The Coming Long And Deep Recession
I am turning more bearish on the economy and the stock market.
One day after the low last October, I sent a special announcement to my paying clients telling them that the new bull market was here and we should get long. That was a perfect call.
My reasoning was that the economy would soon go into a recession and that the Fed would start to ease which would boost stock prices. That is exactly what happened and we made good money from the rally.
But now, the market keeps shifting forward in time the eventual easing from the Fed. When I made my dramatic call in October 2022, the market expected the Fed Funds to peak at about 4.00% in March.
But I have been arguing for over a month now that inflation is not under control, that it will start to increase now, and that the Fed will have to raise interest rates longer and higher than the market expected.
It looks like the market is coming around to that outlook as seen by the sharp down move this week.
But it is not over. I look for inflation to go back above 7% and even higher than 8% on headline CPI. That suggests that Fed Funds will have to get up over 7% also, which the market doesn't yet see.
This should unfold over the rest of 2023 and into 2024.
That increasing higher rates, combined with Quantitative Tightening, will cause the economy to move into a longer and deeper recession than the market expects. That shock will cause the stock market to drop at least 10%.
At that time, say 2024, the Fed will ease and we will have a monster bull market.