Option Professor-Stocks-What is the Market Discounting? What Do We See Ahead? Read It!
December 10 2022 Option Professor Opinions & Observations
The real question right now is what is consensus and how likely is that to become fact? It seems like everyone is saying 2 basic things. #1 We will have a soft landing with a tough first half of 2023 and a brilliant 2nd half. #2 The Fed is imminently going to pause and later in 2023 start easing. We see both of those prognostications as suspect. First; we will see the consumer will continue to spend as their savings are not totally depleted and their access to credit (albeit at rates exceeding 30% in some cases) is there. This is inflationary so if we get into the 5% handle in 2023 it’s an accomplishment but not one that the Fed will recognize as it ultimately needs Fed Funds ABOVE the inflation rate to quell this thing. So revenues and earnings may hold up a lot better than people suspect in the near term. Secondly; the Fed is not thinking cutting or easing too long as the numbers are not bending (PPI UP & Wages UP & Spending by Consumers UP). CPI this week may get a dip but it’s light years away from 2% which the Fed desires. The UNEMPLOYMENT rate is at 3.7%; a 50 YEAR LOW. Does that sound like the end of the inflation fight? Investors are being told that no defaults & downgrades are to be material in 2023. We disagree & in fact we see 2023 as the exposure of the zombie companies & leveraged loans who will have a coverage ratio on their debt become problematic. There are more shoes to drop than in a typical Nike shoe factory:):)
We told you 2 major switches INTO value & staples/dividend payers in the last year (Nov 2021/May 2022) and both have been brilliant. We told you recently that Crude Oil had big resistance at 94 and would drop We told you 2020 was the generational low in interest rates and 2021 was a top in stocks. We said we suspect 2022 may be the top in commodities as deflationary forces lick in. If the Fed pauses too early then all bets are off. We have views on what to do with stocks, bonds, Gold, Energy, the Dollar, China ect.
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