ahead, stemming from the Fed’s hard braking right now. He predicts the unemployment will be double next year, earning growth to be -15%, and US housing prices to fall at least -15%.

Alf doesn’t see Powell pivoting before he raises the FFR to 5%. He thinks Powell is too committed and he doesn’t see anything breaking too badly right now that could force his hand.

That doesn’t mean things will be rosy. Alf estimates the “neutral rate” is around 2-2.5% — which is why he expects a 5% FFR will result in massive damage to the economy. In fact, he thinks it already occurring — for example, the housing market is in full seizure right now.

We’ve never seen rates rise this fast. Yet S&P earnings are still expected to grow by 6% next year. Alf sees that most analysts (stocks, housing, etc) are still far too optimistic in their outlooks/projections. Expect 2023 to deliver rolling disappointments to investors as these estimates are forced downwards.

Alf sees the coming market correction as likely being similar to the DotCom bust in terms of swiftness & severity.

The bond market is clearly telling us it expects inflation to comes down. The inflation swap market is expecting inflation to be at 2.7% a year from now (and Alf expects <2%).

Today’s sharply inverted yield curves are screaming that recession is dead ahead. They predict recessions with 90%+ accuracy. Alf thinks it will really be clear to everyone that we’re in a recession in Q1 of next year. Layoffs will start getting bad around April.

The average housing analyst expects housing to decline by -2% next year. Alf thinks this is way too optimistic. Also, as housing prices get hit hard and transactions/new builds dry up, that impacts a material percentage of the US economy because so many jobs are tied to servicing the housing industry. And of course, other industries will suffering at this same time, too, so Alf expects material job losses next year.

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As for the financial markets, Alf is very skeptical of the recent rally in stocks. He thinks the probability is much higher that the bear market continues from here, even though the market could possibly rise to the end of the year first. In his estimation, S&P 4,000-4,1000 is “thin air” for prices.

Alf expects the bear market to hit a new low next year, likely bottoming around 3,300-3,400.

Stuck In Hell: Fed Creating A Cycle Of Crises It Then ‘Rescues’ Us From | Nomi Prins

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We increasingly live in a bifurcated world: there’s the rich, who are doing just fine and then there’s everybody else, who are increasingly just trying to hang on.

This is no accident, explains today’s expert, Dr. Nomi Prins, Economist, Author of the new book Permanent Distortion: How The Financial Markets Abandoned The Real Economy Forever

She lays out how central planning policies — sometime intentional and sometime incompetent — directly laid the path to

the extreme degree of wealth & social disparity we now suffer from today.

How did we get here? And do we have any credible hope for rectifying things?

For answers, we turn to Dr. Prins.

More Fed Rate Hikes/QT Ahead Because It Isn’t Worried About Financial Instability | Joseph Wang

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As many recent experts on this channel have lamented, it’s hard to be an investor in today’s market when the price action of securities is driven far more by Fed policy decisions than underlying company fundamentals.

As a result, the global investor community is reduced to speculating on what Jerome Powell and the 11 other voting members of the FOMC — the Federal Open Market Committee — decide to do next.

To better understand the inner

world of the Fed, I’ve recently interviewed former Fed senior economist Lacy Hunt, former Fed advisor Danielle DiMartino Booth, and Fed policy journalist Pedro de Costa. Today we add to that list by sitting down with Joseph Wang, a former senior trader on the Fed’s Open Markets desk. He understands the plumbing of how things work there intimately.