Alain Lord Mounir

Let’s keep things simple. We seem to be mean-reverting… Lots of money printing + lockdowns during the pandemic artificially constrained and inflated so many things in the economy. That said, the Fed is doing a very good job rn. These rate hikes have had their desired effect of washing out all of this extra liquidity. What’s left is a clearer sense of the natural state of the economy. And it’s actually in decent shape. But what’s different? The biggest change from the pre-pandemic status quo is QT + the reshoring efforts to decouple from China. On balance this probably keeps inflation hotter than the counterfactual (more resiliency—>less efficiency—>higher prices) relative to the past few years which probably also keeps rates above their historic average as well. So what happens to equities? Nothing is a sure thing but the market seems like it wants to rip higher as people revise their baseline expectations to this new reality. Once they do, they will need to start looking for growth again and become less defensive. Often times, the next direction in the market is that of “max pain” - and that direction, today, would be taking the market higher, catching many funds incorrectly set up. Remember that most of the gains this year in equities thus far have largely come from a handful of companies. But most funds can’t get paid owning 6/7 companies so they probably have some ‘splaining to do! So if inflation becomes “baselined” and the Fed stabilizes rates, it seems the next direction is higher. Should be a fun Q3/Q4… wsj.com/articles/inflation-e…