On this amazing platform, Substack, countless writers write about markets and macro. However, what matters the most is the future guidance about the economy's trajectory and one’s portfolio positioning.
Undoubtedly, it’s a known fact that the best traders/investors in history have a strike rate of around 60%. Thus, the positioning and risk-adjusted returns (Sharpe Ratio) matter most in investing.
A few weeks back, we were the first to write about how the shipping crisis will likely lead to a resurgence in inflationary pressures, and guess what?
We saw the first signs of the same this week.
Furthermore, paid subscribers would appreciate that we wrote late last year about the likely positive wealth effect due to buoyant stock and housing markets, and thus, we shifted our date of slowdown/recession promptly.
Nonetheless, as a macro trader/investor, one can’t rely on one single outcome and should be positioned for change in guidance with the incoming data. We need to have probabilities for various outcomes and position our portfolio accordingly.
Today, we will look at the possible outcomes for the world’s largest economy after a string of recent positive economic surprises.
PS: Before we begin, we wish to inform you that we will increase our paid subscription prices to $24.99/M or $ 249.99/Yr starting 1st March.
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Let us begin!
US!
This week's shocker in the macro data was the ISM Services Prices Paid, as it came way above the market’s expectations.
As we can observe, headline CPI will follow suit and, within the next 3-4 months, will see CPI heading back to 4% with the CPI Services Ex-Housing and the Core Goods inching higher.
The million-dollar question: How would the markets react?
This brings us to our first scenario out of the total 3, which we think will transpire with the world’s largest economy.
BASE CASE SCENARIO (Probability of 50%):
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