Owner's equivalent rent accounts for roughly 33-35% of services CPI. From what I can see, all live rent measures aren't showing any upside pressure; if anything, the construction boom that started in 2021 is adding supply gradually. On the demand side, the u-turn in total immigration (legal and illegal) should keep demand tepid. Shouldn't we be looking at leading indicators? What do you think I'm missing? Furthermore, equities have rebounded above April 2nd levels, even though we still don't know what the impact of tariffs will be on the real economy. Fiscal impulse probably won't amount to much given that it's mostly in the form of extending existing tax cuts. With back-end rates flirting with 5%, and next 2y deficit @ 7-8% of GDP, I have a tough time seeing how this won't be the last deficit increase. Lastly, we might have seen some frontloading ahead of the tariffs on consumption data.
Regarding Europe, apart from Germany, no other major economy has the balance sheet and income statement to add more stimulus (France, Spain, and Italy). Populism is on the rise worldwide, but the system has actual constraints. For now non-German 10y EU sovereign yields are well contained, but they would quickly rise to 4.5-5% in the case of a significant fiscal overhaul, and crowd out much-needed private sector investment to boost productivity. What do you think of these points? We're potentially looking at different time-frames.
So reading across your recent posts, it seems like we are more likely to see inflation reaccelerate or remain flat than disinflate. Rule of thumb that disinflation follows a growth slowdown would support that. Even a modest slow down or recession might not drop inflation low enough for the fed to cut a ton if employment doesn’t fall much. All this makes the next risk to equities maybe another liquidity drain to much higher long end yields ala 2022? Is that on your radar or you expecting a growth grind up with steady inflation? How do you see this playing forward 1-2 moves?
Owner's equivalent rent accounts for roughly 33-35% of services CPI. From what I can see, all live rent measures aren't showing any upside pressure; if anything, the construction boom that started in 2021 is adding supply gradually. On the demand side, the u-turn in total immigration (legal and illegal) should keep demand tepid. Shouldn't we be looking at leading indicators? What do you think I'm missing? Furthermore, equities have rebounded above April 2nd levels, even though we still don't know what the impact of tariffs will be on the real economy. Fiscal impulse probably won't amount to much given that it's mostly in the form of extending existing tax cuts. With back-end rates flirting with 5%, and next 2y deficit @ 7-8% of GDP, I have a tough time seeing how this won't be the last deficit increase. Lastly, we might have seen some frontloading ahead of the tariffs on consumption data.
Regarding Europe, apart from Germany, no other major economy has the balance sheet and income statement to add more stimulus (France, Spain, and Italy). Populism is on the rise worldwide, but the system has actual constraints. For now non-German 10y EU sovereign yields are well contained, but they would quickly rise to 4.5-5% in the case of a significant fiscal overhaul, and crowd out much-needed private sector investment to boost productivity. What do you think of these points? We're potentially looking at different time-frames.
So reading across your recent posts, it seems like we are more likely to see inflation reaccelerate or remain flat than disinflate. Rule of thumb that disinflation follows a growth slowdown would support that. Even a modest slow down or recession might not drop inflation low enough for the fed to cut a ton if employment doesn’t fall much. All this makes the next risk to equities maybe another liquidity drain to much higher long end yields ala 2022? Is that on your radar or you expecting a growth grind up with steady inflation? How do you see this playing forward 1-2 moves?
So reading across