The outlook’s quite uncertain for the ‘conomy this year As there are those with strong belief the future’s bright and clear But just as many seem to take a different view instead And what they see is awful, with recession dead ahead. The key discussion centers on inflation and its course And whether central bankers, tighter money still endorse. The bulls believe the Fed is done, with rate cuts coming soon Thus, other central banks will quickly sing that selfsame tune. The bears, however, see that global structures have now changed, With tariffs and near-shoring rising, free trade’s now estranged. The upshot is the bears believe that higher’s still for longer As pricing pressures bubble thus, inflation grows much stronger. The funny thing about this split in views is that both sides May find that for a time this year their views will be good guides. I think the bulls will run the show for quarters one and two But as the year progresses weaker outcomes will come due. Now let’s consider how the year is likely to begin; With visions of soft-landings leading bulls to go all-in. They see inflation sliding down to two or even one, As yields on 10-year bonds fall back to Three before they’re done. In sync with this they’re certain that the Dow and S&P Will make new highs o’er 40K and 5K ‘spectively. The dollar, in this view, has seen its highs for years to come And so, they think the DXY, to Ninety-Five, will plumb. This means the euro ought to trade as high as One Two-Oh While dollar yen descends below One Thirty midst great woe The pound is like to rise above One Forty in this wave And pesos and reals explode as these, investors, crave. The final data point for Goldilocks to make her case Is oil needs to settle here and simply stay in place. So, while good growth ought help support demand for Texas Tea More oil will be pumped by nations recently set free. This means the current policies where sanctions have relaxed, Will show that barrels pumped will not have waned, but rather waxed. And one last thing, the price of gold, will rally to new highs As low real rates and central banks will lead gold bears’ demise. I must admit that this sounds great if it can last all year Alas, there are some issues which are likely to appear. Come summer solstice cracks in this façade will start to show And as the year winds down I fear unhappiness will grow. The causes, proximate, will have to do with lags in time As rate hikes o’er the past two years have changed the paradigm. And though we’ll surely see the Fed and ECB respond Twon’t be in time to stop the selling of the ten-year bond. Instead, as growth conditions slacken each and every day, The rate cuts will not be enough to halt the growth decay. As well, a problem central banks are likely still to face Is that inflation will go back above their target pace. Stagflation is an awful word as it describes a state Where prices rise too fast while growth just cannot germinate. And this, dear friends, is what I fear will come to pass this year By Christmas, bonds and stocks will fall while metals hit high gear. So, what can we expect as Twenty-Four plays out in time? The second half is likely to create a different clime Than what we saw through June, when everything was filled with cheer And stocks made record highs with greed ascendant over fear. Instead, as summer turns to fall, inflation will come back And late Q3 Chair Powell will have started to backtrack, So rather than more rate cuts a new message will be sent A pause, or maybe rate hikes are the future fundament. This news will not be taken by the markets with aplomb Instead, the first half rally will collapse like Pets.com. And with inflation creeping higher Jay will have to choose Twixt prices or the market, either way he’s sure to lose. Some folks believe the ‘lection in November will impact The Fed, though Jay will surely claim their mandate’s what they’ve tracked; Now, if they fight inflation then the Dems will surely scream But if they help the markets rise, poor Jay, the Pubs, will ream. This means we need look deeply into Powell’s inner thoughts And see if Arthur Burns or Chairman Volcker calls the shots; My money’s on the tall one which means tighter policy As only that can help cement Jay’s hero’s legacy. With this in mind we’re like to see stocks peak sometime in June And for the rest of Twenty-Four we’ll watch those markets swoon. So, from the heights, Dow Forty K and Five K S&P To Thirty K and Three-point-Five K Spooz, I do foresee. As to the bond, despite the fact that growth will be lackluster, Inflation won’t cooperate and so, Jay will be flustered. While we may see one Fed funds cut before the summertime The back end of the market will reverse, and yields will climb. Come Christmas time I see the bond will yield ‘bout Five point Five And all those levered bets are not too likely to survive. As to the dollar, it should find its footing in the summer And start to rise, which for the shorts, will really be a bummer. So, think about a euro back ‘neath One Oh-Five or less; And Dollar Yen above One Fifty, midst Ueda’s stress, As poor Kazuo will not get to normalize his rates And so, investment from Japan will flow back to the States. The pound will suffer too, as like in Europe, growth will lag And so, below One Twenty t’almost certainly will sag. Emerging market currencies will have a better run As rates are more supportive and no cuts need be undone. In fact, when winter solstice on the calendar appears Reals and pesos won’t have moved from where they closed last year. Let’s now turn to the stuff that we can touch and see and smell; Commodities like oil, though, for not too long we’ll dwell. In concert, and a reason for inflation’s resurrection Demand for oil only goes in one long-term direction. So, more demand will drive the price back to One Hundred bucks And if a wider war breaks out its June ‘Oh Eight redux. The final price that I foresee in this unnerving tale Is gold which ought to sparkle as most fiat moneys fail. The Relic that’s called Barbarous will head above 3K, And after this there’s just one thing I’ve really left to say. Oh, somewhere in this great big world the sun is shining bright; The ‘conomy is growing and inflation’s very slight. But here at home stagflation is what Jay has brought about There’ll be no joy in ‘Twenty-Four, Chair Powell has struck out! To all my readers near and far, please know my sole intent Is offering my viewpoint and it always is well-meant. So, as we all embark upon Two Thousand Twenty-four I thank you all for reading, for its you I all adore. Thanks and Happy New Year Adf
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Bravo, well done!
Great stuff Andy, happy to have the reading back.