Jim Welsh: We’re Heading for a Bear Market Unlike Any Seen Before

Tom welcomes Jim Welsh to the show. Jim explains his approach to market analysis, which combines technical with macro forecasting. Jim discusses how monetary policy has changed over his career and the consequences of negative real rates and quantitative easing. There has been more and more accommodation by the Fed. Most investors today have never experienced a period of high inflation. Further, bonds and equities are now both selling off, which has surprised many. Since 1981 the use of fiscal and monetary policy to limit economic slowdowns has created unintended consequences of not properly purging the economic system. The Fed has overplayed its hand and is now cornered. Every unit of debt added today is increasingly less beneficial to growth. Debts are now growing faster than GDP, and money velocity has been declining since the mid-90s. This is why we're setting up for a major secular bear market. Many people believe we are in a recession, but the first quarter demand was good. Consumer finances remain strong and people have refinanced mortgages at lower rates. The majority of consumers are in a reasonable position to withstand some inflation. We're not entering a recession yet, but perhaps next year once savings have eroded. Jim shows long-term charts that demonstrate the unusual nature of the recent inflation cycle. We're now seeing good prices decline somewhat, while costs of services have begun to rise. Inflation is affecting a considerable section of the CPI metrics, which probably means a tough time to get below five percent. The odds of the Fed preventing a recession seems low. Wrong chart was inserted during the discussion on the S&P. Below is the correct chart. Gold has done very well for mitigating inflation, but the dollar has created some big headwinds. Gold is likely going to rally toward 1850. We could be looking at a re-test of the highs at some point. Europe is facing a cold winter, and it will be interesting to see what happens to Germany's industry, which is hungry for energy. A recession for Europe is certain given all the dynamics. The dollar is probably approaching a top. Talking Points From This Week's Episode * The negative impacts of controlled rates and quantitative easing.* Why we're not in a recession yet, likely next year.* Thoughts on the labor market and overall consumer finance sentiment.* His outlook for gold, the dollar, and indoor thermometers in Europe this winter. Time Stamp References:0:00 - Introduction0:48 - Technicals + Macro2:20 - Time & Monetary Policy6:30 - Q.E. & Investment Risk9:20 - Fed Losing Control16:55 - Recession & The Charts21:38 - Consumer Strength & Credit26:15 - Labor Market Tightness36:28 - Job Growth Slowing40:33 - Recession Indicators43:49 - Fed Success Rate48:43 - The Neutral Zone54:20 - Fed's Breaking Point?56:52 - Inflation History59:32 - Recession Odds1:06:00 - Inflation Relief1:07:59 - Treasury ETF TLT1:10:27 - S&P Chart Thoughts1:13:35 - Gold Outlook1:17:35 - The Dollar & Europe1:20:10 - Wrap Up Guest Links:Website: https://macrotides.com/Twitter: https://twitter.com/JimWelshMacroE-Mail - Offer: [email protected] Jim Welsh is a student of the financial markets and a seasoned veteran of investing with forty years of portfolio management experience, including security research & analysis, model building, portfolio construction, asset allocation,