Hedge your portfolio has been our strong call all of this year and it certainly has been serving us all well.
This week looks to be another good opportunity to conduct the same kind of portfolio protection to set yourself up to have the advantage when stocks eventually bottom.
The Euro is starting to see headlines around the risk of parity to the US dollar. Something we forecast several months ago at 1.14 when we said the target for the Euro was below parity at around .9700. This remains my forecast.
Goldman Sachs former CEO Lloyd Blankfein has joined our ACY Securities forecast that there is a high probability and certainly a strong risk of recession in the USA this year. Many others had spotted recession risk out in 2024, but we have been aggressive from the outset in our forecast for a potential US recession this year.
Goldman Sachs just downgraded their US GDP forecasts for this year and next, something we said they would have to do.
What GS fails to have a handle on as yet, as most of the major institutions, is that there is a very real risk, even likelihood of a triple Northern Hemisphere recession across the US, Europe and China simultaneously and virtually immediately.
This is why equity markets, in my view, have only just begun to downwardly price in such suppressed economic activity.
In the eventual panic, investors will increasingly flock to the more traditional safe havens of the US dollar and gold. These markets have tremendous upside potential.
For the US dollar, especially against the war and sanctioned savaged Euro, temporarily being supported by quiet ECB intervention and the Australian dollar which had been priced for never-ending commodity price nirvana. With the Federal Reserve still hiking aggressively the Australian dollar will fall further and further down the currency rating ladder. More of the nature of a slide in fact.
My forecast for the AUD remains since last year, 65 cents in 2022 and risk 58 cents in 2023.
Australia will also likely enter recession this year though the rest of non-China Asia should hold reasonably firm.
The only saving grace following further confirmation of GFC level panic among US Consumers on Friday night, Consumer sentiment plunging to an 11 year low of 59.1.
For equity markets, this week could be a slightly more cautious Federal Chairman Jerome Powell when he speaks on Tuesday. The fast ramping up of recession risk even before rate hikes have gained traction is a sobering development indeed. The Chair may well suggest rates need to rise quickly for the moment, but that also significant and increased attention may be addressed toward the prospect of consumers and businesses being unable to carry the simultaneous assault of both extreme inflation and higher mortgage rates.
US recession here we come and regardless of the Fed’s action – aggressive or mild, expect lower stock market values overall.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
