The current worry factor for the media and the people they serve is the rising cost of living, and economists are warning that things could get tight in coming months for many households with interest rates, petrol prices and many goods and services bound to get dearer. But maybe there’s a bigger worry that many Aussies should have more focus on and that’s the security of their job!

Fortunately, two of the world’s most important bankers in the USA and Australia are seeing it more positively than the doomsday economists and the stock market since early January this year.

And, possibly, things could be about to change for the better, though many households might not see it until 2023, which I’m arguing could turn out to be a lot better than those seeing recession or stagflation or sky high interest rates coming down the pipeline.

After the worst eight weeks for US stocks since 1923, some market experts think they can see a silver lining.

“From inflation to a hawkish Fed, to war, to supply chain issues, to China on lockdown, to a slowing economy, there are many reasons stocks have done as poorly as they have recently,” LPL Financial’s Ryan Detrick said in an email, reported by CNN. “If we get any good news, a big bounce back rally is likely.”

And maybe we got the start of good news overnight out of New York, with US stocks strongly higher, driven by comments from Jamie Dimon, CEO of JPMorgan at an investor conference day

“Strong economy, big storm clouds,” he said. “I’m calling it storm clouds because they’re storm clouds. They may dissipate.”

He conceded a recession is possible but Bloomberg reports that he “… raised [the company’s] estimate for net interest income excluding its markets business to more than $56 billion for 2022. That would be a 26% increase from last year.”

You don’t do that if you’re expecting Armageddon!
I liked these comments and so did Wall Street, with JPM’s share price up 6.14% overnight, while Citi’s rose 6.09% and Bank of America’s price up 5.94%! Did I say Wall Street liked Jamie’s guarded optimism?
And this follows CBA’s CEO Matt Comyn disagreeing with the bond market and economists who think the cash rate will go to 2.5% by year’s end. His economics team thinks it’s more likely to be 1.35%, which suggests households won’t see their disposable income smashed by excessively high interest rates, which will be good if you want to avoid a recession.

I’m not saying things will be rosy soon and I agree with economists who see six months of cost of living pressures. But over that time, inflation is likely to ease, albeit remaining higher than what we’ve seen for three decades.
Last week, The Australian tells us that “the average national petrol price jumped 14 cents to $1.99 last week – still shy of the recent high of $2.13, but the largest weekly rise in the history of the Australian Institute of Petroleum’s data.”

Meanwhile, UBS chief economist George Tharenou said consumer price growth would peak at 6.5% by the end of the year, with wages growth reaching a high of 3.25% over the same period.

But as The Australian’s Patrick Commins reports that Tharenou “…thinks the RBA would be able to push rates to only about 1.6% by February ¬before the pressure on household budgets from mortgage payments would begin to drag on spending and overall growth”.

But six months takes us to around October or November and that’s when I’ve predicted that lower inflation will lead to a belief that interest rates won’t have to go as high as the most worried economists are predicting. And that will lead to the stock market reassessing the sell-off of many growth/tech businesses, which should help stocks make a solid comeback.

He says his calculations say inflation here could get to 6.25%, while former RBA board member and respected economist John Edwards thinks rates will go higher but concedes most of the inflation comes from overseas and the supply problems coming out of the Ukraine war and China’s pandemic lockdown, which is making goods in short supply and therefore more expensive.

I’m betting that these supply pressures on inflation fall faster than many economists expect and that will be a game-changer for global economies and stock markets.
But much of the above is bad news now that can stop us seeing good ‘stuff’ on the rise, such as:

1. Jamie Dimon’s views where he says this isn’t a “tsunami” of trouble but more like “storm clouds that will dissipate.”
2. Some respected US experts are tipping inflation is peaking there.
3. And AMP’s Shane Oliver said this on Friday: “Fortunately, our Pipeline Inflation Indicator continues to point to a peaking in inflation which should take pressure of central banks later this year or early next in time to avoid recession. Which in turn should enable share markets to be up on a 12-month view. The near-term risks remain high though.”

Check out his chart below:

As the old saying goes, “it’s darkest before the dawn” and I don’t expect things to get really rosy soon, but give us six months and I reckon stocks will be heading up nicely, provided the central banks don’t overtighten, China beats its lockdown problem and the Ukraine war ends.
And I liked this from the BBC over the weekend: “The war in Ukraine can only be resolved through ‘diplomacy, President Volodymyr Zelensky has said.

Speaking on national TV, he suggested his country could be victorious against Russia on the battlefield. However, he added that the war could only come to a conclusive halt “at the negotiating table”.
Pray for peace for Ukrainians and the lower inflation that will contain interest rate rises, save the economy from recession and help the stock market recover. And it will make me and my two big bank CEOs look really smart!