At the risk of being the next
@thorstach here goes:
1) The Federal Funds Rate upper bound will peak at 5.25% in March (current consensus) but will not be cut in 2023 (not the consensus).
2) Agree with
@MustacheAndaHalf that labor costs will increase at a faster pace than CPI, but only until...
3) A U.S. recession starts in Sept, Oct, or Nov. 2023.
4) The S&P 500 will end the year with a PE in the 15-18 range, as measured on their last year of pre-recession earnings. Higher borrowing costs hit the corporate bottom line, the top line, and simultaneously require de-leveraging.
5) 12-month CPI will hit 3.3% in June and will be near zero by December. Note that inflation for the 2nd half of 2022 was <1%, so this forecast would involve an increase compared to the trend.
6) A financial institution - perhaps Credit Suisse - will come under stress and require some kind of bailout. Losses on long-duration bonds in 2022 were largely hidden by characterizing these bonds as "held until maturity" accounts, but that won't help much when there is a run on deposits and the "available for sale" accounts are also down.
7) The U.K. will also experience recession in 2023.
8) The
Case-Shiller U.S. home price index will fall another 10% and then stabilize.
9) The S&P 500 and Nasdaq will experience at least 2 more up-down swings of 10% each before "the bottom is in".
10) Nominal treasuries with long durations (TLT and ZROZ) will increase in value through the year.
I do not know whether the recession will be mild or severe, short or long. It will depend on whether things break in the banking sector. The "go all in" signal is the announcement of 2 successive quarters of negative GDP. Until then, I'm getting paid to wait.
I also do not know if inflation will make a comeback. If you look at the 1970s, there were multiple instances of disinflation, some of which lasted years, only to be followed by another sudden pop in inflation. Our short-term thought process probably needs to zoom out to see if we are in a new cycle like the 70's and early 80's. The ups and downs of inflation and recession can occur over a scale of several years.
