What is a 'Winnie the Pooh' economy and is the US in one?

Pick a new storybook because it's not a Goldilocks economy anymore; it might be a "Winnie the Pooh environment" now, at least according to Sanders Morris Harris chairman George Ball. Ball joins Market Domination to explore the balance being struck between the Federal Reserve's inflation policies and American business growth.

Fed Chair Jerome Powell is "pleased with the trajectory of inflation, and business is very pleased with its ability to earn good and growing profits in a higher interest rate climate than many people thought," Ball elaborates. "It's not Goldilocks, but it's a good backdrop for both business and the economy right now."

At the European Central Bank (ECB) Forum on Central Banking on Tuesday, Powell stated the Fed has "made a lot of progress" in lowering inflation and is "getting back on a disinflationary path."

Ball continues by commenting on the stock market's (^DJI, ^IXIC, ^GSPC) growth and the bond market's outlook ahead of the 2024 election.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Luke Carberry Mogan.

Video transcript

Fox rally higher today as investors react to fresh commentary from Federal Reserve chair Jerome Powell who share the disinflationary path of recent economic data.

Powell saying said Tuesday that he is encouraged by cooler inflation but reinforced that the central bank will need to see more evidence, reporting, cutting interest rates for more on the path ahead for the fed.

Let's now welcome in George Ball Sanders, Morris Harris, Chairman George.

It is good to see you.

So talk about the environment.

George.

This is an interesting note uh in which we find ourselves and you say George it's not goldilocks but Winnie the pooh would be very happy in today's environment.

I will confess George.

I do have a five year old at home but I I am not, I'm not that up to speed on Winnie the pooh walk us through what you mean there, George, what, what is the Winnie pooh environment?

Winnie the pooh and his friend Christopher Robin would walk through the forest very happily hand in hand and that's really what's happening in the economy and in the marketplaces today, uh Chairman Powell is happy uh inflation is headed in the right direction but it's not there yet.

Uh American business is showing that it can make uh very healthy profits and have near record profit margins even with interest rates of what I would call 5%.

So Christopher Robin and Winnie the Pooh are walking through the forest happily, Powell is pleased with the trajectory of inflation.

Uh and business uh is very pleased with its ability to uh earn good and growing profits uh in a higher interest rate climate than many people thought it's not goldilocks, but it's, it's a damn good uh uh backdrop for both business and the economy right now.

What happens next though, George?

I mean, how long can this continue?

And if it can continue, then what does that recessionary risk look like?

There are always gonna be recessions.

Uh If people think that either the, the Fed or uh any other exhaustion, this body can create a, a backdrop that gives us either Goldilocks or Winnie the pooh from now until the end of time, it's not gonna happen.

We do have a growth period that's a long in the tooth one.

And simply by the evolution of the stop clock is right, twice every 24 hours, we are headed toward, I think a period of time where you were gonna get something like a recession or a recession f that is going to dampen profits and probably hurt the stock market at the same time.

Uh But again, that's not because of policy failures.

It's simply that economies and growth and, and innovation uh get tired after a while.

And I think late in the 19 in 19, in 2024 and 2025 we're going to see that a soaring in profits and a, a dip in the stock market ahead of us.

Not because of the fed uh or fiscal policy, but even despite it, and George your message to, to investors here, one message you say stay where you are in your portfolio.

If your stock holdings are in your normal range, would, would you say George?

Um you wanna stay where you are, you wanna stay in those positions or George?

I mean, after the run we've had here in the first half, I mean, do you wanna take some of those winnings, put that money to work in some new names?

The most boring thing in the world?

It is not, not pop popular either as, as media or in any other way is to, is to say, stay where you are.

Um But yeah, and we all know that trying to time the market is a fool's game.

People who try to time the market end up poor.

Uh Second, there is nothing in the economic uh outlook that uh means somebody should try to take chips off the table.

You want to be a participant in the growth of America uh that takes place over time.

You, you don't want to say, gosh, I made a lot of money.

I'm gonna pull out and be on the sidelines.

It's not that uh uh that's not something that's smart in almost any period.

So I hate to be boring and say stay the course but stay the course even if it is boring.

George.

What do you think of the action though that we've seen in the bond market?

Because we did see Chair Powell's comments on disinflation, uh put some downward pressure on yields today.

And then you compare that to the massive run up that we saw in yields over the last two trading days.

Has that build up in yields at least run its course for now or if we do brush up once again up against that four or five level, what does that then look like for equities?

Uh Chairman Powell wants inflation to be dead and then he wants to do an MRI to make sure that it's dead and to show the um MRI to everybody so that the world at large understands that it's dead.

Uh We are probably going to see a period of time when there the the fed uh suppresses short term rates.

But where in the fairly near future, uh there are fears that uh a Trump administration or a second Biden administration will be fiscally profligate and that will put upward pressure on yields in the longer term part of the market.

So I think we'll see 450 above before we see 425 and below on the 10 year uh treasury bond using that as, as a, a good uh uh bellwether George.

We, we, we uh covered the markets, the Fed Winnie the pooh.

I, I, we covered a lot of ground George.

Thanks for coming on the show today.

Appreciate it.

Thanks Josh.