September 2024 Macro Environment
An overall view centered on the US economy
Indicators have deteriorated a bit since last month.
The money market is still really stressed, the economy is even more overheated than before, the US labor market is still strong but its slowing down and who knows if it will overcorrect or just return to average levels.
The Yield curve is, still, very much inverted and the Federal Reserve is expected to cut rates 25 or 50 bps. This has financial markets on a bipolar episode ranging for euphoria from more liquidity and lower cost of capital, to panic, while dealing with the possibility of a hard recession, for which consumers don’t seem prepared for, that would require government spending potentially increasing the deficit.
Credit market is still tightening but defaults and interest coverage remain low, whilst, as expected, credit growth is slowing down.
US consumers are more and more fearful for their financial positions, consumer sentiment is still really depressed, inventories are piling up to above average levels and savings are still close to a full standard deviation below the historical average
The presidential election is heating up, showing no clear winner. Democrats are expected to have the popular vote and “Election Prophet” Litchman is calling for them to win the presidency as well.
There has been breaking news about Russian disinformation campaigns in the US looking for divisiveness and political instability. Whilst European countries expand their spending on defense, they seem to be closer to demographic issues and very close to be unfit to fulfill their industrial, security and social-democratic obligations, its not as bad as China’s demographic situation, but it is concerning. The Mexican judicial reform has sparked huge protests, it was ratified either way and set to be applied, some theorists explain that there is a very slim, but non-zero, chance that the supreme court can be a last standing internal barrier to this reform. In general, everything points to more instability in the energy sector as well as general trading routes. Additionally, the trade war with China shows no signs of slowing down, they also seem committed to increasing tensions by threatening Taiwan and overall support to antagonistic regimes across the eastern part of the globe. In general, the global flow and production of goods and services seems to be slowly degrading.
Some interesting topics to keep on mind are:
Some defense analysts have been stating that social media can be used as a military technology. Which means potential political instability through escalation of hostilities by countries who start declaring social media “warfare” as a direct attack.
Some people are referring to a “Social Recession” in the US where people are increasingly isolated from each other. Increasing since before, but potentiated since the pandemic, this can mean lower birthrates, lower services and experience spending and, in general, a demographic structure with less growth potential
Standardized testing scores have dropped dramatically in the US, with an important part being attributed to the lockdowns, this could affect the overall competency of future US work force, depending on how deep the issue is across generations
At this point, probably, you could start to see great investment opportunities, but if a recession actually comes, there might be lifetime buying prospects, so splitting hairs, its a great time to have dry powder. Also a great time to go back to value and stop eying the pie in the sky.