RE: Receding global Inflation20 Sep 2023 14:41
@Kando - "It's fairly well reported at this point, but perhaps counter-intuitively, if you look at historic data, equities usually tank AFTER the pause or pivot, never or rarely during the hiking cycle itself. A quirk of the lag effects of corporate debt held at lower rates from before the cycle and corporate cash holdings earning newly higher rates, mean a lot of companies initially actually do well out of the hiking cycle, making more in interest from the cash they hold, than they're paying on debt servicing. The market is lulled into a false sense of security. That is, until debt maturation windows catch up, and the wider effects of rates hit their customers and earnings and it all comes crashing down at once.
It's possible people are going to be caught off guard with the market correction that is likely to accompany, or follow shortly thereafter, the peak of this cycle. Recessions almost invariably trail the pause, by on average ~8 months, but the pivot, when it comes, is usually much worse. The pivot is essentially an admission by the central banks that something broke and is invariably bad news of the markets."
You seem to be constructing a story of doom and gloom based purely on interest rate trajectory and this is where there is a good chance you'll get caught out. Historical recessions from the start of a Fed hiking cycle is a mixed bag at best. We're 18 months from the start of the cycle, but it does look like rates have plateau'd and if inflation keeps dropping, the trajectory could be lower, even without the onset of a recession. That is good enough to keep an economic expansion going - a fed pivot need not come about because there is a recession on the horizon. I'm in the soft landing camp, but with rates where they are, you could even tie yourself in to 2 year gilt/treasury for a risk-free yield of > 5% , if you did want to hedge. However, signalling a recession is imminent is plain b*llocks, IMO.
I'm not too worried about the macro - it's what the lightweight CEO running THG can actually do to deliver shareholder value that's of concern to me. There's a couple of more years before the debt needs repaying or refinancing, and if THG can get itself on the path to sustainable FCF in the coming quarters, that debt redemption fear should be non-existent, IMO.
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