Jesse Felder: Investors Go ‘All In’ On The Soft Landing Narrative

by Jesse Felder

Below are some of the most interesting articles, quotes and charts I came across this week. Click here to subscribe to our free weekly newsletter and get this post delivered to your inbox each Saturday morning.

Stocks celebrated the positive surprise on inflation this week but the festivities may be a bit premature.

'The market reaction to all of this is absurd. This just doesn't move the needle on the Fed. I know the conventional wisdom is that rates are going back to zero…it just seems kind of early to get on that train when median inflation is still 5.3%.' t.co/KdWXmoJxIv pic.twitter.com/Lo3xyFz9F1

— Jesse Felder (@jessefelder) November 14, 2023

In the short run, measures of inflation breadth like median CPI suggest the Fed’s battle is far from won. Longer-term factors like fiscal policy also remain a concern.

'Current debt levels are simply too high to effectively tame inflation, especially if U.S. deficit spending remains at wartime levels. Real assets with ample liquidity are well suited for such an environment.' t.co/aXL3HIILja

— Jesse Felder (@jessefelder) November 13, 2023

These facts haven’t stopped the stock market, however, from fully pricing in an “immaculate disinflation.”

'Over time, there's been a relationship, with higher inflation leading to lower multiples (to compensate for the way that inflation would eat into equity returns). Stock investors had better hope that this disinflation is immaculate.' t.co/qgLs56UPZT pic.twitter.com/3sqjbgNXHA

— Jesse Felder (@jessefelder) November 15, 2023

Hedge funds have now gone all in on the “soft landing” narrative.

Hedge fund exposure to mega-cap tech is in the 99th percentile. At the start of 2023, exposure was in the 12th percentile.

via Goldman Sachs pic.twitter.com/83GhWXUCw8

— Daily Chartbook (@dailychartbook) November 16, 2023

Meanwhile, the inside of the stock market is now sending a clear message that directly contradicts that narrative.

Druck Index: As hope of a soft-landing soar, the recession is just arriving

I follow Simon White, Bloomberg Macro Strategist's work on @zerohedge eg below. His work really is first rate imot.co/nN1Ma1iHoQ

H/T Simon White Bloomberg Macro Strategist, via @dailychartbook pic.twitter.com/E9IAIyeWVb

— Albert Edwards (@albertedwards99) November 17, 2023

Thanks for reading and have a great weekend!