The dominant narrative of a 'Goldilocks' soft landing is statistically unusual and not the norm—since the 1960s there have been 12 tightening cycles, 8 recessions, and only 4 arguable soft landings, making the odds of another soft landing approximately one in three.

The trough in rates for the year has likely been reached around 3.92% on the 10-year Treasury; rates will now move higher toward 4.25%, then 4.40-4.50% as financial conditions reset and offset any equity market strength.

China is a 'wild card' and 'looks kind of messy'; the Chinese equity market has broken a multi-year trend line on a monthly basis (back to 2005 on Shanghai composite) and could drop another 25-30%; China is trying to 'export her way out' of growth problems.

The US equity market is massively overvalued relative to the rest of the world—approximately four standard deviations overvalued—and this valuation dynamic will persist until either the dollar declines, the bubble bursts, or a recession occurs.

There is an ongoing self-reinforcing reflexive cycle in the US equity market where stock purchases underpin wealth, which underpins employment, which underpins Fed rate hikes, which underpin the dollar, which underpins valuations of US stocks for foreign investors—a cycle that is difficult to exit.

The Federal Reserve is pursuing an 'opportunistic disinflationary policy framework' similar to what Greenspan did in the late 1990s, where instead of deliberately killing the economy (as Volcker did), the Fed chokes it just enough to grind inflation lower over time without breaking it.

The Fed's central forecast, as reflected in the SEP, is pricing in 75 basis points of rate cuts, which matches exactly what Greenspan did between early 1995 and early 1996, followed by 30 months of unchanged rates during the tech boom.

Greenspan succeeded with opportunistic disinflation in the 1995-96 period only because of extraordinary productivity gains from the dot-com revolution; without a comparable productivity surge (from AI or otherwise) occurring in the next 1-2 years, the Fed cannot justify aggressive rate cuts while inflation remains sticky and growth remains strong.

The critical problem with accelerating growth from current 3.7% unemployment is that there are no workers available to drive 11-12% earnings growth; any attempt to find workers will trigger higher wage growth, which feeds directly into core service inflation—the very thing the Fed is trying to suppress.

In the late 1960s, the Fed tightened aggressively in 1966, then encountered a mini credit crisis related to Regulation Q that caused a slowdown in housing, and prematurely eased into ongoing fiscal spending, allowing unemployment to flatline for 9 months before growth re-accelerated, triggering wage and core inflation spikes and another stock market cycle.

The unemployment metrics and labor market show risk of reaccelerating, driven by 'hyperfinancialization'—the relationship between equity markets and the real economy whereby CEOs fire workers when stocks fall and hire when stocks rise, making the stock market the leading indicator of employment rather than fundamental economic conditions.

With fiscal deficits in the 6-7-8% range and hyperfinancialization keeping the labor market strong (because stocks keep rising), there is no mechanism to slow demand, making it impossible to understand why everyone thinks the economy will weaken enough to justify any rate cuts at all; the risk is on the right tail, not the left.

Chris Waller at the Fed explicitly stated that 'in many previous cycles...the fomc cut rates reactively...by large amounts. This cycle...with economic activity and labor markets in good shape...I see no reason to move quickly or cut as rapidly as in the past,' suggesting the Fed may not cut at all if conditions remain strong.

The Fed has done an 'absolute abysmal job' at explaining the opportunistic disinflationary policy framework to markets, which is why the market keeps pricing in aggressive cuts while the Fed is trying to signal patience and fine-tuning; other central banks (BoE, ECB) are doing a better job communicating this message.

Owner equivalent rent (OER) may come down somewhat, but overall service inflation could remain relatively high; this is a key risk that the market is underestimating in its dovish bias.

Because the US corporate sector 'whipped your bloody heart out' in terms of price increases, real disposable income fell by roughly 20%; wages need to catch up to rebuild this loss, or there will be significant political turmoil regardless.

Models suggest wage pressure will not drop significantly and will remain stuck at 5% and change well into 2024, providing no rationale for Fed rate cuts beyond perhaps a couple of 25 basis point cuts, which would either be justified because the Fed 'cocked it up' or out of fear of Trump.

Janet Yellen is 'doing everything' to frustrate the Fed's attempt to slow the economy by supporting the equity market; she understands 'hyperfinancialization' and the relationship between stocks and employment and deliberately uses her tools (debt issuance, reverse repo, treasury general account) to keep equities elevated to maintain employment before the election.

A Trump presidency would likely preserve tax cuts (not increase taxes) and potentially entrench isolationism, which mirrors the 1930s retreat and would worsen the geopolitical situation by removing the 'global policeman,' leading to a world resembling the 1970s with conflicts and proxy wars everywhere.

Modern warfare has become prohibitively expensive and complex for traditional hegemons to enforce: the British and Americans struggle against Houthi rebels with $2 million missiles against drones, camels, and AK-47s, making hegemonic enforcement difficult and fueling longer-term inflation trends via geopolitical instability.