Resumo do Relatório
TPW Advisory Friday Musings: Firebreak
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The plate throwing, table tossing, cross asset market action continues to pingpong across the Atlantic as US /EU bank fears continue to burn like wildfires, leading to sharp falls in rates that coupled with weakness in energy prices signal markets are prepping for recession.
The fear used to be that the Fed would overtighten and force the US economy into recession in order to get inflation down to its 2% target. As we wrote in last week’s Musings we think that battle has been fought and won by the forces arguing for a higher target, though we note BofA’s FMS suggests that 65% of those polled disagree with us – only 65%?
That brings us to today’s title: Firebreak, which is defined as a strip of land where the combustible fuel has been removed to either contain an ongoing fire or control a prescribed burn. Thanks to brother Kev who shared some pics of a controlled burn he led back in the home state, thus sparking the idea (no pun intended). Over the past few weeks it’s become clear that the ZIRP and WFH winners, namely the tech sector and its finance arms (SVB etc.) can’t handle higher rates.
This got us thinking about how the Fed has been on a mission to slow inflation as fears grew that it would tighten until unemployment rose & the economy tumbled into recession. Notwithstanding tech, which over hired massively during the Covid years & has been laying folks off by the thousands, it strikes us that SVB’s early demise could act as a firebreak to those fears, stopping the Fed from raising rates more and thus protecting the US economy from further tightening.
The bulk of the US economy remains in decent shape (consumption, services, housing, manufacturing) as we have argued since last summer when we began writing about our Middle Path between high inflation and deep recession. We remain on that path and we believe the US, European and global economy do as well.
Jay Pelosky
Estrategista Global - TPW Advisory
Nova York, EUA
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