FAST FIVE: "This Is An Unprecedented, Bad Combo": Why Some Traders See A "Shock" Growth Hit Dead Ahead
My own observation from almost four decades in the markets is that when economists and strategists describe 'good news', they introduce a behavioural bias into their analysis because they then become reluctant to forecast 'bad' news – with some notable exceptions!” In any case, as a result of this hope of a repeat of the Roaring Twenties (which as Rabobank's Eric Peters frequently reminds us didn't end so well) investors are riding a cyclical wave that may now be cresting.
As you can see below, economic activity in February has fallen back to trend – only around 2% or slightly below.
It also why Edwards warns that “investors might be caught out by weaker than expected growth as soon as H2” especially when considering the potential near-term impact of the Biden stimulus which – as Edwards reminds us based on CBO calculations – shows that the headline $1.9tr package or “10% of GDP”, working out to only a moderate 4% of GDP this year.” To be sure, if it was just Albert Edwards warning about a sharp growth scare in the near-term it would be easy to dismiss it as the repetitive ramblings of a Wall Street permabear.
It's why his latest note focuses on what he believes will be a “Faster and Sooner than Normal Early to Mid Cycle Transition.” Only unlike Edwards who focuses on growth indicators, Wilson takes aim at the current rampant inflation which many fear could mutate into outright stagflation: We continue to hear anecdotal evidence that costs are rising for many key inputs for companies – materials, logistics, labor, etc.
Because according to Wilson, this arguing for “a faster shift to mid from early cycle economic and market dynamics” an observation the MS strategist made previously, and which is now further supported by last week's release of March's Purchasing Manager survey.