Gerstner argues 2020 multiple expansion mirrors 2018 contraction when Nasdaq fell 25% without earnings misses.
“If you look at the multiple expansion that's occurred, it's almost the identical mirror image of the multiple contraction that occurred in the fall of twenty eighteen.”
Gerstner notes rates have jumped from zero to 8% mortgages, 10% car loans, and 20% credit cards.
“We've gone from effectively a 0% interest rate environment in ZERP, where corporations borrowed for free and consumers borrowed for free, to now we have 8% mortgages. We have 10% car loans.”
Gerstner notes Fed raised its 2024 GDP forecast from 1.1% in June to 1.5% today.
“The Fed forecast in June of this year for GDP growth for 2024 was 1.1%. Today, the Fed forecast for GDP growth in 2024 is 1.5%. It went up.”
Gerstner says Kashkari wrongly forecast no rate hikes until 2024 in June 2021 when cargo container costs had risen 10x.
“June 2021, when the world knew inflation was here. I mean, the cost of a cargo container had gone up by 10 x. Okay? He says we're not gonna have rate hikes until 2024.”
Gerstner cites Fed forecast of 1.5% GDP, two to three rate cuts, and 2% inflation next year.
“But if you look at the Fed's own forecast for next year, one and a half percent GDP, two to three rate cuts, ending the year with a two two handle on inflation.”
Gerstner cites recent Delta and United warnings about softening consumer demand as grabbing Fed attention.
“But when they hear Delta Airlines warn this week that they're seeing, you know, a softening of consumer demand, when they see United Airlines, Scott Kirby, you know, say the same things.”