Janus' Michael Contopoulos: We just raised cash due to 'tremendous uncertainty'

Summary

• Michael Contopoulos contends the current market rally is premature due to "tremendous uncertainty," mainly surrounding persistent inflation.
• Inflation is elevated with oil prices high; core PCE bottomed in April last year and has trended higher since, challenging disinflation narratives.
• The economy was robust before the war, and recent ISM prices paid data is "through the roof," signaling ongoing inflationary pressures.
• Even if oil prices fall back to the $60s or $70s, inflation would likely remain well above the Fed's 2% target, requiring a growth shock to reach 2%.
• Investors are not adequately pricing in higher interest rates, which could suck liquidity from markets and dampen asset valuations.
• The Fed is unlikely to cut rates unless the labor market weakens materially; premature cuts could be a mistake, triggering bond vigilantes and pushing rates higher.
• If the Fed cuts with inflation at 3.5-4%, the 10-year Treasury yield could rise "well north of 5%," reflecting policy error risks.
• This view is contrarian to consensus expecting inflation to normalize post-war, emphasizing that inflation may stick due to structural factors.
• Key uncertainties include potential administrative intervention or Fed miscalculation, which could exacerbate market volatility and rate movements.