Rudi’s View: Are We There Yet? (Fat Chance!)

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Sep 21 2022

In this week's Weekly Insights:

-Are We There Yet? (Fat Chance!)
-Conviction Calls
-Research To Download

By Rudi Filapek-Vandyck, Editor

Are We There Yet? (Fat Chance!)

As is often the case, the most important developments across financial markets this month are what is not shown through share price movements.

On Monday morning ANZ Bank mailed out its latest economic forecasts, and the changes are quite noticeable:

"Based on current and expected price trends we now forecast a terminal Fed funds range of 4.75-5.00% to be reached by Q2 2023, which is 100bps higher and almost six months later than we previously projected."

In layman's language: the Federal Reserve will be tightening for longer and pushing up interest rates a lot higher than previously assumed, which is not yet priced in by financial assets.

Equally important: the team of economists at ANZ Bank is now reviewing its forecasts for the RBA in Australia for a potential higher-and-longer scenario locally too.

It goes without saying, ANZ Bank is but one forecaster in a global world of many, but Monday's update is indicative of the trend that started early in 2022 - and the same undercurrent has remained in place since: inflation is much stickier than assumed, central bankers will need to work harder to pull it back towards 2% again.

Just about every economic outlook has the US, and the world in general, either close to or in recession next year. Imagine what higher interest rates for longer will do for the risks of recession.


Financial markets are transitioning away from exceptionally low interest rates and bond yields with low inflation to (when viewed from 2020's starting point) much higher rates and bond yields and much higher and more persistent levels of inflation.

It's not just central bankers and economists who have been underestimating how far and how long this process of taming inflation is likely to stretch out; the same observation can be made about investors and financial markets generally.

Nine months in and it is possible we're only half-way through what needs to happen. Plus the bulk of consequences (slower growth, higher unemployment, less liquidity) is still ahead of us.

This, however, does not automatically mean the only way forward is a steady regression into full-blown disaster. There are still plenty of what-if scenarios that can push equity markets in either direction between tomorrow and 2024.

Citi strategists summed it up as follows recently:

-Positive scenario: inflation comes down quickly, allowing central banks to stop tightening sooner - equity markets rally circa 20%

-Negative scenario: inflation remains sticky and central bankers need to continue tightening, causing a global recession - equity markets sink by -20%

To prove my point: Citi's base case scenario is for two negative quarters in the second half of next year for the US economy. Yet, its strategists also believe corporate margins and profits will prove more resilient and thus equities should be able to continue clawing back more of the losses suffered earlier this year.

Which is why, short-term, the nascent US quarterly reporting season might prove of more importance than this week's FOMC meeting.


On Friday, FedEx, well-known by investors around the globe and traditionally seen as a bellwether for the US economy (if not for the world economy) issued a severe profit warning, with management at the global transport and e-commerce services firm withdrawing guidance for the full year.

The shares were punished by -21% on the day -the worst fall in the company's history- and subsequently pulled down all peers around the globe.

FedEx management spoke of a sudden and severe deterioration in business momentum but thus far, also judging from general commentary and views, investors seem to be treating FedEx's problems as a pure e-commerce related matter. But what if it isn't?

Upcoming quarterly updates from corporate America might provide us with more insights.


I am certain if we had the choice, most of us would say just get it over and done with, so we can finally move on and look towards a brighter outlook. Alas, there is no such choice and this global transition remains an elongated, drawn-out process.

Only half-way? It is but a genuine assessment. This is not the time to lose patience.

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