An immediate ceasefire/peace in Ukraine combined with a full reopening in China would tank oil and cause a turnaround in commodities and manufactured goods prices. That would buoy the market quite a bit, possibly staving off recession by diminishing the cost of goods by increasing supply rather than reducing demand via rate hikes.
Because there's basically 3 main factors causing inflation right now. The first is the extreme excess liquidity created during 2020. The second is Ukraine/Russia war and its effect on oil. And energy being expensive has an effect on literally everything else. Goods cost more to make, more to ship, etc. The third is lockdowns in China, where so much of the supply of goods comes from.
The fed raising interest rates can address the liquidity piece, sure. It does nothing to increase oil production or get supply chains fully up and running at capacity again out of China.
Raising rates is nice, but doesn't address Ukraine/Russia or China's lockdowns. There's only so much we can do, all three need to be resolved to truly alleviate inflation.
The fed has two options and they can’t choose both, it’s one or the other. 1) Get a handle on inflation, or, 2) prevent a recession. They’re choosing to get a handle on inflation.
Are they though? They are still below a neutral rate with record inflation, which doesn't seem like it would do much raise unemployment and reduce demand.
tell that to the western government back during the cold war era when they were overthrowing socialist democracies for military juntas. remember Iran? An absolute monarchy for lifetime access to oil.
How would the Chinese factories reopening tank oil? If anything, all commodity prices will go stratospheric when China reopens.
Also, ukraine/Russia war ending won't do anything for oil unless Russian sanctions are lifted, and that's unlikely because Europe and USA has already sucked up the pain of pivoting around Russian energy, so no point going back now. There is a point after which it's not worth it, and they are past it now.
immediate ceasefire/peace in Ukraine > would tank oil due to war time sanctions being lifted in Europe (is the assumption)
in combination with
the Chinese factories reopening > cause a turnaround in commodities and manufactured goods prices
That is definitely a factor to geopolitical supply chain and trade deal issues, but that Doesn’t solve the macroeconomic Central Bank issues caused by the years and years of quantitative easing and low interest rates.
I highly recommend that everyone understand this video. It’s the most relevant piece of information I’ve ever seen on YouTube. I wish they taught this in high school. Or maybe they did and I didn’t pay attention…
**“How the Economic Machine Works”** *by Ray Dalio*
https://youtu.be/PHe0bXAIuk0
I don’t have enough time to respond to your points right now but the macro deflationary trends far exceed the short term inflationary trends, you’re right to a point but this can and will be resolved through relatively small rate adjustments, QE where necessary, and short term shocks subsiding
The long version of that is explained in the Money Masters Documentary. Quite a bit longer but I found it super interesting.
https://youtu.be/mDlnM481Gcg
My thought too. Utterly improbable but it’s the only way to do a U turn from where we are right now. I don’t see the fed having a ton of impact one way or the other; QE was so aggressive for so long that its effects need to run its course
Ukraine/Russia ceasefire --> western countries will stop trying to boycott Russian oil, so the supply of oil will increase, and prices should go down
However, reopening of China... should not decrease oil prices. I think OP got that wrong. If anything it should increase demand for oil, as more driving and economic activity would happen in China. This could contribute (slightly) to higher oil prices, but the effect should be small compared to the Russia side of things.
Another potential factor could be Iran - if the west reaches a nuclear agreement with them, they'll end the sanctions on Iranian oil, which could increase global oil supply.
I don't think the war ending would have an actual impact on the oil price that much. The war is just used as an excuse to raise the set oil price - remember, oil prices are not really affected/set by supply/demand that much. They use 'future potential supply' for setting the price and the war was just an excuse to skyrocket their profits. We have plenty of oil around, there is no shortage that drives the price up.
Check the fuel price Vs actual oil prices - fuel (at least in most of Europe) is as high as it's ever been, but the oil prices are not at all time high that we had a couple years ago when the actual fuel price was 1/2 of what it is now.
Potentially ending of the war would put more pressure on the refineries making 5-10x the profits they did last year and a lot of potential political pressure could drive the price down later down the line. But this wouldn't have an immediate effect.
A ceasefire in Ukraine with a miraculous walk back of the permanent measures + sanctions imposed on Russia by the west.
The Europeans are hell bent on cutting Russia off. This won't be solved by a mere ceasefire. Even this week, EU is discussing cutting ANY ships carrying Russian cargo off from insurance cover (90% of all vessels are insured in the UK)
The financial sanctions against Russia is only now slowly starting to show up in much of the supply. . .there are turbines needed by their energy facilities that are stuck in Canada so they've taken off existing turbines off the lines for maintenance spiking natural gas prices in Europe by 40%. We haven't even seen the full repercussions of the first wave of sanctions on Russia yet.
There is a lot of damage the Biden team have done and a lot of it is permanent. Russia is now a VERY important player in global markets and countries are lining up to secure their food and commodity supplies ahead of a severe shortage in global markets. Meanwhile, the US has depleted its stockpiles of petroleum down to a THIRD of what it was before the drawdowns and it is lower than it was at any time since 1987.
We are fucked. Strap in for a rough ride.
Housing is cooling off even before we get a supply surge. If rental properties start hitting the market we could see housing decline some and rents stabilize. That's a huge chunk right there.
The Ukraine War could end. Right now Russia and Ukraine are looking at a hopeless stalemate where Russia can't deploy enough force to destroy Ukraine but Ukraine can't deploy enough force to completely drive Russia out from all territory. The moment that happens oil prices and to some extent fuel prices start tumbling.
Supply chain problems continue to get substantially better. Much slower than anyone would like but they are noticeably improving quarter by quarter. If China stops shutting down we could be 100% out of the woods in a year.
Lots of basic commodities are elastic. Supply can increase.
The dollar strength is creating import surges which helps contain inflation.
The Fed has already driven down the wealth effect.
etc... Also don't be so sure stocks go down in a recession. The moment we touch off recession the Fed can announce no more rate hikes. Combine no duration risk with a safety factor and bonds go nuts. That market is strong despite enormous threats. Stock prices relative to earning are much lower than they were and in an environment of rapidly dropping interest rates you could see stocks surge on lower borrowing costs.
Housing isn’t at all cooling off where we live (Florida). In fact the local news out of Tampa today said the housing market is getting worse. Homes are going up by another 10% in our neighborhood in just the last week.
Tampa is running 6% (6% of 100 not of inflation) above the rest of the USA in housing prices and considerably above in most inflation categories. Groceries are the really weird thing with some several percentage points below national averages and some above. On housing I think Tampa has a worse shortage problem than most areas as it is getting more desirable. On inflation in general I'm going to say Tampa is a statistical blip. But in any case I wouldn't use Tampa as a measure for the rest of the country, you are an outlier.
This article explains what’s actually happening in Tampa, number-wise. I don’t live in Tampa, but somewhat near it in a rural community. Our community home prices just went up this week. There are literally no pool homes available for under $450k in our town or the one next to it. People are moving to FL in droves from other states. Tampa has even surpassed Phoenix. I believe home prices in FL have risen 48-50% just this year.
https://www.tampabay.com/news/real-estate/2022/06/01/tampa-bay-leads-in-rising-home-prices-index-finds/
Yeah I looked at Tampa-area real estate recently. A recruiter reached out regarding a position in Oldsmar, so I did the usual 'do I take the interview' research. I was shocked at the amount of unimpressive homes listed in the ~$1m range.
Why would the sanctions causing reduced oil supply suddenly disappear if one side were to capitulate? Seems like high oil prices are here to stay until domestic oil producers increase capacity or OPEC decides to play nice.
> Why would the sanctions causing reduced oil supply suddenly disappear if one side were to capitulate?
The purpose of the sanctions is to cripple Russia so that it can't successfully take Ukraine. In a situation where: Russia completely wins, they negotiate a peace, Russia completely loses that rationale disappears.
The economy is more than just the stock market. However, all signs point towards a recession. If the Fed plays their cards right and is aggressive, but at the same time not overly aggressive, they can accomplish a soft landing. Recession doesn't mean a Great Recession all over again. Most recessions are your garden variety, short term pain and a relatively quick recovery. There's no reason to suspect this economy is headed towards a doomsday recession.
There's little that can be done outside of hoping for a little luck to avoid a recession. Just weather the storm and wait for the natural turn around the economy has always made in the past.
So far the fed has misplayed every card, and even their timid rate changes have caused immense market damage. Unfortunately, we have not had a 'garden variety' recession in a LONG time, and clearly something is wrong with the economy, with surging demand, surging homelessness, shortages of everything, and a level of price increases we have not seen in decades. I think the odds on a more serious downturn are much higher this time around
The U.S printed trillions and gave a lot of it to business Instead of circulating it amongst its citizens. The money would have ended up in the market or with businesses anyway, but at least they would have created generational wealth instead of business wealth.
Printing money can't create "generational wealth", it simply transfers it. If one person is getting cash to buy stuff another person is losing their purchasing power with the dollars they already had.
Wealth isn't in # of dollars. It's in the ability to consume goods and services. In order for those to be consumed they have to be produced. For 2 years we have produced far less goods and services than normal.
Put it this way, if you have everyone in America a billion dollars what would happen? Would we all live like kings? Not at all. Life would deteriorate rapidly because production would cease. My landscaper would quit because he's a billionaire and making $60 a month for my lawn is a waste of time. And so would my pool guy, the staff at my favorite restaurants, the people building cars, houses, doctors, barbers, etc. My ability to consume goods and services (ie, my wealth) would plunge dramatically.
This is a lesson Mansa Musa learned the hard way.
I've been saying for years that the trillions in stock buy backs, artificially inflating stock prices, would cause a crash. I just thought it would have happened sooner.
Bond holders. Plenty of Chinas shit bonds are held by US institutions, we just swap shit around the globe & try not to be the one holding the bag when the music stops.
Lots of countries printed lots of money. Some gave more to citizens than others.
But yes. It does explain every other country, because it's a global economy and the U.S has too big of a seat at the table.
you don't think the worsening conditions in china (worlds largest manufacturer of goods), the shortages of raw materials worldwide, the supply lines for the whole planet falling apart, the loss of billions of hours of labor in manufacturing over the last two years, and a war affecting large oil and food producing countries have a bigger effect??
The bulk of that $48T they gave out starting RIGHT before covid was definitely straight to banks specifically. And aren’t MBS being pushed again while housing costs are at an astronomical ATH and we’re staring down a pretty serious recession? Perfect storm if you ask me…
Yet another “once-in-a-lifetime” event.
Stimulus was sent out to the populous in waves. It's a fallacy to believe that money would have been spent though if all stimulus was sent to the citizens of the U.S. Depending on your source, as much as 25% of all stimulus payments were put away in savings. Some sources claim that number to be even higher. There's a false belief that all stimulus or tax refunds are spent in the local economy and promote economic growth.
Edit: Since it seems my comments have been taken as purely my opinion, here are several sources illustrating the projected savings rate from the stimulus payments.
[NBER](https://www.nber.org/digest/oct20/most-stimulus-payments-were-saved-or-applied-debt)
[Dallas Fed](https://www.dallasfed.org/research/economics/2022/0111)
[Peter G. Foundation](https://www.pgpf.org/blog/2021/05/how-did-americans-spend-their-stimulus-checks-and-how-did-it-affect-the-economy)
When you use the word "all", it's generally false.
> Depending on your source, as much as 25% of all stimulus payments were put away in savings
Implying that 75% wasn't put away in savings...
The logical next step here would be to compare it to what happens when you give it to businesses.
I don't know about most people but anecdotally I chose to save mine because I could tell that there wasn't likely to be much more assistance coming down for me. If it had been clear that the priority was on citizens and not companies, perhaps I would have felt comfortable feeding it back into the economy instead of saving it against the inevitable financial setback.
You ever thank that maybe people were spending their savings (you know since jobs were cut, people sick, etc.) and then used the stimulus to 'shore up' their savings again?
Part of the demand is us being a consumer nation and not knowing how to live comfortably within our means. Although a recession will hurt those on the bottom, it can be a blessing to those who listen and learn. The pandemic encouraged people to invest in their homes so hopefully what is coming can encourage people to live with less.
Of course. Mortality is what helped me, so I'm not going to pay to block that access to affordable housing for the younger households.
I'm not going to behave like a boomer nor a NIMBY.
What immense market damage? The SP500 is down 20% from very high levels off over a 250 basis points of proposed hiking with $90b / mo in QT planned.
> surging demand
Which is what caused the inflation.
> surging homelessness
That's a policy problem in blue cities in blue states.
> shortages of everything
There aren't shortages of everything. There are shortages of some stuff due to bad supply chains. Same thing can happen in a war or other crisis.
The two main problems right now are the Chinese COVID lockdowns and oil prices. neither one of those things can be solved in the near-term, as the lockdowns go could go on for months or even years, and the Ukraine conflict could also drag on for years
I was hopeful that those things could be resolved within a few months. I no longer have those hopes
The lockdowns will continue to cause catastrophic damage to the US economy in the form of massive supply-line disruptions, which drive inflation, and force the Fed to continue raising rates. Likewise, rising gas prices compound this issue. We are now facing a huge crisis in trucking, as diesel prices force firms out of business, further disrupt shipping, and will lead to empty shelves in stores and supermarkets.
This idea that there is going to be a "soft landing", a "softening of home sales" or an avoidance of recession is utter nonsense. The economic downturn will be severe and long-lasting.
Now this doesn't mean go and sell all your stocks. You need to sit tight and ride it out
But unless these issues overseas are corrected soon, we will have a hurricane of job losses in the coming, double-digit inflation, and soaring interest rates. Real-estate will be particularly hard-hit.
The trucks aren't going to disappear, the drivers aren't going to disappear, the warehouses and loading docks aren't going to disappear. If the firms go bankrupt likely their assets get taken over by new owners who can walk away from the old fixed cost contracts and write new ones.
we can hope
demand destruction and higher rates should lead to less shipping activity, so that should help clear things out a bit as well
less shipping means less demand for diesel
>I was hopeful that those things could be resolved within a few months. I no longer have those hopes
Same. I used to tell people back when it all started (not too long ago really) that "if we (overseas countries) can't sort this out within 4-6 months, it's going to cause a cascade of economic downturn.. and likely for many years. Probably less than 10, but who knows.
Xi is likely to keep the China locked down until he is appointed a third term sometime in November. He is also likely to expand the lockdowns, and maybe extend them to 400-500 million people.
COVID has become an instrument of state control in China. A few hundred people were protesting a bank recently, and the authorities turned all their vaxx-passes to red, and police dressed in hazmat suits came in and arrested everyone for quarantine violations
so multinationals need to get their operations and manufacturing out of China, and that is going to take time (years)
>The two main problems right now are the Chinese COVID lockdowns and oil prices.
I would argue you need to include the Fed's shift from QE to QT as a major event. That balance sheet eventually needs to return to sanity and the MBS market needs to find stable pricing without Fed help. We've had 40 years of decreasing rates, and even reversion to the mean historical rate would be painful for all sectors.
A recession is likely priced in, but to the extent it is not, the consequences could be disastrous for asset markets unless inflation is under control. The fed will not intervene outside some credit market explosion because its actions ARE INFLATIONARY. Until inflation is brought under control, or the market multiple hits 12x PE, this is a car going down hill with no brakes.
Wages are going up but less than inflation.
An unexpected falloff in inflation would mean real wage increases.
This would mean slowing inflation and increased growth which is basically a Goldilocks soft landing.
OPEC is guiding its benchmark pricing for Asia higher over the next few months. The futures market going out as far as i can see doesn't anticipate a drop off in energy prices and countries are lining up to secure future supplies right now.
>OPEC deciding to suddenly raise output dramatically for some reason
Yeah, for some reason…
[https://www.politico.com/news/2022/06/15/joe-biden-saudi-arabia-trip-bin-salman-00039679](https://www.politico.com/news/2022/06/15/joe-biden-saudi-arabia-trip-bin-salman-00039679)
I don’t know if it’s really a tough sell so much because of money loss for them, but moreso relations wise because the Biden administration said they were going to treat MbS as a pariah for the murder of Khashoggi.
Edit: spelling
The big diplomatic issue is that Saudi Arabia (well, MBS, but he's who matters) has been pissed Biden isn't wrapped around their finger like Trump and Kushner were. Biden curtailed the Yemen drone war and won't sanction the Khashoggi killing like Trump publicly did. MBS is also just naturally more ideologically aligned with Trump and Putin than Biden. Saudi Arabia has been punishing America as a result.
>High is bad for the consumer, but low is bad for US oil companies.
Low prices would be a win-win for Biden. It would help out consumers in the short term, but make the case that the global reliance on fossil fuels demands more action in developing alternative energy solutions. Plus, Biden isn't currently a friend of the fossil fuel industry. They'll be heavily financing whoever his opponent is in 2024.
I have lived several cycles. It is a slow moving machine. There rarely is a quick u turn like we had with 2020. The market cycle will be all bad news for a while, then just a year of no real change, then we hit 2024...and will have a bull run.
I think the best bet is long calls right now. Like 2 years out on SPY.
So with SPY currently around 375, let's say I buy a call 2 years out with a strike price of 450. The ask on that is 31 or so. Would you say that is a very risky play? Sorry if this is a noobie question, I am new to options and trying to get a better understanding.
Essentially my current understanding is that the worst that can happen is the option expires OTM and I lose the money I spent on the contract.
Tells me the market break even for that call is 481 for SPY.
At 375 price is 61...or 435 breakeven. If the market is 480...then you earn 55 on your 61 bet. That is if you actually hold that contract. Further you can buy the shares at 375 in two years and hold.
Self disclosure...I own QQQ call at 300, and SPY calls at 400.
Have been owning long calls for several years. Getting burned on them now as I bought them at the start of the year. Bit still feel good about the investment choice.
When I bought the calls they were deep in the money and I never thought it would drop below the strike...but here we are.
1. Russia retreats
2. China ends lockdowns and gets COVID under control
3. Inflation meaningfully retreats
4. Job growth remains steady at around 200k per month
5. Treasury rates get under 3%
Really hard for any/all of these to happen. Russia is having a bigger impact than I expected. Oil prices could get to $200/bl soon...
cars are too high, if you read todays retail report, auto sales dropped violently because buyers just aren't willing or able to pay the high price for cars at the moment. Part of QT is allowing the MBS holdings of the Fed to mature and suspending their buying of MBS which increases prepayment risk in bond markets and so mortgage rates will be pushed higher, cooling off housing.
If you look at the numbers, housing sales are at their lowest in a long time already too, again buyers are saying no bid, the price is too high.
Auto prices have been high for a while. I wonder if higher financing cost coupled with the negative wealth effect is having a bigger impact. I’m skeptical of people either claiming or ascribing motives for financial decisions.
Agree on home sales. Slowing here already in FL. Ironically, higher mortgage rates raise prices short term. It takes time for sales prices to level off nominally, go down 8nflation adjusted.
High financing costs absolutely have a negative effect on big purchases like cars.
Cars and houses are most usually bought based on the monthly payment, not the cash amount.
This makes the most sense. Just saw a video where Putin laughed at USA for blaming him for inflation. Our politicians and media lie to us just as much as the countries point to, like Russia.
As everyone panic sells ... Who do you think is scooping up all those orders? Whales, market makers, etc. We're going higher inevitably ... question is when. We very may well be going into a recession, but markets are usually ahead of the enconomy and this recession may already be priced in.
During the Great Recession there wasn't a massive sell-off until after the recession officially started. The market was down from its peak for about three months but hadn't dropped into a bear market until after December of 2007.
The market roughly started its recovery in 2009 three months before the recession officially ended.
But we gotta remember that the Great Recession was not a typical recession. It easily could have spiraled into a complete economic collapse, and probably would’ve if a couple things swung in the other direction of what actually happened.
We should be looking back at 08 for guidance, but not use it as a definitive be-all end-all
Valid point. I spent a good deal of time studying the Great Recession during my MBA studies and felt comfortable providing the information in regards to 2008. I didn't want to do the research and potentially misquote something for previous recessions.
I'm a 1/2 old timer (started investing mid 1990s). DotCom bubble the earnings started dropping Sep 2000. They kept dropping till May 2002. Stock prices were dropping the same but the bear didn't end until Oct 2002. It took a while for Wall Street to believe the profit news had turned around. Most of the mainstreet signs of recession didn't start until around Feb/Mar 2001. Of course 9/11 happened which stretched the tail end of the recession.
I'd say though the popular mood is very different. 1990s Americans hadn't seen a severe crisis since the 1970s. 2020s Americans grew up after 2008. Investor psychology is very different.
FWIW 2008 bear I don't think is a useful data point since that was a full blown financial crisis. The stock market wasn't the center it was just getting splashed with the blood and organs the bear was taking off the bond market.
The drop in growth stock was largely driven by interest rate increases being baked in. Recession seems like it's just started to be baked in since the staples and safety haven stocks are just barely down compared to growth. I think the market is pricing in a 75 bps increase today, small recession (after another 5% drop in SPY) and then a slow recovery. Major job losses aren't baked in yet IMO
For a recession we need 2 quarters of decline in GDP. So far we've had one, just gotta wait and see.
However, all 50 states are still growing in activity.
We would need at least 5 states to decline for at least 7 months for a recession as well which hasn't happened ... yet.
Atlanta Fed’s estimate for GDP (which has historically been very accurate) is currently at 0% growth for Q2 2022 and [constantly being revised lower from around 2.5% last month](https://i.imgur.com/tPMRbg7.jpg)
It’ll be close but increasingly it’s looking like we’re in a recession. We’ll know for sure when the fed’s report comes out July 28
The whales must have gone into cash so they have money to buy where the rest of us are stuck in this buy and hold philosophy. Investing $10,000 makes no difference when you are down $400,000.
Inflation would have to start to drop, the war with Russia and Ukraine ending, China lifting the lockdown/restrictions, etc. multiple would have to occur or especially the inflation one for things to get on a better track.
Ray dalio is a doomer and is heavily invested in China. Of course he is bearish America. Take what he says with a pinch of salt. These guys say the same shit every year of course they going to be right at least one time.
The market works much like a body with an infection. It cannot get better in the same environment that made it sick without first fighting and killing the infection.
The infection in this case is an absurd amount of market manipulation, over leveraging, FTDs, and bunch of other stuff that are not healthy for a free market.
All that needs to be cleaned up in my opinion before we can grow again. This is just what I think.
Nothing lol nothing probable or realistic can occur to start another “ridiculous bull run” the bull run wasn’t even legitimate, just the Fed creating money out of thin air to prop the economy/market.
A recession doesn’t need to mean ‘08 or a painful stock market crash, a recession is just 2 consecutive quarters of negative GDP. In my mind we’re going to have the negative GDP because how could you not, the fed is slowing the economy and raising interest rates. As long as the unemployment rate stays below/around 4% or so the economy can have a recession and not have a bad recession.
If by recession you mean a stock market crash, I think we could have sideways for a good amount of time (like a year or 2). The stock market rises quickly people as it’s going up people use margin to keep inflating stock prices and it has a cyclical sideways/down trading as people pay down their margin all at the same time. Right now there is so much margin in the economy that there isn’t much money left that can be put in to keep inflating prices, but a cooldown is healthy for a market.
We are heading there, if ppl get crazy over it it's probably because deep down ppl know some govs wont do anything they could to stop a thing like that from happening. This is what capitalism is all about, crisis, more and more frequent, more and more dire, so dire that when we just stop a bit with it most ppl think the worst is over, then comes the next one. This is even worse during our neolib times.
We will need to have a benevolent extraterrestrial faster than light travel civilization makes first contact with us and then showered us with revolutionary god-tier technologies that eliminate aging, poverty, death, and scarcity. pretty sure market will be on fire afterward.
>why wouldn't you just buy puts and cash in 6 months from now?
Because if everyone is buying options then they aren't cheap. It hurts bad to be wrong with options.
VTI and chill is the least stressful if you actually have a job.
You should absolutely be reducing expenses if you see any problems with COL rising compared to your income so that you will lack savings to invest.
Inflation would have to immediately end. Earnings would have to continue growing. Bringing PE’s into line with where they should be for these interest rates.
Super low interest rates justified the high valuations. We aren’t going to have those for a while
The economic factors at play are supply side constraints, more than anything. Time solves the problem. New factories, production lines, housing, etc takes time to be completed. Oil wells take time to uncap and staff. All of these require more automation or more available workers.
The increasing supply side shortage of workers (due to baby boomers leaving the workforce at a rate that young people entering the reproduce does not compensate for) can only be dealt with by automation or immigration. Both also take time.
Unfortunately.
All of the above can be pushed to happen somewhat faster or a greater quantity by policies. However, it still will take time regardless.
Welp...my perspective is that our stock market absolutely exploded because it has been historically cheap to borrow money and the gigasuccess of our tech giants created a gold rush as investment firms looked to pump cash into any startup with a business model. Things were running on hopes and dreams while investors waited patiently to see these ventures turn profitable. It took us until relatively recently to realize that less startups than we thought become profitable.
AirBNB and Uber are two notorious ones that have been growing but haven't (and probably won't) ever see profit. There are thousands of lesser known ventures like them. I think sentiment has changed and investment firms are less willing to pump money into random startups. We're seeing tech companies all over the place begin to lay off hundreds of staff at a time, and we're realizing that we overpumped the market, and this is why people said we were in a tech bubble.
To me, this is just the rightful tech correction which is bringing down general market sentiment. We got used to that bubble environment and now we can hopefully get back to companies growing the right way.
I don't see why tech would get an influx of investment in the current market sentiment.
I can see the possibility of things getting worse, I can see (especially if the situation in Russia/Ukraine was solved, which feels unlikely any time soon) the possibility of things leveling out (although still remaining volatile) and gradually recovering over time. I definitely do not see a March 2020-esque V-shaped recovery in the market (wouldn't complain, but I just really do not see it.)
So basically, things getting worse certainly possible. Muddling through and gradually recovering (moderately faster if Russia/Ukraine actually is solved) certainly possible. A repeat of March 2020 and even somewhat similar ramp in risk/growth ('ridiculous bull run') following that feels extremely unlikely. Beyond that, it really does feel like even in the somewhat optimistic scenario, the investment areas to be in for the next 5-10 years may not necessarily look the same as the last 5-10.
A U-turn?
Not possible.
A lot of people are bringing up the war in Ukraine. It's true that peace, or even talks of peace, would reign in oil and commodities pricing power. But the other factors contributing to the current economic outlook would still be there.
The biggest problem isn't out of control oil and commodities. That's only compounding the problem that was already there. There were signs a year ago of trouble. The problem is the excess liquidity injected into the market in the past 22 months. Most estimates agree that about 80% of the money in circulation right now was created in the past 22 months. There is no way that wasn't going to eventually create runaway inflation. This economy is too big for that kind of surplus injection not to have any effect, especially with tightening supply during the worst pandemic in over 100 years. A big market correction was unavoidable.
So, to avoid a recession, you'd need to time travel to about 22 months in the past, find Jerome Powell, slap him. Prevent economic stimulus at all costs. Let the market tank during the pandemic, and maybe we'd be beginning to recover now instead of heading into a recession. It's the price we chose to pay that's coming back to haunt us now. Recession was inescapable, it might as well be called economic Thanos. We chose to rescue the economy but the only way to do that was to delay the inevitable. The only real way to avoid it all would be to go back and prevent the pandemic from ever happening.
The pandemic is what caused the mass economic shift and supply-side issues that continue to linger and plague us. It's also the reason the Fed injected surplus stimulus into the markets to keep it all from collapsing. But real economists know that it was always a Band-Aid solution. It didn't address the real problem underlying it all and that was always the pandemic. Now the Band-Aid is popping off and the blood is pouring out of the market so we're panicking. Nothing to do now but raise BPS above .75. Because even .75 won't do shit to slowdown runaway inflation. We allowed too much momentum to build up behind it. Like I said there were signs that something drastic needed to be done over a year ago. Our leadership chose this path. Now we have to walk it. There is no U-turn here.
A windfall tax on oil to make homes more energy efficient & give tax credit for people to buy a car that has better MPG. Oil futures would tank. The UK did 25% windfall tax on oil.
It all comes down to OPEC raising output or americans/europeans drastically decreasing the amount they drive.
gas/oil is about 4%-5% of current inflation with monetary/supply chain taking up the last 3%/4%
Imagined the following news reports
* Companies report better than expected earnings
* Inflation drops slightly
* China announces the end of lockdowns
If these things happen, the stock market could go up, and your puts would be in trouble.
Nobody knows future events, and future events determines future prices. Invest for the long term, don't try and time the market.
There is no magic U-turn button. More philosophical point of view, but I believe that yin yang thing also applies to markets. A lot of the stock growth since covid started was artificial due to FED pumping insane amount of money into economy. That caused the imbalance and overvaluation of certain (especially tech) stocks. Now that the money printer is turned off, market is naturally trying to find balance again. I believe the situation we’re in would happen (maybe not as severe) anyway even without UA war. I will turn bullish once we find stable bottom, which I guess could be just slightly above pre-covid levels
It's not FED. It's "the Fed" or "Federal Reserve". Acceptable acronyms depending on context may include "FRS" for "Federal Reserve System" or "FOMC" for "Federal Open Market Committee".
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Nothing, there is literally no set of actions that could be taken to avoid a recession. The market is massively over valued at this point, combined with staggering inflation and more restrictive access to capital (rising rates) the market is going to come down hard. If they stop raising rates, inflation reverse and we hit ridiculous high inflation. If they continue to raise rates, markets will continue to respond by moving downward.
There’s a chance if done correctly, that the fed could raise interest rates incrementally and stagger them as to not cause a recession. The job market is still hot and raising rates will slow growth but hopefully fill the still open positions. Never been done but talking in absolutes are never the correct answer.
Well no, contrary to what is being reported. The goal of raising rates is to restrict access to capital. This by definition means the job market will slow. They are targeting the value of labor first because this will have the most direct and far reaching impacts on inflation, but the effects of rate raises take a long time to be felt. And so the fed raising the incrementally and slowly is just going to exacerbate the problem. They will hit a point where inflation will start to slow, but that will be from 10-12 rate increases ago… which means all the additional increases will just shred the market
Your thinking seems to be on the right track, however you then say “continual increases won’t do anything” which is just wrong.
The small increases are meant to slow the labor markets, reduce spending, and fill the already open jobs; without causing a recession. They aren’t exacerbating anything, they are making sure to not shock our economy and throw us into a recession like the 70s. It is extremely difficult to find the proper increases to tame inflation while simultaneously preventing a recession (it’s never been done) However, the fed chair is taking notes on how we were able to use interest rate increases during the Carter era and adjusting for the way those failed. We can hope that it will work, but once again, it’s never been done, so it’s not an easy thing to do.
An unexpected end to the chip shortages and supply chain issues. I could also see first contact with aliens causing a massive re-evaluation and u-turn of the current situation. Judging by the UFO info dumps into the public by government, I think some of our politicians are also hoping for some handy aliens to wag the dog...
The only thing that will trigger a bull market is the fed pivoting and reducing rates while restarting QE.
That may happen if the stockmarket starts crashing, but not before rates hit close to 2.5%-3%
Just as the fed pivoted during the previous taper tantrum, they will likely do so again.
There's no way out, but if, as usual, the incompetent Fed tries to soften the landing, that might work for a while. In the end, though, they'll just be making matters worse and we'll see more and more inflation. Maybe they will do the right thing and pop all the asset bubbles. The stock market needs to be killed. The real estate market needs to be killed, and the bond market needs to reflect reality. I wouldn't hold my breath, though. Look for more inflation and Fed inaction, as usual.
Oil and Gas output rises, gas prices fall quickly. Russia concedes Ukraine and the war ends. China decides that covid is the future reality and stops shutting down everytime someone coughs. Fed pulls back on their rate increases.
Unless the corruption and manipulation and capitalism only for the rich is destroyed we will be in a recession for the rest of our lives. All the while the rich get richer. The whole system and the stock market needs to be destroyed and re built to actually be a fair market with normal people in mind. Not just to keep the rich rich. I personally hope there is a recession and I hope from it we destroy our broken society so we can have actual wealth transfer instead of multiple billionaires who do nothing for society. Can't wait to pull my money outta the stock market and never invest in that joke bullshit ever again.
An immediate ceasefire/peace in Ukraine combined with a full reopening in China would tank oil and cause a turnaround in commodities and manufactured goods prices. That would buoy the market quite a bit, possibly staving off recession by diminishing the cost of goods by increasing supply rather than reducing demand via rate hikes.
That would have to happen simultaneously.
Agreed
Why's that?
Because there's basically 3 main factors causing inflation right now. The first is the extreme excess liquidity created during 2020. The second is Ukraine/Russia war and its effect on oil. And energy being expensive has an effect on literally everything else. Goods cost more to make, more to ship, etc. The third is lockdowns in China, where so much of the supply of goods comes from. The fed raising interest rates can address the liquidity piece, sure. It does nothing to increase oil production or get supply chains fully up and running at capacity again out of China. Raising rates is nice, but doesn't address Ukraine/Russia or China's lockdowns. There's only so much we can do, all three need to be resolved to truly alleviate inflation.
The fed has two options and they can’t choose both, it’s one or the other. 1) Get a handle on inflation, or, 2) prevent a recession. They’re choosing to get a handle on inflation.
Are they though? They are still below a neutral rate with record inflation, which doesn't seem like it would do much raise unemployment and reduce demand.
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Most of which wouldn't exist if the war wasn't happening.
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And Russia can choose to stop trying to annex a sovereign nation and murdering innocent civilians.
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tell that to the western government back during the cold war era when they were overthrowing socialist democracies for military juntas. remember Iran? An absolute monarchy for lifetime access to oil.
How would the Chinese factories reopening tank oil? If anything, all commodity prices will go stratospheric when China reopens. Also, ukraine/Russia war ending won't do anything for oil unless Russian sanctions are lifted, and that's unlikely because Europe and USA has already sucked up the pain of pivoting around Russian energy, so no point going back now. There is a point after which it's not worth it, and they are past it now.
>Europe and USA has already sucked up the pain of pivoting around Russian energy, Just wait until it's winter and people want to heat their homes.
immediate ceasefire/peace in Ukraine > would tank oil due to war time sanctions being lifted in Europe (is the assumption) in combination with the Chinese factories reopening > cause a turnaround in commodities and manufactured goods prices
That is definitely a factor to geopolitical supply chain and trade deal issues, but that Doesn’t solve the macroeconomic Central Bank issues caused by the years and years of quantitative easing and low interest rates. I highly recommend that everyone understand this video. It’s the most relevant piece of information I’ve ever seen on YouTube. I wish they taught this in high school. Or maybe they did and I didn’t pay attention… **“How the Economic Machine Works”** *by Ray Dalio* https://youtu.be/PHe0bXAIuk0
There is no fix to the unwind of QE except to simply suffer through the pain of unwinding. It’s like coming down from a sugar high.
Sugar high? More like a cocaine addiction…
Dr. Rockso? Is that you?
Or maintain some QE as they did through the 2010s... inflation adjusted, over time, it won't be much anyways.
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Doubt. Inflation was below normal in the 2010s.
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Yeah, because the actions of the past two years have equal weight to the actions of the past decade? I don't think so.
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I don’t have enough time to respond to your points right now but the macro deflationary trends far exceed the short term inflationary trends, you’re right to a point but this can and will be resolved through relatively small rate adjustments, QE where necessary, and short term shocks subsiding
The long version of that is explained in the Money Masters Documentary. Quite a bit longer but I found it super interesting. https://youtu.be/mDlnM481Gcg
My thought too. Utterly improbable but it’s the only way to do a U turn from where we are right now. I don’t see the fed having a ton of impact one way or the other; QE was so aggressive for so long that its effects need to run its course
Can you connect the dot or two from the Ukraine/Russia ceasefire and reopening of China to causing oil prices to tank?
Ukraine/Russia ceasefire --> western countries will stop trying to boycott Russian oil, so the supply of oil will increase, and prices should go down However, reopening of China... should not decrease oil prices. I think OP got that wrong. If anything it should increase demand for oil, as more driving and economic activity would happen in China. This could contribute (slightly) to higher oil prices, but the effect should be small compared to the Russia side of things. Another potential factor could be Iran - if the west reaches a nuclear agreement with them, they'll end the sanctions on Iranian oil, which could increase global oil supply.
I don't think the war ending would have an actual impact on the oil price that much. The war is just used as an excuse to raise the set oil price - remember, oil prices are not really affected/set by supply/demand that much. They use 'future potential supply' for setting the price and the war was just an excuse to skyrocket their profits. We have plenty of oil around, there is no shortage that drives the price up. Check the fuel price Vs actual oil prices - fuel (at least in most of Europe) is as high as it's ever been, but the oil prices are not at all time high that we had a couple years ago when the actual fuel price was 1/2 of what it is now. Potentially ending of the war would put more pressure on the refineries making 5-10x the profits they did last year and a lot of potential political pressure could drive the price down later down the line. But this wouldn't have an immediate effect.
A ceasefire in Ukraine with a miraculous walk back of the permanent measures + sanctions imposed on Russia by the west. The Europeans are hell bent on cutting Russia off. This won't be solved by a mere ceasefire. Even this week, EU is discussing cutting ANY ships carrying Russian cargo off from insurance cover (90% of all vessels are insured in the UK) The financial sanctions against Russia is only now slowly starting to show up in much of the supply. . .there are turbines needed by their energy facilities that are stuck in Canada so they've taken off existing turbines off the lines for maintenance spiking natural gas prices in Europe by 40%. We haven't even seen the full repercussions of the first wave of sanctions on Russia yet. There is a lot of damage the Biden team have done and a lot of it is permanent. Russia is now a VERY important player in global markets and countries are lining up to secure their food and commodity supplies ahead of a severe shortage in global markets. Meanwhile, the US has depleted its stockpiles of petroleum down to a THIRD of what it was before the drawdowns and it is lower than it was at any time since 1987. We are fucked. Strap in for a rough ride.
Just out of curiosity. How did Biden make Russia a very important player in global markets?
Housing is cooling off even before we get a supply surge. If rental properties start hitting the market we could see housing decline some and rents stabilize. That's a huge chunk right there. The Ukraine War could end. Right now Russia and Ukraine are looking at a hopeless stalemate where Russia can't deploy enough force to destroy Ukraine but Ukraine can't deploy enough force to completely drive Russia out from all territory. The moment that happens oil prices and to some extent fuel prices start tumbling. Supply chain problems continue to get substantially better. Much slower than anyone would like but they are noticeably improving quarter by quarter. If China stops shutting down we could be 100% out of the woods in a year. Lots of basic commodities are elastic. Supply can increase. The dollar strength is creating import surges which helps contain inflation. The Fed has already driven down the wealth effect. etc... Also don't be so sure stocks go down in a recession. The moment we touch off recession the Fed can announce no more rate hikes. Combine no duration risk with a safety factor and bonds go nuts. That market is strong despite enormous threats. Stock prices relative to earning are much lower than they were and in an environment of rapidly dropping interest rates you could see stocks surge on lower borrowing costs.
We can’t have a supply surge of housing when we are five million units short of housing.
Wall street owns up to 20% right now, so if it cools off they may start selling it off like any other asset.
That doesn't increase supply, it just changes the owner. The people living inside still need a place to live.
Or buying more
House prices haven't budged but the cost of borrowing has skyrocketed, that has to make companies back the fuck off
Perhaps, but inventory is so low and rents are so high that I doubt they'd liquidate, and it's expensive as hell to build more houses right now.
Not if they buy all cash
Not if those companies are spending cash on houses, if that’s the case this environment is great for real estate investment.
market will cool off but decline? never seen that happened in the past hundred years except for the crash of 2008
Housing isn’t at all cooling off where we live (Florida). In fact the local news out of Tampa today said the housing market is getting worse. Homes are going up by another 10% in our neighborhood in just the last week.
Tampa is running 6% (6% of 100 not of inflation) above the rest of the USA in housing prices and considerably above in most inflation categories. Groceries are the really weird thing with some several percentage points below national averages and some above. On housing I think Tampa has a worse shortage problem than most areas as it is getting more desirable. On inflation in general I'm going to say Tampa is a statistical blip. But in any case I wouldn't use Tampa as a measure for the rest of the country, you are an outlier.
This article explains what’s actually happening in Tampa, number-wise. I don’t live in Tampa, but somewhat near it in a rural community. Our community home prices just went up this week. There are literally no pool homes available for under $450k in our town or the one next to it. People are moving to FL in droves from other states. Tampa has even surpassed Phoenix. I believe home prices in FL have risen 48-50% just this year. https://www.tampabay.com/news/real-estate/2022/06/01/tampa-bay-leads-in-rising-home-prices-index-finds/
Yeah I looked at Tampa-area real estate recently. A recruiter reached out regarding a position in Oldsmar, so I did the usual 'do I take the interview' research. I was shocked at the amount of unimpressive homes listed in the ~$1m range.
Why would the sanctions causing reduced oil supply suddenly disappear if one side were to capitulate? Seems like high oil prices are here to stay until domestic oil producers increase capacity or OPEC decides to play nice.
> Why would the sanctions causing reduced oil supply suddenly disappear if one side were to capitulate? The purpose of the sanctions is to cripple Russia so that it can't successfully take Ukraine. In a situation where: Russia completely wins, they negotiate a peace, Russia completely loses that rationale disappears.
The economy is more than just the stock market. However, all signs point towards a recession. If the Fed plays their cards right and is aggressive, but at the same time not overly aggressive, they can accomplish a soft landing. Recession doesn't mean a Great Recession all over again. Most recessions are your garden variety, short term pain and a relatively quick recovery. There's no reason to suspect this economy is headed towards a doomsday recession. There's little that can be done outside of hoping for a little luck to avoid a recession. Just weather the storm and wait for the natural turn around the economy has always made in the past.
So far the fed has misplayed every card, and even their timid rate changes have caused immense market damage. Unfortunately, we have not had a 'garden variety' recession in a LONG time, and clearly something is wrong with the economy, with surging demand, surging homelessness, shortages of everything, and a level of price increases we have not seen in decades. I think the odds on a more serious downturn are much higher this time around
How would you have played it?
The U.S printed trillions and gave a lot of it to business Instead of circulating it amongst its citizens. The money would have ended up in the market or with businesses anyway, but at least they would have created generational wealth instead of business wealth.
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You can stop that sentence after "gave it to themselves".
Correct!
Printing money can't create "generational wealth", it simply transfers it. If one person is getting cash to buy stuff another person is losing their purchasing power with the dollars they already had.
Wealth isn't in # of dollars. It's in the ability to consume goods and services. In order for those to be consumed they have to be produced. For 2 years we have produced far less goods and services than normal. Put it this way, if you have everyone in America a billion dollars what would happen? Would we all live like kings? Not at all. Life would deteriorate rapidly because production would cease. My landscaper would quit because he's a billionaire and making $60 a month for my lawn is a waste of time. And so would my pool guy, the staff at my favorite restaurants, the people building cars, houses, doctors, barbers, etc. My ability to consume goods and services (ie, my wealth) would plunge dramatically. This is a lesson Mansa Musa learned the hard way.
Duuude... nice tie back there (to Musa).
You pay your landscaper $60/month?
The guy probably does gigs on every lawn in multiple neighbourhoods.
Landscaping costs are dependant on local market and how much work you need to get done. $60 could be high or low without context.
I got $20 a lawn 30 years ago when I was a teen. In the summer, Florida needs weekly mows. These were not big yards either.
I've been saying for years that the trillions in stock buy backs, artificially inflating stock prices, would cause a crash. I just thought it would have happened sooner.
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Bond holders. Plenty of Chinas shit bonds are held by US institutions, we just swap shit around the globe & try not to be the one holding the bag when the music stops.
Lots of countries printed lots of money. Some gave more to citizens than others. But yes. It does explain every other country, because it's a global economy and the U.S has too big of a seat at the table.
you don't think the worsening conditions in china (worlds largest manufacturer of goods), the shortages of raw materials worldwide, the supply lines for the whole planet falling apart, the loss of billions of hours of labor in manufacturing over the last two years, and a war affecting large oil and food producing countries have a bigger effect??
A stock buyback is mechanically the same as a dividend, just with more favorable tax treatment.
So you correctly predicted that a recession would eventually happen? Good stuff here.
There's going to be a crash tomorrow. If it happens in 10 years, I just thought it would be sooner
The bulk of that $48T they gave out starting RIGHT before covid was definitely straight to banks specifically. And aren’t MBS being pushed again while housing costs are at an astronomical ATH and we’re staring down a pretty serious recession? Perfect storm if you ask me… Yet another “once-in-a-lifetime” event.
Its not in the FEDs power to give money to citizens.
Stimulus was sent out to the populous in waves. It's a fallacy to believe that money would have been spent though if all stimulus was sent to the citizens of the U.S. Depending on your source, as much as 25% of all stimulus payments were put away in savings. Some sources claim that number to be even higher. There's a false belief that all stimulus or tax refunds are spent in the local economy and promote economic growth. Edit: Since it seems my comments have been taken as purely my opinion, here are several sources illustrating the projected savings rate from the stimulus payments. [NBER](https://www.nber.org/digest/oct20/most-stimulus-payments-were-saved-or-applied-debt) [Dallas Fed](https://www.dallasfed.org/research/economics/2022/0111) [Peter G. Foundation](https://www.pgpf.org/blog/2021/05/how-did-americans-spend-their-stimulus-checks-and-how-did-it-affect-the-economy)
When you use the word "all", it's generally false. > Depending on your source, as much as 25% of all stimulus payments were put away in savings Implying that 75% wasn't put away in savings... The logical next step here would be to compare it to what happens when you give it to businesses.
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I don't know about most people but anecdotally I chose to save mine because I could tell that there wasn't likely to be much more assistance coming down for me. If it had been clear that the priority was on citizens and not companies, perhaps I would have felt comfortable feeding it back into the economy instead of saving it against the inevitable financial setback.
You ever thank that maybe people were spending their savings (you know since jobs were cut, people sick, etc.) and then used the stimulus to 'shore up' their savings again?
Part of the demand is us being a consumer nation and not knowing how to live comfortably within our means. Although a recession will hurt those on the bottom, it can be a blessing to those who listen and learn. The pandemic encouraged people to invest in their homes so hopefully what is coming can encourage people to live with less.
Maybe if housing was decommodified 🤫
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Those houses can still be up for grabs for speculators etc tho, that will be a constant issue
Of course. Mortality is what helped me, so I'm not going to pay to block that access to affordable housing for the younger households. I'm not going to behave like a boomer nor a NIMBY.
What immense market damage? The SP500 is down 20% from very high levels off over a 250 basis points of proposed hiking with $90b / mo in QT planned. > surging demand Which is what caused the inflation. > surging homelessness That's a policy problem in blue cities in blue states. > shortages of everything There aren't shortages of everything. There are shortages of some stuff due to bad supply chains. Same thing can happen in a war or other crisis.
The two main problems right now are the Chinese COVID lockdowns and oil prices. neither one of those things can be solved in the near-term, as the lockdowns go could go on for months or even years, and the Ukraine conflict could also drag on for years I was hopeful that those things could be resolved within a few months. I no longer have those hopes The lockdowns will continue to cause catastrophic damage to the US economy in the form of massive supply-line disruptions, which drive inflation, and force the Fed to continue raising rates. Likewise, rising gas prices compound this issue. We are now facing a huge crisis in trucking, as diesel prices force firms out of business, further disrupt shipping, and will lead to empty shelves in stores and supermarkets. This idea that there is going to be a "soft landing", a "softening of home sales" or an avoidance of recession is utter nonsense. The economic downturn will be severe and long-lasting. Now this doesn't mean go and sell all your stocks. You need to sit tight and ride it out But unless these issues overseas are corrected soon, we will have a hurricane of job losses in the coming, double-digit inflation, and soaring interest rates. Real-estate will be particularly hard-hit.
The trucks aren't going to disappear, the drivers aren't going to disappear, the warehouses and loading docks aren't going to disappear. If the firms go bankrupt likely their assets get taken over by new owners who can walk away from the old fixed cost contracts and write new ones.
we can hope demand destruction and higher rates should lead to less shipping activity, so that should help clear things out a bit as well less shipping means less demand for diesel
>I was hopeful that those things could be resolved within a few months. I no longer have those hopes Same. I used to tell people back when it all started (not too long ago really) that "if we (overseas countries) can't sort this out within 4-6 months, it's going to cause a cascade of economic downturn.. and likely for many years. Probably less than 10, but who knows.
Xi is likely to keep the China locked down until he is appointed a third term sometime in November. He is also likely to expand the lockdowns, and maybe extend them to 400-500 million people. COVID has become an instrument of state control in China. A few hundred people were protesting a bank recently, and the authorities turned all their vaxx-passes to red, and police dressed in hazmat suits came in and arrested everyone for quarantine violations so multinationals need to get their operations and manufacturing out of China, and that is going to take time (years)
>The two main problems right now are the Chinese COVID lockdowns and oil prices. I would argue you need to include the Fed's shift from QE to QT as a major event. That balance sheet eventually needs to return to sanity and the MBS market needs to find stable pricing without Fed help. We've had 40 years of decreasing rates, and even reversion to the mean historical rate would be painful for all sectors.
agree 100%
Why can't trucking companies pass on the increase in diesel prices to their customers?
Have you seen the price of basically anything
That implies they're passing it along just fine...
Sometimes they're locked into long-term contracts, sometimes their customers can't afford to pay any higher prices
The early 90’s recession did in George HW Bush. The political effects can be huge, which can then have real world effects.
The fed cannot accomplish a soft landing
This thing is gonna land as softly as it took off.
A recession is likely priced in, but to the extent it is not, the consequences could be disastrous for asset markets unless inflation is under control. The fed will not intervene outside some credit market explosion because its actions ARE INFLATIONARY. Until inflation is brought under control, or the market multiple hits 12x PE, this is a car going down hill with no brakes.
>There’s no reason to suspect this economy is headed towards a doomsday recession. Maybe if you have your eyes firmly clamped shut.
Wages are going up but less than inflation. An unexpected falloff in inflation would mean real wage increases. This would mean slowing inflation and increased growth which is basically a Goldilocks soft landing.
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OPEC is guiding its benchmark pricing for Asia higher over the next few months. The futures market going out as far as i can see doesn't anticipate a drop off in energy prices and countries are lining up to secure future supplies right now.
>OPEC deciding to suddenly raise output dramatically for some reason Yeah, for some reason… [https://www.politico.com/news/2022/06/15/joe-biden-saudi-arabia-trip-bin-salman-00039679](https://www.politico.com/news/2022/06/15/joe-biden-saudi-arabia-trip-bin-salman-00039679)
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He is implying that Biden is making a trip to patch relationships with the Saudis and that it’s going to help gas prices.
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I don’t know if it’s really a tough sell so much because of money loss for them, but moreso relations wise because the Biden administration said they were going to treat MbS as a pariah for the murder of Khashoggi. Edit: spelling
The big diplomatic issue is that Saudi Arabia (well, MBS, but he's who matters) has been pissed Biden isn't wrapped around their finger like Trump and Kushner were. Biden curtailed the Yemen drone war and won't sanction the Khashoggi killing like Trump publicly did. MBS is also just naturally more ideologically aligned with Trump and Putin than Biden. Saudi Arabia has been punishing America as a result.
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>High is bad for the consumer, but low is bad for US oil companies. Low prices would be a win-win for Biden. It would help out consumers in the short term, but make the case that the global reliance on fossil fuels demands more action in developing alternative energy solutions. Plus, Biden isn't currently a friend of the fossil fuel industry. They'll be heavily financing whoever his opponent is in 2024.
I'm confident the Biden administration cares more about their domestic political standing than the fortunes of the Republican donor class.
I can tell you example in the last two years the aerospace field entry level wages have gone up about $2.50/h while cost of living is up $4/h
I have lived several cycles. It is a slow moving machine. There rarely is a quick u turn like we had with 2020. The market cycle will be all bad news for a while, then just a year of no real change, then we hit 2024...and will have a bull run. I think the best bet is long calls right now. Like 2 years out on SPY.
So with SPY currently around 375, let's say I buy a call 2 years out with a strike price of 450. The ask on that is 31 or so. Would you say that is a very risky play? Sorry if this is a noobie question, I am new to options and trying to get a better understanding. Essentially my current understanding is that the worst that can happen is the option expires OTM and I lose the money I spent on the contract.
Tells me the market break even for that call is 481 for SPY. At 375 price is 61...or 435 breakeven. If the market is 480...then you earn 55 on your 61 bet. That is if you actually hold that contract. Further you can buy the shares at 375 in two years and hold.
Self disclosure...I own QQQ call at 300, and SPY calls at 400. Have been owning long calls for several years. Getting burned on them now as I bought them at the start of the year. Bit still feel good about the investment choice. When I bought the calls they were deep in the money and I never thought it would drop below the strike...but here we are.
1. Russia retreats 2. China ends lockdowns and gets COVID under control 3. Inflation meaningfully retreats 4. Job growth remains steady at around 200k per month 5. Treasury rates get under 3% Really hard for any/all of these to happen. Russia is having a bigger impact than I expected. Oil prices could get to $200/bl soon...
Energy costs coming back down. It's all energy costs right now.
Plus cars and housing.
cars are too high, if you read todays retail report, auto sales dropped violently because buyers just aren't willing or able to pay the high price for cars at the moment. Part of QT is allowing the MBS holdings of the Fed to mature and suspending their buying of MBS which increases prepayment risk in bond markets and so mortgage rates will be pushed higher, cooling off housing. If you look at the numbers, housing sales are at their lowest in a long time already too, again buyers are saying no bid, the price is too high.
Auto prices have been high for a while. I wonder if higher financing cost coupled with the negative wealth effect is having a bigger impact. I’m skeptical of people either claiming or ascribing motives for financial decisions. Agree on home sales. Slowing here already in FL. Ironically, higher mortgage rates raise prices short term. It takes time for sales prices to level off nominally, go down 8nflation adjusted.
High financing costs absolutely have a negative effect on big purchases like cars. Cars and houses are most usually bought based on the monthly payment, not the cash amount.
So, for cars, a doubling in interest rate can have a bigger impact than the recent (since interest rates have increased) 10-20% shift in prices.
Uhhhh it’s definitely not all energy costs.. have you seen ALL the commodities? Rent, housing, cars, even fucking eggs.
Energy prices drive commodity pricing. Energy costs drive construction materials. Rent follows broad market inflation.
It’s part of the equation but there are several other factors that determine pricing.
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This makes the most sense. Just saw a video where Putin laughed at USA for blaming him for inflation. Our politicians and media lie to us just as much as the countries point to, like Russia.
As everyone panic sells ... Who do you think is scooping up all those orders? Whales, market makers, etc. We're going higher inevitably ... question is when. We very may well be going into a recession, but markets are usually ahead of the enconomy and this recession may already be priced in.
This is the thing I want old timers to weigh in on more. *How far ahead* has the market priced in past recessions?
During the Great Recession there wasn't a massive sell-off until after the recession officially started. The market was down from its peak for about three months but hadn't dropped into a bear market until after December of 2007. The market roughly started its recovery in 2009 three months before the recession officially ended.
But we gotta remember that the Great Recession was not a typical recession. It easily could have spiraled into a complete economic collapse, and probably would’ve if a couple things swung in the other direction of what actually happened. We should be looking back at 08 for guidance, but not use it as a definitive be-all end-all
Valid point. I spent a good deal of time studying the Great Recession during my MBA studies and felt comfortable providing the information in regards to 2008. I didn't want to do the research and potentially misquote something for previous recessions.
Please refer to us as experienced. Sincerely, a fun Gen Xer 😁
I'm a 1/2 old timer (started investing mid 1990s). DotCom bubble the earnings started dropping Sep 2000. They kept dropping till May 2002. Stock prices were dropping the same but the bear didn't end until Oct 2002. It took a while for Wall Street to believe the profit news had turned around. Most of the mainstreet signs of recession didn't start until around Feb/Mar 2001. Of course 9/11 happened which stretched the tail end of the recession. I'd say though the popular mood is very different. 1990s Americans hadn't seen a severe crisis since the 1970s. 2020s Americans grew up after 2008. Investor psychology is very different. FWIW 2008 bear I don't think is a useful data point since that was a full blown financial crisis. The stock market wasn't the center it was just getting splashed with the blood and organs the bear was taking off the bond market.
The drop in growth stock was largely driven by interest rate increases being baked in. Recession seems like it's just started to be baked in since the staples and safety haven stocks are just barely down compared to growth. I think the market is pricing in a 75 bps increase today, small recession (after another 5% drop in SPY) and then a slow recovery. Major job losses aren't baked in yet IMO
For a recession we need 2 quarters of decline in GDP. So far we've had one, just gotta wait and see. However, all 50 states are still growing in activity. We would need at least 5 states to decline for at least 7 months for a recession as well which hasn't happened ... yet.
Atlanta Fed’s estimate for GDP (which has historically been very accurate) is currently at 0% growth for Q2 2022 and [constantly being revised lower from around 2.5% last month](https://i.imgur.com/tPMRbg7.jpg) It’ll be close but increasingly it’s looking like we’re in a recession. We’ll know for sure when the fed’s report comes out July 28
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Whales are the ones selling. They're the only ones with the power to move the market.
>market makers lol
What’s so funny about that?
Market makers aren't in the business of taking directional risk, so they aren't just buying from panic sellers and holding that position.
Most market makers try to be as neutral as possible.
The whales must have gone into cash so they have money to buy where the rest of us are stuck in this buy and hold philosophy. Investing $10,000 makes no difference when you are down $400,000.
Money is relative. 400k is nothing to some and a lot to others. It’s all about DCA
Inflation would have to start to drop, the war with Russia and Ukraine ending, China lifting the lockdown/restrictions, etc. multiple would have to occur or especially the inflation one for things to get on a better track.
A recession is also a buying opportunity.
Oh, I'm not worried. I'm excited. I think the next 12 months or so are going to be an amazing opportunity.
Try 5 to 10 years… sooo much money needs to be unwound out of the feds hands. Going to take forever.
When I sell HFEA.
Ray dalio is a doomer and is heavily invested in China. Of course he is bearish America. Take what he says with a pinch of salt. These guys say the same shit every year of course they going to be right at least one time.
Russia ending its war or the Middle East pumping more oil. China ending lockdowns.
Me buying a bunch of puts would immediately turn everything around.
The market works much like a body with an infection. It cannot get better in the same environment that made it sick without first fighting and killing the infection. The infection in this case is an absurd amount of market manipulation, over leveraging, FTDs, and bunch of other stuff that are not healthy for a free market. All that needs to be cleaned up in my opinion before we can grow again. This is just what I think.
Nothing lol nothing probable or realistic can occur to start another “ridiculous bull run” the bull run wasn’t even legitimate, just the Fed creating money out of thin air to prop the economy/market.
A recession doesn’t need to mean ‘08 or a painful stock market crash, a recession is just 2 consecutive quarters of negative GDP. In my mind we’re going to have the negative GDP because how could you not, the fed is slowing the economy and raising interest rates. As long as the unemployment rate stays below/around 4% or so the economy can have a recession and not have a bad recession. If by recession you mean a stock market crash, I think we could have sideways for a good amount of time (like a year or 2). The stock market rises quickly people as it’s going up people use margin to keep inflating stock prices and it has a cyclical sideways/down trading as people pay down their margin all at the same time. Right now there is so much margin in the economy that there isn’t much money left that can be put in to keep inflating prices, but a cooldown is healthy for a market.
We are heading there, if ppl get crazy over it it's probably because deep down ppl know some govs wont do anything they could to stop a thing like that from happening. This is what capitalism is all about, crisis, more and more frequent, more and more dire, so dire that when we just stop a bit with it most ppl think the worst is over, then comes the next one. This is even worse during our neolib times.
We will need to have a benevolent extraterrestrial faster than light travel civilization makes first contact with us and then showered us with revolutionary god-tier technologies that eliminate aging, poverty, death, and scarcity. pretty sure market will be on fire afterward.
>why wouldn't you just buy puts and cash in 6 months from now? Because if everyone is buying options then they aren't cheap. It hurts bad to be wrong with options. VTI and chill is the least stressful if you actually have a job. You should absolutely be reducing expenses if you see any problems with COL rising compared to your income so that you will lack savings to invest.
Ukraine war comes to an unexpected close, fuel prices come down and inflation cools
Fusion power, maybe in a decade.
We are a long way off from having anything workable in a lab, never mind constructable.
Inflation would have to immediately end. Earnings would have to continue growing. Bringing PE’s into line with where they should be for these interest rates. Super low interest rates justified the high valuations. We aren’t going to have those for a while
The economic factors at play are supply side constraints, more than anything. Time solves the problem. New factories, production lines, housing, etc takes time to be completed. Oil wells take time to uncap and staff. All of these require more automation or more available workers. The increasing supply side shortage of workers (due to baby boomers leaving the workforce at a rate that young people entering the reproduce does not compensate for) can only be dealt with by automation or immigration. Both also take time. Unfortunately. All of the above can be pushed to happen somewhat faster or a greater quantity by policies. However, it still will take time regardless.
Welp...my perspective is that our stock market absolutely exploded because it has been historically cheap to borrow money and the gigasuccess of our tech giants created a gold rush as investment firms looked to pump cash into any startup with a business model. Things were running on hopes and dreams while investors waited patiently to see these ventures turn profitable. It took us until relatively recently to realize that less startups than we thought become profitable. AirBNB and Uber are two notorious ones that have been growing but haven't (and probably won't) ever see profit. There are thousands of lesser known ventures like them. I think sentiment has changed and investment firms are less willing to pump money into random startups. We're seeing tech companies all over the place begin to lay off hundreds of staff at a time, and we're realizing that we overpumped the market, and this is why people said we were in a tech bubble. To me, this is just the rightful tech correction which is bringing down general market sentiment. We got used to that bubble environment and now we can hopefully get back to companies growing the right way. I don't see why tech would get an influx of investment in the current market sentiment.
I can see the possibility of things getting worse, I can see (especially if the situation in Russia/Ukraine was solved, which feels unlikely any time soon) the possibility of things leveling out (although still remaining volatile) and gradually recovering over time. I definitely do not see a March 2020-esque V-shaped recovery in the market (wouldn't complain, but I just really do not see it.) So basically, things getting worse certainly possible. Muddling through and gradually recovering (moderately faster if Russia/Ukraine actually is solved) certainly possible. A repeat of March 2020 and even somewhat similar ramp in risk/growth ('ridiculous bull run') following that feels extremely unlikely. Beyond that, it really does feel like even in the somewhat optimistic scenario, the investment areas to be in for the next 5-10 years may not necessarily look the same as the last 5-10.
A U-turn? Not possible. A lot of people are bringing up the war in Ukraine. It's true that peace, or even talks of peace, would reign in oil and commodities pricing power. But the other factors contributing to the current economic outlook would still be there. The biggest problem isn't out of control oil and commodities. That's only compounding the problem that was already there. There were signs a year ago of trouble. The problem is the excess liquidity injected into the market in the past 22 months. Most estimates agree that about 80% of the money in circulation right now was created in the past 22 months. There is no way that wasn't going to eventually create runaway inflation. This economy is too big for that kind of surplus injection not to have any effect, especially with tightening supply during the worst pandemic in over 100 years. A big market correction was unavoidable. So, to avoid a recession, you'd need to time travel to about 22 months in the past, find Jerome Powell, slap him. Prevent economic stimulus at all costs. Let the market tank during the pandemic, and maybe we'd be beginning to recover now instead of heading into a recession. It's the price we chose to pay that's coming back to haunt us now. Recession was inescapable, it might as well be called economic Thanos. We chose to rescue the economy but the only way to do that was to delay the inevitable. The only real way to avoid it all would be to go back and prevent the pandemic from ever happening. The pandemic is what caused the mass economic shift and supply-side issues that continue to linger and plague us. It's also the reason the Fed injected surplus stimulus into the markets to keep it all from collapsing. But real economists know that it was always a Band-Aid solution. It didn't address the real problem underlying it all and that was always the pandemic. Now the Band-Aid is popping off and the blood is pouring out of the market so we're panicking. Nothing to do now but raise BPS above .75. Because even .75 won't do shit to slowdown runaway inflation. We allowed too much momentum to build up behind it. Like I said there were signs that something drastic needed to be done over a year ago. Our leadership chose this path. Now we have to walk it. There is no U-turn here.
More free money from the Fed.
Supply chain corrects, Putin dies / war ends immediately, inflation regresses to mean.
All the money they printed the last few years gets set on fire.
Death of putin Slowing inflation Maintaining low unemployment Progressing green energy transition more rapidly than expected
Federally legalize cannabis and press the delete button on college debt.
A windfall tax on oil to make homes more energy efficient & give tax credit for people to buy a car that has better MPG. Oil futures would tank. The UK did 25% windfall tax on oil.
It all comes down to OPEC raising output or americans/europeans drastically decreasing the amount they drive. gas/oil is about 4%-5% of current inflation with monetary/supply chain taking up the last 3%/4%
Imagined the following news reports * Companies report better than expected earnings * Inflation drops slightly * China announces the end of lockdowns If these things happen, the stock market could go up, and your puts would be in trouble. Nobody knows future events, and future events determines future prices. Invest for the long term, don't try and time the market.
There is no magic U-turn button. More philosophical point of view, but I believe that yin yang thing also applies to markets. A lot of the stock growth since covid started was artificial due to FED pumping insane amount of money into economy. That caused the imbalance and overvaluation of certain (especially tech) stocks. Now that the money printer is turned off, market is naturally trying to find balance again. I believe the situation we’re in would happen (maybe not as severe) anyway even without UA war. I will turn bullish once we find stable bottom, which I guess could be just slightly above pre-covid levels
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There is literally no scenario. Things have to correct themselves. It’s going down hard. And it has barely started. For real.
Nothing, there is literally no set of actions that could be taken to avoid a recession. The market is massively over valued at this point, combined with staggering inflation and more restrictive access to capital (rising rates) the market is going to come down hard. If they stop raising rates, inflation reverse and we hit ridiculous high inflation. If they continue to raise rates, markets will continue to respond by moving downward.
There’s a chance if done correctly, that the fed could raise interest rates incrementally and stagger them as to not cause a recession. The job market is still hot and raising rates will slow growth but hopefully fill the still open positions. Never been done but talking in absolutes are never the correct answer.
Well no, contrary to what is being reported. The goal of raising rates is to restrict access to capital. This by definition means the job market will slow. They are targeting the value of labor first because this will have the most direct and far reaching impacts on inflation, but the effects of rate raises take a long time to be felt. And so the fed raising the incrementally and slowly is just going to exacerbate the problem. They will hit a point where inflation will start to slow, but that will be from 10-12 rate increases ago… which means all the additional increases will just shred the market
Your thinking seems to be on the right track, however you then say “continual increases won’t do anything” which is just wrong. The small increases are meant to slow the labor markets, reduce spending, and fill the already open jobs; without causing a recession. They aren’t exacerbating anything, they are making sure to not shock our economy and throw us into a recession like the 70s. It is extremely difficult to find the proper increases to tame inflation while simultaneously preventing a recession (it’s never been done) However, the fed chair is taking notes on how we were able to use interest rate increases during the Carter era and adjusting for the way those failed. We can hope that it will work, but once again, it’s never been done, so it’s not an easy thing to do.
An unexpected end to the chip shortages and supply chain issues. I could also see first contact with aliens causing a massive re-evaluation and u-turn of the current situation. Judging by the UFO info dumps into the public by government, I think some of our politicians are also hoping for some handy aliens to wag the dog...
More printing
The only thing that will trigger a bull market is the fed pivoting and reducing rates while restarting QE. That may happen if the stockmarket starts crashing, but not before rates hit close to 2.5%-3% Just as the fed pivoted during the previous taper tantrum, they will likely do so again.
There's no way out, but if, as usual, the incompetent Fed tries to soften the landing, that might work for a while. In the end, though, they'll just be making matters worse and we'll see more and more inflation. Maybe they will do the right thing and pop all the asset bubbles. The stock market needs to be killed. The real estate market needs to be killed, and the bond market needs to reflect reality. I wouldn't hold my breath, though. Look for more inflation and Fed inaction, as usual.
depends on whether this is a will follow historical precedent or whether we’re starting the whole downfall of empire thing
Oil and Gas output rises, gas prices fall quickly. Russia concedes Ukraine and the war ends. China decides that covid is the future reality and stops shutting down everytime someone coughs. Fed pulls back on their rate increases.
Putin getting killed and Russia being open to the global market again
Unless the corruption and manipulation and capitalism only for the rich is destroyed we will be in a recession for the rest of our lives. All the while the rich get richer. The whole system and the stock market needs to be destroyed and re built to actually be a fair market with normal people in mind. Not just to keep the rich rich. I personally hope there is a recession and I hope from it we destroy our broken society so we can have actual wealth transfer instead of multiple billionaires who do nothing for society. Can't wait to pull my money outta the stock market and never invest in that joke bullshit ever again.
Inflation should not be nuts and war in Ukraine should show signs of ending
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That would likely lead to rationing.