Is This the Dip We've Been Waiting For?

We've been looking for a dip to buy and this might just be it. But, of course for investors, the decision is complicated by the context of what happening in the market and economy -- and even in crypto. Let's sift through what's going on see if I can talk myself out of the idea of buying right here. First, we have this report on inflation. Some economic reports are nuanced. As you dig through the details you can find tidbits of information that contradict the headlines. Maybe someone will see that in Friday's consumer price index report, but it seems like a pretty simple report -- much like being hit over the head with a two-by-four is a simple act of violence. So, anyone trying to buy this morning's dip will have to endure a series of very hawkish reports from Wall Street. The race to one-up each other on the number of hikes and the size of hikes had been slowing down, but that race will heat up now and over the weekend. All I can see in my head is an auctioneer, in their weird staccato voice, calling: Do I hear four hikes? Yes, four hikes over there. Do I get five hikes? Yes, five hikes to the gentleman from XYZ bank. Six hikes? Do I hear six hikes? That will be tough to endure as bull, but it might just be worth it. Right? What I'm really afraid of is not the old inflation data and the rate hike rush. What really scares me is the economy. Everywhere I turn, I'm hearing and seeing bad news on the job front. We're starting to see more and more stories about inventory builds and a dramatic decreases in imports. But I am also worried about crypto -- and this worry is actually interconnected with my concerns about jobs. Underscoring both these is news out that Coinbase is taking back job offers as it freezes new hires. One bastion of hope for many financial professionals who were tired of traditional firms was crypto. It has created a great number of jobs and wealth for those who work in the field. But, now what? And then there's bitcoin. Even at $29,500 -- at the time of writing -- many people have made a lot of money on bitcoin. But, many have lost money as it is back to almost where it was at the start of 2021. Almost no purchase that has been held over 18 months has made money. Many purchases have lost money, some, presumably based on the HODL mantra, have lost over 50%. And bitcoin is one of the better performing cryptocurrencies. Most alt-coins have fared worse. I don't know where pixelated ape non-fungible tokens trade anymore, but my social media stream isn't filled with NFT headlines anymore, that's for sure. Wealth destruction on an epic scale could be getting worse. Tether, the biggest of the stable coins, had survived a run to test how well it is pegged, but presumably we could see another one. My point? The crypto space is hitting jobs and wealth potentially at the same time and that is dangerous. The question now: Will this be the summer of recession? Let's look at the common views of the economy that have gained traction: First, we have the idea that the Fed will orchestrate a soft landing as it tried to stop inflation. This scenario has been steadily losing steam. Next, we have the idea of a recession that hits in 2023. This seems to have become the base case or is certainly gathering momentum. The economy is fine for now, but we could have trouble early next year. Finally, we have the idea that recession is imminent. This was only in the domain of the doom and gloom crowd a few weeks ago, but is gaining acceptance. I'm starting to identify with this group. Is it possible that we can go from healthy economy with a robust job market to recession that quickly? In theory, probably not, but we've never had such a contrived economy as we've had for the past few years. Lockdowns. Shutdowns. Stimulus programs. Supply chain problems. Supply chain fears. War in Ukraine. Oil futures going from trading negative to chatter about $150 oil, potentially this summer. I cannot help but think that D.C., unfortunately, is going to learn the lesson that while voters hate inflation, they really hate losing their jobs. Wow, I have almost talked myself out of buying the dip. Rates: The Glass Ceiling? One smart person pointed out that consensus for rates, at least for the summer, seems to be range-bound. I'm part of that group and, if anything, given my economic outlook, I think rates could head lower, especially at the long end. But is there anything to stop yields from breaking out to much higher levels? If consensus is range-bound and the fear of higher rates is subsiding (supported by bond fund flows), could we get surprised by much higher yields? The 10-year Italian bond yields, for example, have jumped 70 basis-points in a couple of weeks. I had viewed right around here (3.1%) as a ceiling on yields, but could that be a glass ceiling? Could we see yields here spike higher, as positioning is not prepared for that and as globally, bonds are under pressure? I'm adding the risk of a spike in bond yields to my list of fears that have to be accounted for. Again ... I almost talked myself out of buying the dip. The Bottom Line Tactically, I want to be long for a trade ahead of the Fed. The Fed, while well aware of inflation, is also aware that financial conditions have tightened significantly. That the housing sector seems to be slowing (30-year mortgages going from 3% to 5.6% in five months will do that. Strategically, I'm nervous about the economy and the erosion of wealth. That fear is going to shape my broader perspective, at least until we see strong evidence that central bankers also see reason for concern and start shaping their policy messages around it.

Is This the Dip We've Been Waiting For?

Inflation is boiling and the expectations for hikes will skyrocket. But here are my real worries as I try not to talk myself out of buying at these prices.

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