The Way of the Dragon
Dec 31, 2023
As we close out 2023 it’s useful to reflect on the things we got right and the things we got wrong. I was wrong about the US economy.
On July 5, 2022, the yield curve between the two-year and ten-year Treasury notes inverted and I was certain the US economy would slip into recession. Yield curves become inverted then the interest rate for short-term loans becomes higher than the interest rate for long-term loans. Typically, an inverted yield curve is followed by recession, but this time appears to be different.
There are no signs the economy is headed to recession, or even slowing down. In fact as recently pointed out in a WSJ Article, “A year ago, everyone from the strategists at Wall Street banks to rap artist Cardi B was calling for a recession. Instead, inflation continued falling, consumers kept spending and the unemployment rate fell to 3.4%, the lowest level since 1969.”
So, what should we expect for 2024? Clearly, I have no idea!
My best guess, inflation continues to be a problem. With the recent gains by labor (UAW, et al), wages will continue to rise, which will keep pressure on prices. Add to that continued wars in Ukraine and Gaza, strong housing demand with inadequate supply, and you have a recipe for higher prices … for longer.
2024 is the year of the Wood Dragon. According to the South China Morning Post, the Year of the Wood Dragon “is believed to be able to foster growth, progress and abundance, and this year will be good to build a solid foundation for something new with long-term potential.”
The way we finished 2023, that prognostication may well come to fruition.