Recession talks are gaining momentum as FED turned super hawkish. Buy Dollar, sell anything is buzzword, resulting in many facet event i) Dollar shortage ii) unwinding of carry trade iii) unwinding of bond yield suppression iv) total meltdown in crypto assets and v) busting late stage bubble in metals, which have prompted huge risk off move.
All pundits under the sun have preaching about recession probabilities and going forward we may hear a lot on this topic. Its R world or D world or what could be shape of recession etc. U shape, V shape, W shape, L Shape or Latest version- K shape (K shape- when two coexisting things move opposite from a common point, like new age economy shoots up, old economy going down or in its new avatar it might be inverted K. digital economy down, old economy going up).
As we are entering in the state of pathetic mood blues, lets have a look back on past. After WWII, US has witnessed nearly 9 recessions, 6 were single dip, 2 were double dip and last one was CAPITAL V OR K. During every recession, starting point was depressive, during peak it was ultra pessimism and thereafter a turnaround. I witnessed 5 recessions since 1990. 1st was 1995-1998, the Clinton Era and it was double dip. Then after 1995, 2000 Y2K- WTC was single dip shallow recession. Third was 2008, U shape single dip. 2014-2015 China Internet IPO crash also a single deep, was the fourth episode. And the fifth 2020 was capital V-K recession.
During last 3 decades of my own eye witness episodes, starting from 1990 Kuwait war till Corona and in between 2001 WTC, 2005 Dubai crisis, 2008 subprime crisis, 2013 PIIGS crisis and 2018 US china trade war, one thing was common among all and that was loud public consensus: “World is going to End Tomorrow”. After each recession, global economy bounced back, majority of time bounced with a vengeance.
Current carnage in digital assets and mega-cap accompanied with deeper correction in emerging markets looks like a deep and meaningful decline- simulating crash and burn kind of lethal decline.
Bad news first, recession is almost certain in 2023-2024. Now the good news- in all likelihood, it may not be a shallow recession, but will be short-lived compare to 2008 and 2014 events. US economy is robust. China is weak, but having deep cash buffer with China and US may act as a nice cushion to absorb potential shock. Current downturn has greatly reduced froth in several assets. Mania in digital assets, financial gimmicks like SPAC, NFT etc fading, equity valuations in developed markets turning attractive again. We expect 2 H 2022 would be negative. We may hit bottom as early as 2Q 2023 or latest by 2Q 2024. QT may be over by 2024 and we may be lucky to have liquidity baby shower sometime onwards 2025.
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