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Commentary

DCA Market Outlook

07/06/2022

INFLATION, DISINFLATION, THEN DEFLATION? *

In our view:  

  • INFLATION has peaked.  
  • The US and Europe are in RECESSION.  
  • Oil prices will be back below 80 by the end of 2022.  
  • Commodity prices have seen their highs.   
  • WE do not believe the FED will get above a 3% Fed funds rate.  
  • Interest rates are PEAKING, and the bond markets are stabilizing.  
  • The equity markets will likely bottom out in the late 3rd, early 4th quarter.  
  • 2023 equity markets will retest and potentially exceed 2022 highs.  

This all assumes that the Fed remains moderate by nature and that they will flinch at the first signs of contraction, especially if unemployment begins to rise toward 5% or above. An overly hawkish Fed risks a deeper recession and ultimately a deflationary environment.   

Such a potential mistake by the Fed could result in a real estate devaluation of 35-40%. Such an event, though unlikely to create problems for un-leveraged homeowners, would result in a significant amount of financial disintermediation for leveraged attendees, including the asset managers who still aggressively purchase homes to rent and remodel. In this scenario, crypto prices will be back in 4 digits, and a few very visible crypto-based financial institutions could go bankrupt or be merged (this is already happening!). This might be reminiscent of the brokerage houses and banks being liquidated and merged in the 2006-2010 timeframe. The equity markets, rather than heading toward new highs, could contract to DOW levels of 20,000.    

We believe that DCA, the firm, remains in excellent financial condition.  It continues to be positioned defensively in the public markets, while slowly adding to its private portfolio. We believe that DOW 27,000 is now a probability rather than an outlier. As noted above, in our view, the Fed should moderate its actions as we head into early Fall. If it does, then we plan to adjust our portfolio by reducing cash and allocating aggressively toward growth in the public equity markets. If the Fed remains hawkish, then deflation and disintermediation become significant risks.  

 

ONWARD!
DCA Asset Management Inc.  

 

*One of DCA’s guiding principles is that we will communicate with our investors and prospective investors as candidly as possible because we believe investors and prospective investors benefit from understanding our investment philosophy and approach. Our views and opinions regarding the prospects of investments and/or the economy are forward looking statements as defined under the U.S. federal securities laws, which may or may not be accurate and may be materially different over future periods. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” “may,” “should,” “plan,” or the negative of such terms and similar expressions identify forward looking statements. Forward looking statements are subject to certain risks and uncertainties that could cause actual results to materially differ from an investor’s historical experience and current expectations or projections indicated in any forward looking statements. These risks include, but are not limited to, equity securities risk, corporate bonds risk, credit risk, interest rate risk, leverage and borrowing risk, additional risks of certain investments, management risk, and other risks. We disclaim any obligation to update or alter any forward looking statements, whether as a result of new information, future events, or otherwise. You should not place undue reliance on forward looking statements, which speak only as of the date they are made.

 

 

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