Four fairy tales that stock market investors and economic policy makers are telling themselves
Money markets are now predicting that U.S. interest rates will peak at below 3.5% in January 2023 and then decline starting from next April to around 2.5% in early 2024.
Bond markets are priced for U.S. inflation to collapse from 9.1% today to just 2.8% in December 2023.
Equity markets assume that the economic slowdown that causes this unprecedented disinflation will be mild enough for U.S. corporate profits to increase by 9% in 2023 from this year’s record levels.
Many investors accordingly believe that monetary conditions have become very tight because central banks have raised interest rates in increments of 0.75 percentage points instead of the usual 0.25 percentage points, despite the fact that rates are still much lower than in any previous tightening cycle.
Most people find it difficult to imagine events that have never happened in their lifetimes. For many investors and policy makers, stubbornly high inflation falls into this category.
I have just spent three months traveling around the world to discuss with hundreds of professional investors why I also have shifted to an unequivocally bearish outlook, after a decade of Panglossian optimism about financial markets’ prospects
Anatole Kaletsky MarketWatch 4 August2022
Anatole Kaletsky, chief economist and co-chairman of Gavekal Dragonomics, is the author of “Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis” (Public Affairs, 2011).
What many see as a temporary bubble, pumped up by artificial and unsustainable monetary stimulus, has many more years to run.
Anatole Kaletsky, Project Syndicate, 27 November 2017
https://englundmacro.blogspot.com/2017/11/what-many-see-as-temporary-bubble.html
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