The Battle of the K Wave
K Waves in Commodities and Corporate Profits are attempting reversions to baseline growths present day. The baseline growth glide path was contributed by the FED in lowering the interest rate from 19% in the earlier 1980’s to present day Zero Lower Bound. The baseline growth was artificial in nature due to cheap monies. Fast forward today, and growth is anemic with a crashed commodity complex as the interest rate sits on the ZLB. Next attempt in spuring growth was NIRP. The ECB and BOJ have been experimenting with such policies to only find unintended consequences much different from academia.
Yellen entered the US Economy into a tightening cycle mimicking the dual mandate of 1999/2000 FED of the Dotcom era. She’s preparing the US Economy for a mean reversion via reduced inflation and unemployment before the economic shock. Cracks in the system are already evident as an earnings recession is nearing the 4th consecutive Q Y/Y, which would be the worst since the great recession. On the subject of earnings recession, the word recession means a deviation from a glide path, but reverts in an intermediate timeframe. This time around a much larger cycle known as a K wave could transition the earnings recession of current date into a more prolonged timeframe. We’re merely seeing signs of mean reversions. Prepare wisely.
What are K-Waves?
Corporate Profits vs. Interest Rates
Commodities vs. Interest Rates