You have to hand it to UBS’ Art Cashin. He loves to play against the crowd.
“Cashin the Contrarian” was very much in evidence in my annual look ahead interview with the NYSE floor legend. We met at our usual spot for the past 15 years: Bobby Van’s steakhouse across from the Big Board in lower Manhattan.
As he is wont to do, Art went against consensus thinking on many topics for 2022, including the idea that the Federal Reserve will become increasingly aggressive raising rates next year, and on just how long inflation will last.
Interest rates: Not as high as everyone assumes?
“The headline a year from now will be rates don’t rise as much as people assume,” Art tells me, suggesting that Fed Chair Jerome Powell and the others have not abandoned sensitivity to higher rates and the impact on the economy.
“I would suggest to the viewers, don’t pay attention so much to the meetings and what was said at them. Remember that Powell has to be reconfirmed in the middle to end of January. So if they move to taper a little too rapidly, if somehow the market takes it badly, he’s got to allow for a back-off.”
“And if we had a sudden sharp drop in the stock market, I think you would see the Fed back off. And I think the fact is, this economy depends far more on the stock market. People’s assets have risen. Back to that consumer, their household assets have risen — some of that is measured by what the stock market does.”
The surprise on inflation: Not what you think
Surprise! Art says inflation will indeed prove to be transitory just when the Fed has given up on the word. He says many companies have double-ordered on supplies and that after the holidays supplies will begin to pile up on the dock. He believes inflation will begin to abate in the first quarter and points to some key dates in China.
“I think product inflation will begin to drop sharply [in early 2022]. I would suggest to you that there are two dates that viewers should watch out for. One is the Lunar New Year, okay, and its celebration in Asia. And secondarily, the Winter Olympics, which are gonna occur in China. I think China is a key function in the demand cycle here, in the supply cycle. And once President Xi gets past those two ones, he’s worried about a food shortage, he’s worried about energy shortages. He’s worried about all of those other things. They should crest at the lunar new year and the beginning of the Winter Olympics. And then I think you will see prices begin to trend down and that I think will be a major headline. People will say wait a minute, in December wasn’t the Fed suddenly dropping transitory?”
Covid likely to become ‘manageable’ disease
Art is optimistic about the ultimate impact of Covid and its many variants. This time next year, he believes vaccines and antiviral pills will have made significant advancements against the disease.
“I think the headline will be that it …….