S3 E11: Goldilocks Is (Probably) Just a Fairy Tale

DoubleLine’s Ken Shinoda welcomes back Gerard Minack, director of Minack Advisors, to get Mr. Minack’s outlook on the markets for 2023, including what Mr. Minack sees as the equity market’s overconfidence in the Fed engineering a soft landing. “We can’t have both the rate market being right and what it’s forecasting and the equity market being right and what it’s forecasting,” Mr. Minack says. “My base case is that we do get a recession that starts probably June quarter. If we (do), then the rate market is probably right to be expecting better easing in the second half of the year.” He then discusses the impact of the Fed’s push for a quick return to 2% inflation (2:43) and how the Fed’s inflation fight will hinge on loosening the labor market by 1% to 2% (4:47). If that were to happen, Mr. Minack notes, “There’s never been an increase in U.S. unemployment of more than half a percent without a recession.”

Messrs. Shinoda and Minack also look at, among other topics, the historic challenges of 2022 for high-level asset allocation (11:42), Mr. Minack’s outlook for equities earnings decline (15:49), a credit market that Mr. Minack sees as too complacent (20:14) and a betting man’s perspective on the Fed pulling off a soft landing (30:40). On the Fed’s challenge to loosen the labor market to get wages under control, Mr. Minack observes, “If you’re watching unemployment rate to drive your monetary policy, you really are driving the car by looking at the rearview mirror, because the unemployment rate is a lagging variable.”

The two close out the episode with Mr. Minack’s thoughts on the U.S. dollar and international assets (33:28), including what he sees as a declining dollar; why he is bullish on CapEx (for tangible stuff not for coding the next TikTok) (36:05); and commodities positioning (39:32). This episode was recorded Jan. 25, 2023.