The recession will be declared on April 1, 2023, because that would be funny. Sad, but funny.
My working hypothesis is relatively simple:
Inflation
As we learned in introductory economics, prices are determined at the intersection of supply and demand. Inflation, which the consumer sees as increasing prices, can be caused by supply or demand. Why do we have inflation now?
Is it demand driven? No, our current inflation is caused by supply shocks. The world shut down due to the pandemic, and the war made it worse. With constrained supply, costs increase.
But we all know that the cure for high prices is high prices. Prices are high, so we spend less, decreasing prices, ending inflation. This is why I predict that by the summer, inflation will be much lower, and by the end of the year, we may be experiencing deflation.
The biggest component of CPI is residential rents. When the real estate market crashes, as it has, rents do not immediately drop. Tenants sign one-year leases. It takes many months for reduced rents to flow through to the CPI. This will be obvious in the second quarter. Rents will be much lower than they are now, as will the CPI.
The Fed and the Bank of Canada will raise rates one or two more times, probably 25 basis points each, and by the end of March the rate increases will be over.
As the expectation of falling rates takes hold, bonds go up (as they have already started to do). That’s obvious with the inverted yield curve.
Bonds rally before stocks. It is always thus.
So, bonds are rallying now, and will through the summer. The stock market will bottom in the fall, and we can turn bullish for 2024.
Falling interest rates is bullish for gold, so now would be a fine time to begin accumulating gold.
So there you go. Simple.
For now, buy bonds and gold. By the summer or fall we will be selling our bonds and moving into equities.
Or not, what do I know?
We shall see.
The Official Recession Declaration Date
by JDH on January 21, 2023
The recession will be declared on April 1, 2023, because that would be funny. Sad, but funny.
My working hypothesis is relatively simple:
Inflation
As we learned in introductory economics, prices are determined at the intersection of supply and demand. Inflation, which the consumer sees as increasing prices, can be caused by supply or demand. Why do we have inflation now?
Is it demand driven? No, our current inflation is caused by supply shocks. The world shut down due to the pandemic, and the war made it worse. With constrained supply, costs increase.
But we all know that the cure for high prices is high prices. Prices are high, so we spend less, decreasing prices, ending inflation. This is why I predict that by the summer, inflation will be much lower, and by the end of the year, we may be experiencing deflation.
The biggest component of CPI is residential rents. When the real estate market crashes, as it has, rents do not immediately drop. Tenants sign one-year leases. It takes many months for reduced rents to flow through to the CPI. This will be obvious in the second quarter. Rents will be much lower than they are now, as will the CPI.
The Fed and the Bank of Canada will raise rates one or two more times, probably 25 basis points each, and by the end of March the rate increases will be over.
As the expectation of falling rates takes hold, bonds go up (as they have already started to do). That’s obvious with the inverted yield curve.
Bonds rally before stocks. It is always thus.
So, bonds are rallying now, and will through the summer. The stock market will bottom in the fall, and we can turn bullish for 2024.
Falling interest rates is bullish for gold, so now would be a fine time to begin accumulating gold.
So there you go. Simple.
For now, buy bonds and gold. By the summer or fall we will be selling our bonds and moving into equities.
Or not, what do I know?
We shall see.