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REPLAY| Monthly | Employment Conference Call | Supertight Labor Market as Key—Giving Way? Wage-Price Spiral? – 10/7/22
Supertight Labor Market as Key—Giving Way? Wage-Price Spiral?
Entrenched High Inflation and the Fed Mission
• Labor Market End-Summer, Early Autumn (Sept.)—Will it Give Way? Just Cooling? Still Super-Tight?
o Readings—Nonfarm Payrolls (Co. Jobs and Breadth); HH. Survey (Persons, Hiring and the Labor Force (Supply)); Unemployment Rate; Labor Comp as Both Income and Business Costs
o Job Openings and Labor Supply—Gap Narrowing?
o Wage or Comp Cost-Push Price Pressure—Status
• “Basic Prospect,” “Soft Landing” (Odds down to 55%)—Macro Risk Alternatives—“Hard Landing” or “Recession” (Odds 30%); “Growth Recession” (Odds 5%) (Fed Forecast); Something Better or Worse (5%)
• Entrenched High Inflation—“Genie Out-of-the-Bottle”
o Classic Demand-Pull Inflation and Process—Hard to Miss
o Supply-Side Shocks Superimposed
o “Seeds of Reversal” Seen In-Place—But Disinflationary Process Long and Uncertain
o Entrenched Inflation Widespread Globally
• Fed Mission and Messages
o Inflation Public Enemy #1
o Economy Can Be Sacrificed
o Observation—More Fed Policy Errors in a String of Them Spell Upside Risk on Rates and Downside Risk on Economy
• Trends—“Bear Market” Fixed Income; Superstrong U.S. Dollar
o Interest Rates, on Average, Up
o Still More Upside than Downside for Rates
o Superstrong Dollar Headed for New Highs
• Equities—Bear Market, Huge Correction, or Both
o Downside Earnings Risk Now Front-and-Center
o S&P 500 Op EPS estimates and Ranges Underlie Downshift for U.S. Equity Market—3300 to 4000 Near- to Intermediate-Term
• Asset Allocations—Short-Term Strong Overweight Cash & Equivalent, Strong Underweight Fixed Income, Strong Underweight Equity Market; Underweight Commodities Prices, Venture Capital, Private Equity
o Longer-Run Bear Fixed Income, Bullish U.S. Dollar, Overweight Stocks at Some Point
• Midterms and Potential Effects?