What we are working on
The Fed’s preferred Personal Consumption Expenditure inflation measure (which is less affected by lagged housing data) is due out in 2 weeks and just before the Fed’s next rate decision. We are tentatively wondering whether Andrew Hunt’s prediction of returning inflation might happen sooner than even he expected. A more pessimistic market might have looked at the breakdown of inflation data plus real-time housing rental data (which is now very widely observed) and come to a different conclusion.
In this week's video we discuss this with Andrew and he is also of the view that this could be 'the start of something' but the fact that markets remain sanguine is also important and shows some resilience (and perhaps more liquidity being added to the system in the background).
This seems to be in line with 'the plan' and we were so impressed with Andrew’s prescriptive outline of how 2024 would transpire that we had some fun mapping out the portfolio decisions we might make along the way for a moderate tracking error portfolio and one with a more absolute return objective (for a high net worth client for example):
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In reality we know that the things will probably work out very differently (and we probably wouldn't trade quite so often anyway) but it an interesting thought exercise and gives us some rough bearings. Andrew has also mapped out some economic signposts that would tell us if this scenario is playing out or if another course needs to be plotted. These include monitoring government deficits, whether they are being monetised, whether China engineers a soft landing and Asian price trends. We also discuss these in this week's video while the following schematic (one of three different decision trees concerning the US economy) also gives a sense of the other scenarios that are still being entertained:
That may seem like a lot of moving parts but, arguably, it gets simpler the further you look out and that might be the perspective advisers prefer to take to their clients in their first meeting of 2024. With that in mind we will be updating our long-term Dashboard asset class forecasts in the next two weeks as well as publishing a thematic piece looking at what the next 10 years might have in store, perhaps with a nod to Andrew Hunt's current 2024 end game - slowing growth and resurgent inflation.
