Jim Paulsen 4.1 4 ideas

Paulsen argues "no jobs is just unacceptable" and notes the average duration of unemployment is nearing half a year. The Federal Reserve has a dual mandate (inflation and employment). With employment stalling, the Fed will be forced to cut interest rates to stimulate the economy, which mechanically drives bond yields down and bond prices up. Long duration assets (Treasuries) to capture price appreciation from falling rates. Sticky inflation (Zandi's point) prevents the Fed from cutting rates.

Paulsen states the economy is at "stall speed" (real GDP ex-trade is weak) and the job market has flatlined. He notes money supply is picking up, the dollar is falling, and the yield curve is steepening. The Fed will be forced to ease aggressively to prevent a recession. Historically, a backdrop of Fed easing, a lower dollar, and a steepening curve triggers a rotation away from crowded "New Era" growth stocks (Tech/AI) into neglected "Old Era" assets (Small Caps, Cyclicals, International). Long exposure to sectors that benefit from liquidity injections and a weaker dollar. If Zandi is right and inflation remains sticky at 3%, the Fed may not be able to ease as quickly as Paulsen expects.

Paulsen observes that "the dollar's come off" and money supply has picked up. As the Fed moves to ease policy to save the labor market, interest rate differentials will likely narrow, and increased money supply will put downward pressure on the currency. A weaker dollar is explicitly cited as a driver for the rotation into International Stocks. Short USD to play the easing cycle. Global instability driving a "flight to safety" back into the Dollar.