Amidst discussions about the potential for a “hard landing” and an increase in unemployment, financial experts are navigating the complexities of the current economic landscape. These discussions highlight concerns about the seemingly buoyant markets in the face of various risk factors.
Mizuho’s Konstam has been vocal about anticipating a hard landing by the end of the year. He emphasizes that what might initially appear as a soft landing can quickly transform into a hard one, expressing certainty about the challenging economic conditions that lie ahead. He notes the possibility of unemployment rising to levels around 6% or even 7%.
Meanwhile, there are divergent views on market sentiments. Some argue that markets should be uplifted by increased liquidity in 2024. However, a cautionary perspective emerges by examining historical liquidity trends. Despite rising liquidity in the years leading up to major crises like the Great Financial Crisis of 2007-2009 and the pandemic crisis in 2020, these events unfolded, suggesting that liquidity alone may not insulate markets from downturns.
The cost of downside protection in the form of put options for the S&P 500, according to Goldman Sachs analysis, is at its lowest since 2018. This low cost is juxtaposed against concerns raised by billionaire bond fund manager Jeffrey Gundlach, who questions the reliability of unemployment data, pointing to an alarming 88% of states reporting rising unemployment over the last six months.
As financial conditions in the U.S. are considered the easiest in two years, the dichotomy between market optimism and economic uncertainties raises questions about the sustainability of the current trajectory. Investors and analysts are navigating a landscape where signals of economic challenges coexist with indicators of market resilience.
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"Markets should be buoyed by increased liquidity in 2024"
Me: there are also risks
Look at this chart carefully, despite rising liquidity from 2006 and from 2019 the Great Financial Crisis (2007-2009) as well as the pandemic crisis in 2020 both occurred.https://t.co/yA3DkcaWj8 pic.twitter.com/UceyqCkdNV
— Global Markets Investor (@GlobalMktObserv) January 29, 2024
According to Goldman Sachs analysis, the cost of the S&P 500 downside hedge via put options is the lowest since 2018 and apart from 2018 the lowest in decades. pic.twitter.com/OYC8DiTMbK
— Global Markets Investor (@GlobalMktObserv) January 29, 2024
https://www.dlacalle.com/en/why-americans-do-not-see-a-strong-economy/