Discussion
Very good summary analysis by Bridgewater of the key drivers of this cycle and why the US economy has been able to so far skirt the recession anticipated by so many key leading indicators. Executive summary here:
Key exhibits here:
The second exhibit above is critical. With the corporate debt side of the equation out of position to force corporates to let go of labor, labor market loosening must come from the equity side. Julian Brigden calls this dynamic “hyperfinancialization”, where corporate CEOs response almost entirely to their stock price - all the more when the debt side allows them to continue spending through a profit cycle downturn.
As Andy Constan has laid out in “The Script”…
…The long end of the UST and TIPS curves MUST rise in order to impart the financial conditions tightening the Fed is unable to via the short-end.
Once the long end rises enough to induce equity holders to reallocate out of stocks (should be now given how unbelievably fully valued stocks are, but we know equity folks like number-go-up), that should provide the “hyperfinancialization push” for CEOs to loosen labor.
We’re so close.