Inflation/Deflation

Today, we are sending you the BCA annual outlook for 2024. The report is an edited transcript of our recent conversation with Mr. X and his daughter, Ms. X, who are long-time BCA clients with whom we discuss the economic and financial market outlook for the next twelve months toward the end of each year.

Our kinked Phillips curve framework predicted the immaculate disinflation of 2023. That same framework is now warning that the global economy is heading towards a recession in the second half of 2024.

Contrary to the prevalent belief in the global investment community, goods/merchandise inventories in the US and East Asia are rather elevated. Financial markets respond to final demand fluctuations, not inventory restocking. Global manufacturing/trade will continue contracting, even though the pace of contraction might moderate in the near run. We recommend that investors fade the current rally.

Poland’s inflation will stay elevated. And yet, its return to the European mainstream has improved its financial market outlook. Accordingly, we are recommending new trades on Polish equity, fixed income, and currency.

The soft-landing narrative has gotten nowhere at BCA but appears to be making some headway with broker-dealers and investors. We are preparing to lean against it once it pushes equity prices a little higher.