Strategy Note /
Global

Extrapolation & Beyond

  • The recent gut wrenching & historic cross asset moves come down to one thing -extrapolation of trends - inflation, rates

  • It's been the right way to think - the question is will it CONTINUE to be the right way to think - we do not think so.

  • The body of evidence suggests inflation will slow, the Fed will end front loading, the USD will fall & assets will react

Jay Pelosky
Jay Pelosky

TPW Founder & Global Strategist

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TPW Advisory
30 September 2022
Published byTPW Advisory

A gut wrenching, double digit equity decline amidst a global bond selloff and unprecedented FX gyrations leads one to conclude that extrapolation has been the name of the game.

 

Whether its extrapolating inflation trends, Central Banks’ response, King Dollar’s rise, UK’s tempest in a teapot or weak economic data into recession, its been all the rage bc its been pretty much the right thing to do.

 

The question is – will it continue to be the right thing to do? We don’t believe it will & argue that many of these trends are primed to either ease or reverse in coming months.

 

In the interim, risk assets are cheaper in many cases than they have ever been with sentiment the worst, positioning the lightest and risk appetite the lowest as we exit the worst seasonal period and enter the best.

 

Therefore, as hard as it has been, we are sticking to our conviction in a high nominal growth world that will support earnings and risk assets around current levels. Bottoms are a process not a date or level.