Friday Fireside with Uncle Fash

I was on a webinar today on inflation/recession and thought it would be good to share my major takeaways, as I’m sure it’s many of your minds. Overall. It is FAR more hopeful than I thought. The concept of a recession in the next 12 months seems very unlikely due to the 11.5M jobs still open in the US. That being said, the global risk is still there, especially in emerging markets. So here they are (please remember these are opinions and my interpetation, not facts!):

– The labor market has mostly healed within the US (not surprising), however, wage inflation occurred in part to 2 reasons. 1. the US terminated many positions during the pandemic, then brought them back in force, reducing loyalty, and flooding the market with talent. 2. The stimulus+PPE money took out a massive proportion of the workforce which has yet to recover. Neither of these happened in the EU, and as a result, there has been less relative wage inflation in the EU zone

– Inflation in the US was dominated by stimulus+PPE (about 50%). In other words, a bunch of people ended up buying way more goods and services than they had before, creating a massive demand swing on top of a constrained supply chain. The other 50% is supply chain oriented on food and energy (think Ukraine-Russia war)

– However, those same individuals that are out of the labor market are depleting their savings and are continually coming back into the workforce, with the bottom quartile of income already fully back by the end of March

– Overall unemployment is at a massive low and the Fed may keep hiking rates without any concern about the impact on the equity markets. Their biggest fear is runaway inflation and the impact on the underlying credit market

  • There is a real concern of an impending Euro Crisis again in 2-3 years

– Consensus seems to be we are at the global max of inflation, and that it will steadily drop Quarter over Quarter. “Crystal Ball” is 4.5% by end of 2022 and 3% by 2023

– SAAS multiple on the public markets is approaching the same as in 2017. It seems the market has overcorrected against inflation and the actual fundamentals of the businesses

– For the finance techies: “The yield curve is a very poor predictor of recession, the unemployment rate is by far the best, and if we are equating the current situation to the 70s, unemployment was already on the rise when the Fed started hiking rates - This is an entirely different situation and the Fed remembers the 70’s vividly”


All the DD I need.


TLDR: Hedgies r fukd. Stonks only go up.


This is largely consistent with Zoltan Poszar’s recent memo. Tl;dr, the Fed has a single mandate right now and that is to bring down inflation. They are not afraid of tanking equities further if that’s what it takes.
(Mobile doesn’t always work, try desktop)

And so on one hand I see inflation likely peaking, but that the Fed may very likely continue to hike rates into the summer until inflation is fully tamed. Recession / GDP aside, how will equities react? Are the summer hikes priced in?


Thanks for sharing these points, Fash!
Looking forward to more price movements for the rest of the year.