Economic Growth

Democrats are favored to win the election until recession materializes. But recession risks are high. Investors should adopt a defensive and conservative strategy in 2024 amid extreme US policy uncertainty.

The overarching macro theme for China in 2024 will be deflation and its impact on the economy, macro policies, and financial markets. Widespread deflation, in combination with high debt levels and falling real estate prices, has unleashed debt deflation and balance sheet recession dynamics. The latter are rendering monetary policy inefficient.

Falling core inflation in the US over the short run will boost real disposable household income, which will keep consumption – ~ 70% of US GDP – strong. Over the medium- to-longer term – 3 to 5 years out – inflation risks rise as fiscal dominance becomes the Fed’s modus operandi, and economic fragmentation becomes entrenched. War and the expansion of war remains an inflation risk. In this environment, gold remains our preferred hedge.

Global instability will continue in 2024 – whatever happens afterward. Slowing economies will exacerbate already high geopolitical risk and policy uncertainty stemming from the US election and foreign challenges to US leadership. Overweight government bonds, defensive sectors, the Americas versus other regions, aerospace/defense stocks, and cyber-security stocks.