A couple of useful charts, in no particular order.
Below, from GS, highlighting what a soft vs hard landing looks like, for risky assets. Our view is almost identical (almost certainly because GS did what we did, which is look at how far equities drawdown peak to trough when in recession, and compare to what’s already happened).
Perhaps a minor difference is we don’t break out that extra leg of the “bear market” rally, in the soft landing scenario, we just assume a muddle-through melt up, and accept that there may (indeed will) be volatility along the way.
We’ve talked a lot about lags in monetary policy, and the effect on supply chains from sudden, massive, sectoral shifts in demand.
That’s the bullwhip effect, nicely visualised below.
What restrains us
We’ve continued to suggest that there are good reasons to bullish, and good reasons to be bearish, and around that view, which is supportive to ongoing capital deployment largely inline with one’s SAA, made modest DAA tilts. So far, those trades are working quite well, and we’ve begun to unwind some of them (as per Rowan’s update, behind the paywall).
The tweet below, from Alf, is not a bad reflection (summary) of the key risk to macro markets ahead.
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