Discussion
Quick rundown of the team’s current stance on the economy.
Hedgeye: Quad 4, but they’ve recently shifted to labeling it an “industrial recession” - that’s code for, “we’re a bit wrong in our recession call, so we’re going to relabel it.”
Eric Basmajian (EPB): US is either in or will soon enter recession.
Julian Brigden: US either in or will soon enter recession, but…next month of data critical to determining whether recessionary conditions will remain in place.
ECRI: Outside of a small tick up in their weekly LEI, and a basing of long LEI, recession remains in train, if not here already.
Bridgewater: Dramatic walk-back of their bearish view on the economy. Frankly, it’s not entirely clear where they stand outside of a vague “it’s going to be a grind” mentality.
The Kitty: Late 2023, early 2024 US recession.
42 Macro: Late 2023, early 2024 US recession.
42 Macro (Darius Dale) has been by far the most consistent member of the team calling for recession to start in the US no later than 2H23. He was such the outlier of the group that I did not overweight his opinion, but the fact the bond market has decisively shifted into his camp while the rest of the group plays catch-up tells me he is the O-lineman to run behind for the time being. (IMO, at this point the recession I’ve been pounding the table on since SVB, saying the Fed would be cutting by September, requires some sort of financial “event” to get it going. Without an event, and as long as equity and credit risk premia remain contained, the job market is unlikely to start shedding jobs. And that’s fine by me - no recession now? Ok, well that means the landing is even harder down the road.)
In a recent interview (see below) Dale outlined the case for the underlying stickiness of inflation to become a problem for the Fed and markets in the coming months as base effects “improve” and supply chain factors fade. (And I would add to that, the possibility oil is about to take off again.) IMO, it is critical to contextualize recent bond market action with Dale’s sticky inflation thesis.