Where Are We in the Cycle? With Warren Pies | Summary and Q&A

TL;DR

Warren discusses the current state of the markets and predicts a recession in Q2 of next year based on indicators such as housing employment and job openings. He emphasizes the need for a flexible approach and paying attention to market signals.

Key Insights

• 😮 The year 2023 has been full of surprises for forecasters, with the economy proving to be more resilient than expected.
• 🤩 Housing employment and job openings are key indicators Warren focuses on for predicting the timing of the recession.
• 😥 The yield curve inversion and contraction in lending point to the late-cycle nature of the economy.
• ❓ The fiscal deficit and monetary policy create a complex dynamic, with potential disruption to the banking industry.
• 🧘 Warren emphasizes the importance of being flexible and willing to change positions based on market signals.
• 🏛️ The future path of the economy will determine the hierarchy of asset classes for investors.
• 🥺 The oil market is in a deficit due to Saudi cuts and increasing demand, leading to a potential rally in prices.
• 🫢 Natural gas is also expected to see increases in price, driven by an export story and potential weather factors.

Transcript

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Questions & Answers

Q: When does Warren predict the recession will come?

Warren predicts a recession in Q2 of next year, although he acknowledges the uncertainty and false precision in such predictions.

Q: What indicators does Warren focus on for predicting the recession?

Warren focuses on housing employment and job openings as leading indicators, as they have historically preceded recessions by about six months.

Q: How does Warren factor in the effects of fiscal deficit and monetary policy on the economy?

Warren considers the potential counterbalance of the fiscal deficit to some of the effects of monetary policy, leading to a more resilient economy. However, he still sees indicators of a late-cycle economy, such as rising default rates and a slowdown in housing starts.

Q: What role does market sentiment and technical analysis play in Warren's approach?

Warren believes in having strong opinions but being open to changing them based on market signals. He pays attention to market breadth and technical indicators to guide his investment decisions.

Summary & Key Takeaways

• Warren discusses the consensus among forecasters for a recession in 2023 but notes that the economy has proven to be more resilient than expected.

• He predicts a recession in Q2 of next year based on indicators such as housing employment and job openings.

• Warren emphasizes the importance of having a flexible approach and paying attention to market signals.