It occurs to me that I write a lot of words. It also occurs to me that important ideas can get lost in all those words. This little update wants to fix that with a brief explanation. Talk of inflation or more accurately, it’s end, is not inclusive of whatever CPI prints tomorrow. We are looking at trends, not events pertaining to a finite time period. I have no clue about December CPI.
The abbreviated 2023 view
- The Q4 (2022) to Q1 (2023) rally will likely expire, whether in Q1 or possibly Q2.
- The rally is being driven by the very thing that will eventually extinguish it. That thing is waning inflation that in the investor mindset would set the Fed into dove mode (the “Fed relief” play we’ve been noting).
- But the Fed is only going to go into dove mode concurrent with or after the economy breaks and inflation fears break with it.
- Economy breaks? That’ll be bearish for stocks again at some point (Captain Obvious). Right now, in my opinion, the economy is a zombie that thinks it is still alive.
- Noise about the weak dollar, China reopening and all that will try to influence us about a new bull market after the 2022 bear’s conclusion.
- Remember how casino patrons celebrated the dawning of inflation in 2020 and then extrapolate that to now as patrons cheer the dawning of deflation.
So I have zero short positions and am bullish for a phase. That means I doubly want to keep the above in mind. The Q4-Q1 rally theme was developed with a defined potential end point for a reason. That reason is above.
