For about 2 years, we have expressed a view that US recession risks were low until late 2024 or early 2025. We are now amidst this period where interest rates remain restrictive whilst economic insulation has largely been exhausted.
The irony of market optimism over the last quarter is the rapid tightening of financial conditions it has produced. Financial conditions are around the tightest they have been since the eve of the GFC. We explore what this might mean for 2025 in our quarterly. We aren't trying to make a forecast, but we are trying to characterise risk.
For 2025, the best offense might just be a good defense
A volatile quarter, with markets at all-time highs, whilst leading indicators remain weak. Unusually, a super-sized rate cut from the Fed, in the absence of a crisis, can be read in one of two ways:
A commitment to achieving a soft-landing
Deepening concerns of weakness in the labour market
This quarterly unpacks:
The volatile quarter that was
China's economic malaise
A run through of leading US labour market indicators
The case for a soft-landing
A focus on Australia and the outsized role of Government spending
Investment comments and positioning.
Please reach out with any questions or comments.
#Investment #markets appear caught at an #inflection point. Tight #labourmarkets point to continued #economic progress and a chance at sticking the fabled soft-landing. Other data, in particular household consumption, speaks to the possibility of #recession.
This quarterly we also dig into #China's changing economic paradigm and touch on the scope for attractive vintage years in #privateequity.
As attention spans shorten, we feel there is value in writing and reading something of substance, if only once a quarter (and if of questionable substance)! Chance this #quarterly over your next #coffee break.
Russia’s invasion has accelerated the schedule of central bank tightening. Markets are now pricing ten 0.25% rate rises by the United States Federal Reserve in 2022.
Large parts of the Chinese economy are in some form of lockdown. China’s central bank is lowering interest rates while the West is raising interest rates. Capital flows out of China are accelerating.
Inflation risks are on the upside, although interest rates are rising, they mightn't rise as high as expected.
Capital allocations to price setting business and real assets are an investor’s best protection from inflation.
2021 was another harrowing year. Many businesses continue operating on life support. As we commence 2022, the Omicron variant reminds us that a return to normality is impossible to predict.
Meanwhile, markets remain near all-time highs, although cracks are emerging. The growing and ignored elephant in the room remains government debt. We explore how this might be resolved, and what impact this may have on investors.
