US Mortgage Risk Premia has Bottomed
Mortgage risk premia has always bottomed between 3 months to 1 year before equity markets have bottomed, this suggests that US equity markets are bottoming right now or might bottom soon.
Milton Friedman argued that inflation is entirely monetary in nature and the close relationship between CPI & M2/GDP validates this notion. Ideally, the plot of both these terms should trend together in tandem and with the exact same values. Distortions arise due to the incorrect magnitude & delayed actions of central banks that respond to changing economic conditions.
Let’s look at Milton Friedman’s favorite plot (CPI &M2/GDP) and analyze what it’s telling us.
Milton Friedman argued that inflation is entirely monetary in nature and the close relationship between CPI & M2/GDP validates this notion. Ideally, the plot of both these terms should trend together in tandem and with the exact same values. Distortions arise due to the incorrect magnitude & delayed actions of central banks that respond to changing economic conditions.
Assuming Milton Friedman is correct (after all he received a Noble Price) and also assuming Fed is very serious about bringing inflation back to 2%, the future path of CPI would likely flatten as CPI yoy growth goes down and eventually reaches 2% and the M2/GDP ratio should increase and go up to meet CPI.
Now, the only scenario in which M2/GDP could increase is if GDP starts dropping. (since M2 cannot increase as Fed continues QT)
With this in mind, one should expect a drop in GDP this year along with an earnings recession and poorly performing equity markets.
Why would it be any different this time?
#macroeconomics #investing #fundmanagement #sp500
Indian Markets Remain Fairly Valued
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Time to Own Indian Bonds
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