No One Wants to Say “A Recession Is Fine”

 In theory, the Fed could balance all these moving parts and get inflation down to its 2% target without sparking recession. 

It is difficult, though, and I have no confidence they can do it. (Reminds me of the Yogi Berra quote: “In theory, it works; in practice, it doesn’t.”) 

Nor does my friend Dave Rosenberg, who sees a 100% chance of recession this year.

The recession is staring us in the face (and if it is so ‘priced-in,’ why is the consensus calling for positive EPS growth for next year?).

The Fed is driving the bus all right but is not looking through the front window. Which means what? It means we are going into an outright recession. 

A national haircut to GDP, rising unemployment, asset deflation, and looming debt defaults. This is the theme for 2023 and is typical for the year that follows the Fed tightening cycle—think 1970, 1975, 1982, 1990, 2001, and 2008.”

In macro terms, he says a big housing downturn would do more damage than a stock market crash because more people own homes than stocks, and they are more highly leveraged. 

Fortunately, we are a long way from such a drop, but it could yet happen.

John Mauldin 13 January 2023

EPS appears to be far above that long-term trend, and due to revert down toward the mean. 

John Authers Bloomberg 10 januari 2023


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