Axonic on CNBC’s Closing Bell: Why a Recession May Still be Imminent

Aug 10, 2023 | In the News

As many investors begin to predict that the U.S. Federal Reserve will achieve its goal of combatting inflation without a recession, known as a soft landing, Peter Cecchini, director of research at Axonic Capital, is not as optimistic. CNBC’s The Closing Bell recently interviewed Cecchini LIVE on Wednesday, August 9, to learn more about why he believes a recession may still be on the horizon. 

“I do believe that history makes a strong case for recession, and I do believe that long and variable lags are called variable for a reason in that there are various factors involved in how a tighter policy impacts the economy and asset markets,” Cecchini tells host Mike Santoli

“In this particular case, one of the things that we likely underestimated in calling for a recession a bit earlier was the wealth effect. There is over $10 trillion in household equity now, and I believe that’s an all-time high. That wealth effect gives people a lot of confidence to keep spending.”

Further, Cecchini believes that stimulus checks from the pandemic era enabled many Americans to clear their balance sheets, despite living in a time characterized by relatively high unemployment. As a result, FICO scores increased, and, in turn, so did credit card spending. “In fact, the most recent New York State Fed report showed that delinquencies on credit cards are beginning to rise and that the consumer is starting to struggle more and more,” says Cecchini.

Despite the disconnect between bleak economic outlook and market performance, Cecchini believes there are still opportunities for investors to protect their assets and generate returns moving forward in our current environment. These include allocating towards the Treasury market to exploit widening spreads and structured credit.

“Interestingly, in markets like structured credit, where we tend to play quite a bit, there are very interesting double-digit yield opportunities in senior parts of capital structures, misunderstood securitization stacks and in other places where we think there’s safety and have the ability to watch and wait for opportunities to materialize where we can get higher equity-like returns without taking on equity-like risk,” Cecchini explains.

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