Prospects of Recessions and GDP Growth
We estimate that there will be two quarters with negative growth for the next 15 months. Inflation will exceed wage gains and will reduce real spending. However, a few negative quarters are not enough to claim that we have a recession.
What stops us from announcing a recession is:
- The US strong labor market
- Remarkably stable retail spending
- Services sector that is surprisingly immune to interest rate changes.
JP Morgan says recession is not its base case, risky asset classes could recover:
- we do not see (a recession) as base case over the next 12 months
- In fact, we see global growth accelerating ... to 3.1% in the second half
- and inflation declining to 4.2%
- which would allow central banks to pivot and avoid producing an economic downturn
Prospects of Inflation
Powell will probably raise rates to 4%, a mere 300 basis point increase. Higher rates will be a more important matter to Wall Street, not to the Main Street. Inflation will fall back to 3%-4% once current shortage in energy and supply chains will be over. We estimated that inflation will curb in the beginning of 2023, all that is needed is prices to stop rising and an equilibrium between demand and offers.
History, indicates that long-term real rates ought to be in the neighborhood of the economy’s long-term real growth rate potential.
Stock Market Forecast
Regrettably, this long-term bull market is now over because interest rates will not fall in the short term and second, we will see lower earnings per share. The resulting decline in the earnings per share growth rate will shock markets. We will have a lot of companies with negative earnings growth surprises. Last decade companies have delighted investors with impressive earnings per share, but that scenario will not be repeated in the future. Investors must have a proactive investing style or to invest in instruments with large dividends. Passively investing style is dead, you can forget index style investing.
When we read our Reuters terminal last week, we were negatively surprised to see how food supply and princes affected the people of developing countries. Unfortunately, our prediction from last year has come true and we have a food crisis (just read article from November 2021 https://topfxinvest.com/blog/we-anticipate-the-food-crisis-in-2022 )
Last Month we had protests in emergent countries.
Thousands of Greeks protested in Athens against the surge in energy and food prices. Greece's annual CPI Surged to 8.9% in March, hitting its highest level in 30 years.
Protesters throw the milk in presidential palace because of high prices and production issues.
Students rallied against the government because of high food prices demanding price control.
Basic food (Milk Eggs Poultry) prices were raised in May and were followed by large protests.
Thousands of farmers protested in Buenos Aires against President Alberto Fernandez, because of policies to contain food prices. Farmers need to pay more for animal feed and to sell at a lower price.
May 17 in Nairobi was held a demonstration against the government because of cost of living and high prices of basic products
2000 Pensioners protest peacefully in June against soaring living costs, according to Aljazeera and social media reports. The government raised prices of some basic goods such as cooking oil, floor and meat.
Peru ruling class sent an army in the streets to clear road blockades of activists. Protests were launched because of rising costs of food and fuel prices.
Indonesian farmers have rallied against palm oil export ban that caused a price drop of 75% on palm oil.
Guinea & Sudan
Protesters were killed by the armies according to Reuter’s reporters in May. Sudan Currency lost more than 30% last year and prices for fuel and food are growing at 20%.