Macro-Economics: U.S. Economy Out on a Triple Play
Analyst: David Rosenberg
Believe it or not, we are in the process of witnessing an event that has not happened in nearly three decades: a year that sees the Fed tighten policy (liquidity pinch), oil prices rise (margin and personal income squeeze), and the equity market head lower (wealth effect, discount mechanism)-a "triple play".
Like baseball, economic forecasting is a game of probabilities. In the past 50 years, we saw such a "triple play" unfold seven times, and every time, real GDP growth slowed the following year (see Table 1 on page 2). That puts the odds of a slowdown next year at 100%-not a track record worth going against. And how deep of a slowdown? On average, the growth compression was three-percentage points.
So if past is prescient, we could well be in store for 1%-ish type growth next year. Something tells us that equity valuation, credit spreads and the dollar are not presently priced for such an outcome.