Recursion to which mean?

The biggest picture is ugly for bonds, equities, and house prices

What’s ahead for interest rates, stocks and home prices?

In trying to predict the future, almost everyone—retail investors, analysts, fund managers—are zoomed in on one topic or time period. They’re so zoomed in, they don’t notice a simple correlation that prevailed for most of the last 70 years, a correlation that suggests that short interest rates will go a lot higher than current levels, in turn cratering housing, bond and equity prices by 50-75%.

We’ll get to that correlation in a minute. First, let’s briefly recap a few of the trends and topics that analysts are busy debating AND the 10, 20, or even 30 year long timelines they’re invoking.

Reading the analysts and investors on Twitter, you’ll find lots of debates. Everyone has a graph to sustain their observations that:

• constricted supplies (labor, goods, ships) caused inflation… but these bottlenecks are disappearing

• the yield curve has inverted (long rates are lower than short rates)… which traditionally foreshadows recessions, so the Fed will ease and trigger a bull market

• too much money (PPP, money unspent in Covid times) caused inflation, but that’s now been absorbed and inflation is over

• higher rates will crush housing demand, triggering a recession that knocks inflation down to 2%…

• stock prices will go up as soon as inflation peaks, which may have just happened in August

• inflation comes down as soon as the Fed stops tightening, which could be any day now

• job losses are rising, house buyers are on the sidelines, commodities prices are falling… so the recession will arrive soon

Blah, blah, blah.

There is one SCREAMING correlation that is so obvious nobody sees it or bothers to talk about it.