In this special interview from May, I sat down with JDI Research founder Juliette Declercq of JDI Research at the wonderful Mauldin Economics' Strategic Investment Conference.
Juliette cut through the noise to deliver a crucial update on the US economy's pivotal moment and a clear forecast for the next 6 months amid shifting global dynamics. While acknowledging the US's tremendous structural assets Juliette emphasizes a "cyclical fading" of US exceptionalism, leading to a necessary "dark night of the soul" for the economy.
However, this rebalancing also offers opportunities globally, with Europe and China showing potential as liquidity outside the US is revalued.
Recorded in May at Mauldin Economics' Strategic Investment Conference.
Some of the key takeaways:
Exploding Term Premia: The Moody's rating downgrade served as a “wake up call,” but it's really part of a larger theme that has been unfolding since the start of the year: exploding term premia. Term premia, representing the price of the world's safe asset (US treasuries), have not stopped rising all year.
A Necessary “Dark Night of the Soul”: Juliette maintains her high-conviction call for a US recession, describing it as a “traditional recession, two quarters of consumption going down.” This period of pain is a “dark night of the soul” that the US must go through to emerge “much stronger.”
A “Cyclical” Fading of US Exceptionalism: Juliette is clear that she is “not talking about the end of US exceptionalism in a structural manner,” given the US’ tremendous assets in technology, capital markets, and a low tax base. However, she does see a “cyclical fading” of this exceptionalism, not least because China’s significant advancements in R&D and industrial capacity are catching up with US dominance in key sectors.
The "Hyper-Financialized" US Economy: The US economy's consumption is notably “hyper-financialized,” heavily driven by asset performance, such as 401k accounts. This makes consumption particularly vulnerable to declines in asset values. For example, if asset returns like the S&P's 20% growth do not continue, consumption could easily collapse. Juliette says this structural characteristic is unique to the US compared to economies like Europe, where a significant stock market drop might not impact consumption in the same way.
Investment Implications: Look Beyond the US: Currently, Juliette believes “no assets in the US at the moment are investable.” This applies to both 10-year treasuries (due to fiscal risk) and stocks (which are still pricing in “ridiculous growth” at high multiples). She sees opportunities in rebalancing global liquidity, with more attractive assets and valuations found outside the US, and she highlights Europe, in particular, for having more fiscal space.
Short-Term Analytical Horizon: Juliette is firmly focused on “this year and the next six months.” She pointed out that while soft economic data can (and has in many cases) collapse quickly, hard data like personal consumption and aggregate private hours worked tend to have a “consistent lag” of up to 6 months, making the coming months crucial for observing the full impact of market forces and policy decisions.
I hope you enjoy the full conversation as much as I did. Let us know what you think in the comments…!
Maggie
Important Disclaimer: It is crucial to remember that this article is for informational purposes only and should not be considered investment advice. Consult with a qualified financial advisor to assess your risk tolerance, investment goals, and overall financial plan.
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