The Initial Education from a Secular Pivot

Despite the Federal Reserve raising interest rates to a 22-year high, the economy remains surprisingly resilient, with estimates putting third-quarter growth on pace to easily exceed its 2% trend. It is one of the factors leading some economists to question whether rates will ever return to the lower levels that prevailed before 2020 even if inflation returns to the Fed’s 2% target over the next few years…

~ The Wall Street Journal, August 20, 2023

Change of a long term or secular nature is usually gradual enough that it is obscured by the noise caused by short-term volatility. By the time secular trends are even acknowledged by the majority, they are generally obvious and mature.

In the early stages of a new secular paradigm, most are conditioned to hear only the short-term noise they have been conditioned to respond to by the prior existing secular condition. Moreover, in a shift of secular or long-term significance, the markets will be adapting to a new set of rules, while most market participants will still be playing by the old rules…

~ Bob Farrell, Merrill Lynch

Jackson Hole 2022 and 2023

Jackson Hole in 2022 and 2023. Jerome Powell appears to enjoy pointing out distant peaks.

One and three hundred years before the enormity of the present dilemma began to dawn on the Federal Reserve, a similar moment arrived within the stone walls of the Banque Royale. You may recall the scene we visited last year.

By the end of 1719, property prices in Paris had risen so much that even wealthy Parisians were having difficulty affording a home. A clamoring for real estate over the prior year had driven prices so high that the rental yield on properties in the city had fallen to just 2%. This not only made owning real estate as an investment unprofitable, it also made buying a home to live in prohibitively expensive. Yet amid those hostile market conditions, few of the Parisian elite felt like there was any alternative except to try to buy something, anything, before prices rose further, even if it was in one of the less desirable neighborhoods across the Seine on the left bank.