How is seeing things: - The recession doomers need to stop taking their "crazy pills" - Stocks will "crush" bonds as record fiscal deficits reignite inflation - Nominal GDP growth will continue to be strong as long as the U.S. government continues to print 2 Trillion of "helicopter money"... 🚁 - However, the 2023 disinflation will itself prove to be "transitory," and the Fed will cut interest rates by less than the market expects (currently ~6 cuts are priced in by end of 2024) - Recent easing of financial conditions (rally in rates, stocks, and credit) will boost economic activity, particularly the housing market - Fed is likely planning to taper quantitative tightening (QT), which means that the shrinking of the Fed's balance sheet will continue even longer, until the Fed's reserves approach the LCLoR (lowest comfortable level of reserves) - We also discuss the draining of the reverse repo facility (Joseph was publicly talking about this literally 3 years, now everyone is talking about it) and mortgage-backed securities (MBS) role in QT. I ask Joseph if fall in rates will cause MBS prepays to rise, he says (I'm paraphrasing) technically yes, but it will be a very mild effect As usual, this interview is available on Forward Guidance on all podcast apps and on " Macro" YouTube channel. Video version is now also available on Spotify Huge thank you to Public for sponsoring this interview! Enjoy 🔥show more

To be clear, Joseph's actual quote is "if you're printing $2T of helicopter money per year, I don't see how you get a recession. That seems like I'd be taking crazy pills, honestly." Also, Joseph expects inflation to reignite to mildly elevated levels (3-4%), nothing like 9%

Couldn't agree more with this comment - Joseph has nailed so much over the past 3 years

@FedGuy12 Must be some crazy-pill party over at the Conference Board. LEIs down like 17 straight months?

Watched the whole thing. Lots of great points that I agree with. I'm definitely not a macro expert, but wanted to ask @FedGuy12 about bond supply and demand. Is demand for bonds based more on reserves IE just bank demand, or more on M2, IE total demand? If M2 keeps up with bond issuance, won't demand keep up with supply? In that case bonds up. At the same time wage pressure will subdue earnings even with solid revenue growth (the market is priced beyond earnings perfection). So could imagine stonks down. I personally think stocks and bonds are rigidly correlated right now through leveraged derivatives, so either bonds up stocks up, or bonds down stocks down. I also believe that M2 won't keep up with debt issuance, so both down. Am I crazy?

@FedGuy12 Sorry ..facts don’t support thesis.. extreme levels of debt are deflationary.

@FedGuy12 Opening section of this was a really good overview of what’s going on and viz of the forward picture. (Not just cause I agree with much of it)

@FedGuy12 Bonds crush stocks in high inflation environments. You have this backwards.

@xbt_ag @FedGuy12 Stocks did 2x better than bonds did during inflationary period of 1970s S&P 500 average return in 1970s: 9.72% Bonds average return in 1970s: 4.79%

Problem is, you have a hell of a top in the markets playing out right now. I'm in short term Treasuries and staying there. Stock markets are power law phenomena. They have punctuated mathematically derived trends and reverse suddenly. Early January looks to be one of those points, so far.

@FedGuy12 You need to try to get a hold of folks like Lacy Hunt to explain why all these ideas are totally wrong.