The potential effects of a recession on deficit and treasury supply should be considered, as it could lead to a surprise of higher interest rates amidst a recession.
Investors need to adopt a new playbook and adapt to the changing dynamics of the economy and financial markets, as the investing game board has experienced a significant shift in the post-COVID era.
Inflationary forces are gaining momentum, impacting market dynamics, and investors need to find investments that work in this new environment.
Deep dives
The Risk of Increased Deficit and Treasury Supplies in a Recession
If a recession were to occur, there is a concern that the two trillion dollar deficit would grow even wider, leading to a significant increase in treasury supplies. This could result in a faster explosion of treasuries, leading to a potential surprise of higher interest rates amidst a recession. This highlights the importance of considering the potential effects of a recession on deficit and treasury supply.
The Changing Investing Game Board in the Post-COVID Era
According to Jesse Felder, the founder and editor of the Felder Report, the investing game board has experienced a significant shift in the post-COVID era. Despite this shift, both Wall Street and regular investors are still playing by the old rules, which could be a recipe for disaster. Felder discusses the need for investors to adopt a new playbook and adapt to the changing dynamics of the economy and financial markets.
The Sea Change in Economic Growth, Profit Margins, and Asset Appreciation
Jesse Felder highlights the sea change in economic growth, profit margins, asset appreciation, and borrowing costs. The shift from declining and ultra-low interest rates to potentially slower economic growth and higher default rates signifies a return to a more normal, pre-intervention era. As globalization and demographic factors reverse course, inflationary forces are gaining momentum, further impacting market dynamics. The need to find investments that work in this new environment is crucial for investors.
AI Boom Not as Profitable as Market Suggests
The AI boom is being priced as highly profitable for companies, but there is a risk that it may not be as profitable as anticipated. Companies like Adobe and Intuit have incorporated AI products into their pricing without significantly enhancing profitability or revenue. This raises concerns about the accuracy of the market valuations for AI companies. Market performance will be a key determinant in assessing the actual profitability of the AI industry.
Risks of Rising Interest Rates and Inflation
There are concerns about the impact of rising interest rates and inflation on the economy. The supply and demand mismatch for treasuries, where supplies are growing faster than demand, could lead to turbulence in the treasury market. Higher long-term interest rates and a potential debt crisis are also anticipated. The potential default cycle in corporate credit is worrisome, considering the massive amount of debt that needs to be refinanced by CFOs. Prudent investors are advised to be conservative, diversified, and consider assets like precious metals, commodities, and real estate to offset the potential impacts of inflation and interest rate increases.
When the game changes, the old rules don't apply and to succeed, you need to adopt a new playbook.
Well, there's a good argument to be made that the investing gameboard has materially changed in the post-COVID era. But so far, both Wall Street and regular investors are still playing by the old rules.
Is this a recipe for disaster?
To find out, we have the good fortune today to hear from Jesse Fedler, founder & Editor of The Felder Report, a highly respected market research firm.
He written a lot lately on the "sea change" the economy and financial markets have recently experienced. We'll ask him what the biggest implications will be & how investors should adapt to them.
Follow Jesse at https://thefelderreport.com/ or on X/Twitter at @jessefelder
To learn what's in store for this new Thoughtful Money channel, SUBSCRIBE FOR FREE to Adam's new Substack at https://adamtaggart.substack.com/
#recession #interestrates #techstocks
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