A Soft Landing
Early signs and where it could go wrong
If someone forwarded this to you, you can read about who I am here. I was a strategist and equity partner at the biggest hedge fund in the world. Now I make my thoughts available to you and implement them with my own capital. This Substack grows via word-of-mouth, so please forward to friends. If you like this writing, you will enjoy my books Master, Minion, and Raising a Thief. This is not investment advice. Investing is risky and sometimes quite painful.
I suspect we may get a soft landing. That means inflation falls further without unemployment spiking sharply higher. I’ve been expecting a soft landing for a while and reality has not fully cooperated. But the evidence is slowly mounting, if you look for it.
To be sure, markets are discounting a soft landing, meaning the bond market expects inflation to fall close to the Fed’s 2% target. But what I’d describe as Wall Street cognoscenti—like former Treasury Secretaries and top Wall Street banks—believe inflation is a bigger problem and that the Federal Reserve needs to keep raising rates. There are also reports of large speculative short positions in stock and bond futures, positions that will benefit from a hard landing.
As always, I wonder if I am missing something. This state of confusion and anxiety I feel is part of the game. The future is never clear. By the time the truth is in the data, the truth has moved on. Today, I want to describe the evidence that is informing my view.
Before I do so, however, let me share with you my UNAUDITED performance. I share this not because I am trying to raise money or brag, I am not. I only manage my own money. I share this so that those of you who don’t know me well (there are a lot of new subscribers) see that I am not just a person writing opinions. I am sharing with you in real-time how I am thinking and investing. In the footnote below, I share some of the calls I’ve made, with attached posts, since starting this Substack.1
The economy and financial markets are too complicated to prognosticate with precision. I’ve seen lots of smart people get forecasts horribly wrong and I have had some terrible calls myself. My worst year was 2008, negative 6.5%, when I was months early betting markets would bottom. But through work, pattern recognition, and the will to survive, it’s possible to if not quite predict then improve your navigation.
To do so, I try to apply logical frameworks to economies and markets, imagine what a future looks like that is probable but can not yet be seen in the data, and look for consensus that has gone too far in one direction. Avoiding large losses helps. In 2008 and 2022, the stock market fell about 20%, meaning you needed to see a 25% rise in your stock portfolio just to get back to flat.
That said, here is what I am thinking.