E87: Emerging markets, Sri Lanka, 9.1% CPI, market sentiment, NASA's Webb telescope & more

Following Sri Lanka’s 2022 collapse and default, multiple other developing countries including Ghana and Pakistan will experience similar crises involving food riots, energy insecurity, rampant inflation, and likely sovereign defaults in the subsequent period (i.e., within the next few years after mid‑2022).

“as goes Sri Lanka, so goes Ghana, so goes Pakistan, so goes a whole bunch of countries where you're already starting to see food riots, food insecurity, energy insecurity, rampant inflation, uh, sovereign defaults” View on YouTube

Within six months after mid‑July 2022, additional frontier or emerging market countries will experience Sri Lanka–style crises or collapses (“other dominoes”).

“Yeah. And this is the canary in the coal mine. I think we're going to see Freiberg. I don't know what you think is going to happen over the next six months, but there's going to be other dominoes. Certainly.” View on YouTube

In the following years after mid‑2022, in frontier and emerging markets that become destabilized, China will more often than not act as the primary external financial and political supporter, especially in countries where it already has infrastructure investments.

“China will likely end up becoming the savior and supporter, particularly where they have infrastructure investments and interests.” View on YouTube

The US headline CPI year‑over‑year inflation rate will at some point in the near term after July 2022 reach at least the mid‑9% range and possibly 10% or higher.

“I actually also kind of put myself on a limb there. And I said, you know, I wouldn't be surprised if at some point we print a mid to high nines, maybe even a ten handle at some point.” View on YouTube

At the next FOMC meeting after the June 2022 CPI print (i.e., the July 2022 meeting), the US Federal Reserve will raise the federal funds rate by 100 basis points.

“Canada surprised everybody and raised, uh, their benchmark interest rate by 100 basis points... and I think if you read the fed minutes more carefully, I think Jerome Powell is basically ready to do the same thing after this inflation print” View on YouTube

For the July 2022 US CPI print (released in August 2022), headline year‑over‑year CPI inflation will be roughly 9% (around the June 2022 value), as declining energy prices will be offset by rising rents.

“We do see a little bit of falloff in, in energy prices, but I'm not so sure that it's, it's enough, frankly, to, to move the needle. So I think that we could be in a sustained period for a while... they may actually, you know, break even. Right. Meaning rents go up by so much oil goes down by so much they cancel and we're still at nine.” View on YouTube

By the end of 2022, typical US mortgage rates will rise to approximately 6–7%.

“So we're going to see mortgage rates probably go six 7% towards the end of the year.” View on YouTube

Over the medium term (within several years of 2022), US inflation will be brought back under control to normal levels because the Federal Reserve will eventually raise interest rates high enough to end the high‑inflation episode.

“look, we are 100% going to solve this inflation problem. Why do I say that? Because price levels are fully within the power of the fed. They just have to raise interest rates high enough.” View on YouTube

During the current calendar quarter following this July 14, 2022 episode (i.e., Q3 2022), significant institutional market participants will begin re-engaging, with overall capital deployment and transaction activity in public and private markets starting to increase compared to the prior quarters in 2022 when they were largely on the sidelines.

“significant market participants, I think, are going to start to perk their head up this quarter and start to think about doing new things...I do think that capital activity is going to start to come back this quarter, where people are going to start to think about what to do rather than pull everything out because of the massive shift that's happened in the past couple of quarters.” View on YouTube

Over the near term following July 14, 2022 (at least the next several months), most investors and portfolio managers will not rapidly move large amounts of capital back into equities; instead they will largely remain cautious and underweight equities while they wait to see how major tail risks (e.g., consumer credit issues, Taiwan risk, emerging market crises) develop.

“I think that's the reason people, investors, portfolio managers are not going to kind of rush back in to putting more money into equities is just, you know, sitting around waiting to see how a few of these things resolve.” View on YouTube

By the upcoming winter of 2022–2023, political unity within the Western alliance over the Ukraine war and related Russia sanctions will significantly fracture, with major European countries (such as Germany or others dependent on Russian gas) openly opposing or breaking with the U.S.-led policy line in a way that is visible in their public positions or actions.

“Let me make a prediction. Right. I think the Western alliance is going to fracture come this winter.” View on YouTube