MACRO PERSPECTIVES & MARKET
ARTIFICIAL INTELLIGENCE: IS HERE TO STAY AND WHAT IT MEANS FOR YOU
SPECIAL REPORT: 2024: THE YEAR OF GLOBAL ELECTIONS
THE COST OF LIVING: WHY INFLATION IS GOING DOWN BUT PRICES ARE NOT
THE TECH SECTOR: HOW LONG WILL NVIDIA REIGN?
2Q ECONOMIC OVERVIEW
3Q ECONOMIC OUTLOOK
By unshackling, I mean:
• Slash corporate and marginal personal income tax rates.
• Abolish capital gains taxes to ensure money moves around the financial system more freely and to its best use.
• Shred expensive regulations and shrink the size of the bureaucratic state.
I am talking about getting serious about this stuff and putting the hammer down. Unbridled capitalism, free markets and explosive innovation.
Now, what do you think the likelihood of either of those last two is? Slash government spending? Oh, do go on. Slashing government power? That is a sharp sauce, isn’t it?
This means we have to play the hand the powers that be have dealt us. As such, we will have to worry about inflation, the unemployment rate and the Fed. Laughingly, we will have to worry about the diseases the government inflicts and the cures that only it can deliver.
THE
I apologize for the cynicism. However, it is all sort of comical.
• The Treasury increases the size of the public debt in excess of $11 trillion over the past five years.
• The Federal Reserve keeps the overnight rate too low for too long.
• As a result, inflation, unsurprisingly, rears its ugly head.
• The cure? Have the Federal Reserve increase the overnight rate to slow the economy, slowing inflation in the process.
To put that $11 trillion number into perspective: It took the federal government over 232 years to run up the first $11 trillion. We have done it in less than five.
PUBLIC DEBT IS ACCELERATING AT AN ACCELERATED BASE
Have you ever seen a dog bite its tail and spin around in a circle? Yeah, me too. It is kind of circular, literally and figuratively, not unlike the current state of things.
This leads me to the following probable-case scenarios, which are far easier to list in bullet points than to explain in longer prose:
• U.S. GDP will continue to be tepid through the remainder of 2024.
• The official inflation gauges will continue to show improvement, even as consumers remain frustrated with higher prices.
• The official unemployment rate will edge slightly higher, with younger workers bearing much of the brunt.
• The healthcare and education economic sectors will produce the most jobs in the private sector, possibly by far.
• Government jobs will remain reasonably plentiful due to public coffers remaining healthy, with some notable exceptions like California.
• The Federal Reserve will likely cut the overnight rate at its September 2024 Federal Open Market Committee meeting.
• The banking industry, in aggregate, will be quicker to cut deposit rates than it was to increase them when the Fed was raising rates.
• Personal consumption expenditures will show signs of slowing, but not collapsing, as job growth cools somewhat. As pointed
out earlier in this section, most of the “dry powder” has already been spent. So, new jobs will be the primary source of growth, if not the only, for the consumer.
• The Federal Reserve will eventually completely abandon its “quantitative tightening” program, and will quit shrinking its balance sheet. This will keep longer-term interest rates from reaching a true market equilibrium, as the Fed plays backstop for the Treasury, gobbling up the continued surge in government debt.
• If the Fed doesn’t start cutting the overnight rate by the end of the year, economic growth will be increasingly hard to achieve in 2025. It doesn’t matter who is president or controls Capitol Hill.
• Remember this, the larger the government is as a percent of the GDP equation, the smaller the private sector is. Which is a better generator of wealth and a more efficient allocator of precious resources?
vs. Machine Learning
Imagine going from a Roomba cleaning robot to Rosey the maid from the Jetsons. Both are helpful for cleaning the house, but a full-service maid with a personality is a big leap from a glorified vacuum gadget.
PRODUCT LINE
3RD QUARTER PREDICTIONS
Political uncertainty, the rise of small caps, the possible fall of bank deposit rates, energy transition challenges and other projections from our Investment Committee for the 2nd half of 2024.
This report does not constitute an offer to sell or a solicitation of an offer to buy or sell securities. The public information contained in this report was obtained from sources and vendors deemed to be reliable, but it is not represented to be complete and its accuracy is not guaranteed.
The opinions expressed within this report are those of the Investment Committee of Oakworth Capital Bank as of the date of publication. They are subject to change without notice, and do not necessarily reflect the views of Oakworth Capital Bank, its directors, shareholders and employees.
