Coming Economic/Markets Crash

[SilverFallsAndrew]

On 6/10/2022 at 8:37 AM, Front Ranger said:

CPI surprise to the upside, 8.6% YOY. Inflation has not peaked, which means higher chance of more and larger rate hikes by the Fed.

Gonna be an ugly summer for the economy.

I was reading some economists say inflation may peak over 10%. 

[Front Ranger]

[Andie]

Federal Reserve Chair Jerome Powell is facing an increasingly grim calculus after yet another hot inflation reading last week: He probably has to push the economy into recession in order to regain control of prices.
-Bloomberg 

Happy Days!
 

Inflation is too much money chasing too few goods.  It’s time to gear up production.  
Joe Manchin voted down Biden’s 6Trillion or it would be a LOT worse! 
 

edit:

Will real estate hold or start slipping!?

BTW- If you’re a 30 something now is a good time to think about grabbing some stock in Blue Chip or Tech. 
Year over year in 20-25 yrs when you want to retire it will serve you well. Add stock during these pretty regular dips is an old reliable strategy.  

[Iceresistance]

The DOW is about to fall below 30,000 . . . 

[Andie]

Yeah. I keep hearing “Inflationary recession”.  

[Iceresistance]

3 hours ago, Andie said:

Yeah. I keep hearing “Inflationary recession”.  

Also combine that with stagflation, shrinkflation, and rate hikes.

[Andie]

Get ready to spend more get less and not improve quickly.   
They could give it a jolt if they’d open up the work on the pipeline they stopped, fund more wells on govt land, and impose higher tariffs on China if they don’t start loading us materials again on their trip back to China. They’re playing dirty (shocker). 

[Andie]

First quarter shrank by 1.5%.  
They’re expecting 2nd quarter to have shrunk as well.  
Once that figure is known we will officially be in a Recession.  

Stand by!…….

[Iceresistance]

It almost seems like the high Inflation is taunting the Feds as if to say "Raise the Interest rates, if you dare!"

[Deweydog]

3/4% rate hike confirmed, first of its kind since 1994 (analog???) and something that many economists thought was not functionally possible in a post-2008 economy. 

[Front Ranger]

55 minutes ago, Deweydog said:

3/4% rate hike confirmed, first of its kind since 1994 (analog???) and something that many economists thought was not functionally possible in a post-2008 economy. 

They didn't really have much choice given inflation levels. But it's pretty clear we're also heading into a recession, and rate hikes will not help. Will be very interesting to see what happens over the next few weeks and how long they can keep raising rates before something breaks.

A lot of what I've read lately seems to indicate the credit market is in serious risk. Wouldn't be surprised to see some sort of large event there.

[Deweydog]

Just now, Front Ranger said:

They didn't really have much choice given inflation levels. But it's pretty clear we're also heading into a recession, and rate hikes will not help. Will be very interesting to see what happens over the next few weeks and how long they can keep raising rates before something breaks.

A lot of what I've read lately seems to indicate the credit market is in serious risk. Wouldn't be surprised to see some sort of large event there.

There are definitely some potential slippery slopes out there, but there’s also a lot of races to be the first to make the most accurate doomsday call. The same thing happened in the mid 2000’s, when fundamentals were quite a bit different (worse), and some folks ended up looking like geniuses. They made a lot of money in the process so there’s a sexy aspect to pushing a catastrophic forecast.

There’s definitely pain to come, and if any kind of true recession is avoided in the next year or so it will be a big win. But a fair amount of that is seemingly priced in to the stock market and overnight rates, from a historically perspective, still aren’t even close to average. The economy is essentially getting the root canal it put off for way too long, IMO. People rarely die of a root canal.

 

 

[Front Ranger]

9 hours ago, Deweydog said:

There’s definitely pain to come, and if any kind of true recession is avoided in the next year or so it will be a big win. But a fair amount of that is seemingly priced in to the stock market and overnight rates, from a historically perspective, still aren’t even close to average. The economy is essentially getting the root canal it put off for way too long, IMO. People rarely die of a root canal.

How painful it will get will depend on some factors outside of everyone's control, including the Fed, but the reality is that we had an extremely long bull run built pretty much on economic policies that are no longer viable. It's going to get worse, but it's what we need to get healthy, as you alluded. But I think a lot of people are still underestimating the forward risks - just as few 6 months ago would have thought we'd be where we are now.

One thing I'm certain of is that real estate is in for a tumble. Every market is different, but the reversal we're seeing here is spooking the sh*t out of a lot of industry veterans that have seen all sorts of cycles. Which makes sense given the nearly unprecedented rise in rates.

Some places that saw 40%+ gains over the past 2-3 years will give most if not all of that back in the near future.

[Andie]

It’s not going to be pretty but for anyone that’s lived through several recessions before we know it will cycle out.  
The Obama recession was pretty much a cyclic thing.  Every 12-14yrs the market exhales for whatever reason you want to stick on it.  

Think of it as a buying opportunity for performance and dividend paying stock if you are keeping stock for a retirement portfolio.  There are possibilities out there if you want.  
If not it will cycle out and return to good days.  

[Iceresistance]

The DOW has fallen below 30,000. This is going to get really ugly really quickly.

[Minny_Weather]

Can someone explain why giving Ukraine an additional $1 Billion in the middle of all of this isn't a huge middle finger to Americans? Cuz I can't see it.

[Deweydog]

21 minutes ago, IMoveALot_Weather said:

Can someone explain why giving Ukraine an additional $1 Billion in the middle of all of this isn't a huge middle finger to Americans? Cuz I can't see it.

https://www.usdebtclock.org/

[Deweydog]

16 hours ago, Front Ranger said:

How painful it will get will depend on some factors outside of everyone's control, including the Fed, but the reality is that we had an extremely long bull run built pretty much on economic policies that are no longer viable. It's going to get worse, but it's what we need to get healthy, as you alluded. But I think a lot of people are still underestimating the forward risks - just as few 6 months ago would have thought we'd be where we are now.

One thing I'm certain of is that real estate is in for a tumble. Every market is different, but the reversal we're seeing here is spooking the sh*t out of a lot of industry veterans that have seen all sorts of cycles. Which makes sense given the nearly unprecedented rise in rates.

Some places that saw 40%+ gains over the past 2-3 years will give most if not all of that back in the near future.

That seems pretty hyperbolic. In order for that to take place we’d need to see a glut of defaults/bankruptcies exceed that which occurred in 2008. Are you just thinking stagflation and recessionary job loss will be enough to create that level of rampant insolvency?

The Fed is the greater fool at this point, with their belief that you can run on a tire full of fix a flat forever. Greed-driven and purely experimental.  There’s plenty of greed still out there in the mortgage world, but the lending practices and level of experimentation just don’t afford for anything near the levels in the 2002-2007 period. I remember some of the wacky products we were offered back then on our first house in 2003, and the “creativity” only increased from there. We were lucky to have a broker who we knew quite well and wouldn’t even discuss some of the Ditech-level options. We had some friends and colleagues who bought in the next few years drank the Koolaid, one who bought a 4,000+ sq foot mansion with an interest-only ARM. Needless to say it didn’t end well.

In addition to the lending, the mindset back then was also quite different in that a lot of the purchasing was purely speculative. Tons of investment properties purchased with the belief that the market was infallible. That doesn’t seem to be the case these days.

[Front Ranger]

1 hour ago, Deweydog said:

That seems pretty hyperbolic. In order for that to take place we’d need to see a glut of defaults/bankruptcies exceed that which occurred in 2008. Are you just thinking stagflation and recessionary job loss will be enough to create that level of rampant insolvency?

The Fed is the greater fool at this point, with their belief that you can run on a tire full of fix a flat forever. Greed-driven and purely experimental.  There’s plenty of greed still out there in the mortgage world, but the lending practices and level of experimentation just don’t afford for anything near the levels in the 2002-2007 period. I remember some of the wacky products we were offered back then on our first house in 2003, and the “creativity” only increased from there. We were lucky to have a broker who we knew quite well and wouldn’t even discuss some of the Ditech-level options. We had some friends and colleagues who bought in the next few years drank the Koolaid, one who bought a 4,000+ sq foot mansion with an interest-only ARM. Needless to say it didn’t end well.

In addition to the lending, the mindset back then was also quite different in that a lot of the purchasing was purely speculative. Tons of investment properties purchased with the belief that the market was infallible. That doesn’t seem to be the case these days.

There is more than one way for the housing market to crash. Just because we don't have all of the same factors as 2008 doesn't mean it won't happen. Some fundamentals, like record unaffordability when it comes to prices/rates vs income, we do have in common.

We have other ones that did not exist leading up to 2008, like rampant inflation, a massive short term rental market (Airbnbs, etc), and 13 years of massive Feb intervention (bubble blowing) through QE.

As far as your last paragraph...oh, there has been a TON of speculation in the real estate market, especially the past couple years. A big part of the reason for our national "housing shortage" is all the second, third homes that more and more people have bought, the aforementioned short term rentals, and institutionalized investment firms like Blackrock buying up hundreds of thousands of homes to turn into investment rentals.

I don't expect big drops to happen overnight, but downward pressure will definitely accelerate as we likely move deeper into recession and layoffs increase. Plus you tend to have the market psychology of fear building upon fear.

The equity and crypto markets were propped up by extremely accommodative financial policy, and the real estate market was as well. Now, thanks to historic inflation, that has changed dramatically and we pay the piper.

[Andie]

Imagine where we’d be if Biden’s $5.8 Trillion bill had passed the Senate?  
Thank you Manchin and Sinema. 

[Deweydog]

6 hours ago, Front Ranger said:

There is more than one way for the housing market to crash. Just because we don't have all of the same factors as 2008 doesn't mean it won't happen. Some fundamentals, like record unaffordability when it comes to prices/rates vs income, we do have in common.

We have other ones that did not exist leading up to 2008, like rampant inflation, a massive short term rental market (Airbnbs, etc), and 13 years of massive Feb intervention (bubble blowing) through QE.

As far as your last paragraph...oh, there has been a TON of speculation in the real estate market, especially the past couple years. A big part of the reason for our national "housing shortage" is all the second, third homes that more and more people have bought, the aforementioned short term rentals, and institutionalized investment firms like Blackrock buying up hundreds of thousands of homes to turn into investment rentals.

I don't expect big drops to happen overnight, but downward pressure will definitely accelerate as we likely move deeper into recession and layoffs increase. Plus you tend to have the market psychology of fear building upon fear.

The equity and crypto markets were propped up by extremely accommodative financial policy, and the real estate market was as well. Now, thanks to historic inflation, that has changed dramatically and we pay the piper.

A lot of the speculation back in 2008 was homegrown as home buying took on a day trading feel with lending standards which were essentially non-existent. The home mortgage, in any form, was viewed as the holy grail fiscal solvency. With today’s speculative market, at least on the micro scale, those opportunities aren’t there. It removes a ton of the potential energy for a collapse.

As for equities and crypto, absolutely. We’ve managed to print our way into a corner and we’re indeed gonna have to (thank god) pay the piper. As for inflation, it is definitely the biggest X-factor. So many moving parts and too little in the way of metrics to say where we’ll be in six months, a year… That said, a lot of what we’re seeing right now is potentially priced-in.

All in all, it doesn’t look like we don’t disagree too much. It will take more in the way of external negative events to set a collapse in motion. I just think we’re further from that kind of negativity, all things remaining equal.  

Edited June 17, 2022 by Deweydog

[snow_wizard]

Can we all agree that Biden is a complete and utter train wreck of a President?

His first day in office he gave the middle finger to the oil companies, and we all know what that has led to.  But it's all Putin's fault!

[Deweydog]

20 minutes ago, snow_wizard said:

Can we all agree that Biden is a complete and utter train wreck of a President?

His first day in office he gave the middle finger to the oil companies, and we all know what that has led to.  But it's all Putin's fault!

Flipping off the oil companies doesn’t make the price of gas increase rapidly.

Cutting off Russian oil during a time of already increasing demand and lagging supply does.

[snow_wizard]

1 hour ago, Deweydog said:

Flipping off the oil companies doesn’t make the price of gas increase rapidly.

Cutting off Russian oil during a time of already increasing demand and lagging supply does.

Cancelling oil drilling leases, cancelling pipe lines, etc.  The message he sent was loud and clear.  It's no accident that gas was so low with Trump.  His policies were so oil friendly that we became energy independent during his term.  Biden put a quick end to that.

[Deweydog]

7 minutes ago, snow_wizard said:

Cancelling oil drilling leases, cancelling pipe lines, etc.  The message he sent was loud and clear.  It's no accident that gas was so low with Trump.  His policies were so oil friendly that we became energy independent during his term.  Biden put a quick end to that.

But we’re talking about the short term. Long term, yes. Biden or pretty much any other democrat talking head is gonna toe the environmental line and be less hospitable to “drill baby drill!!!!”

As it stands currently though, those moves are a drop in the tank (pun!) compared to simple supply/demand issues and decisions made regarding Russia (which were absolutely in Biden’s control).

A good chunk of where we’re at today was set in motion during the spring of 2020. We started printing money at a rate which a realistic, reputable fiat currency could never sustain and oil demand fell to levels never imagined. When oil prices went negative, it was clear that at SOME point there would be some form of massive reckoning.

 

 

[Andie]

It’s in the Fed’s hands now.  
That’s cold comfort as I don’t trust them to make the right call.   
The US will have to work their way out of this.  

Get employment and manufacturing back on its feet.  The current administration is too busy doing social engineering to pay attention to real nuts and bolts engineering.  The economy does better when people work and commerce is exchanged.  

[Iceresistance]

15 hours ago, Andie said:

Imagine where we’d be if Biden’s $5.8 Trillion bill had passed the Senate?  
Thank you Manchin and Sinema. 

We'd be talking about 10-20% inflation. And those 2 are likely to be reelected because they may have saved us from the 2nd Great Rescission/Depression.

[snow_wizard]

Some good news today for a change.  Wholesale gasoline has fallen to $3.79 from a high of $4.27 a couple of weeks ago.

[snow_wizard]

9 hours ago, Andie said:

It’s in the Fed’s hands now.  
That’s cold comfort as I don’t trust them to make the right call.   
The US will have to work their way out of this.  

Get employment and manufacturing back on its feet.  The current administration is too busy doing social engineering to pay attention to real nuts and bolts engineering.  The economy does better when people work and commerce is exchanged.  

They are spending all their time beating the dead horse known as January 6th.  The Democrats have become totally tone deaf to what is important to the American people.

[Deweydog]

 

Regular unleaded ***DOWN*** four cents today at Costco.

[Andie]

4 hours ago, snow_wizard said:

They are spending all their time beating the dead horse known as January 6th.  The Democrats have become totally tone deaf to what is important to the American people.

Absolutely.   
Sadly the Left tends to form investigations into the wrong things.  
For example Border Agents have apprehended 50 people on the terror list crossing our “border”.  How many got away?   
Maybe they’ll head straight for DC.  

[Anti Marine Layer]

17 hours ago, Andie said:

Absolutely.   
Sadly the Left tends to form investigations into the wrong things.  
For example Border Agents have apprehended 50 people on the terror list crossing our “border”.  How many got away?   
Maybe they’ll head straight for DC.  

Those hearings are all just theater and a distraction to what's going on as we approach the midterms, but I do wish they would find someone other than Trump for 2024. No matter who it is though the left will make sure to attack them relentlessly. 

[Andie]

It should be DeSantis.   
And he’d give the country a real run for the job.  

[Deweydog]

DeSantis’ problem will be assuming a position of power within what has become such a tribalistic electorate. He’s a pretty dull statesman overall.

Have to wonder how Donnie will respond if it looks like things really start breaking bad for him. Does he take his narcissism to the next level and run as a third party/independent?

[Front Ranger]

On 6/18/2022 at 3:22 PM, Deweydog said:

DeSantis’ problem will be assuming a position of power within what has become such a tribalistic electorate. He’s a pretty dull statesman overall.

Have to wonder how Donnie will respond if it looks like things really start breaking bad for him. Does he take his narcissism to the next level and run as a third party/independent?

That would be amazing, but unfortunately do not see it happening.

[Front Ranger]

A popular narrative is that sub-prime lending was the cause of the 2007-08 housing crash.

In reality, it was more speculation from credit-worthy investors. Not all that different from where we're at today: https://betterdwelling.com/forget-subprime-canadian-real-estate-buyers-investors-crashed-the-us-market/

[RentonHill]

43 minutes ago, Front Ranger said:

A popular narrative is that sub-prime lending was the cause of the 2007-08 housing crash.

In reality, it was more speculation from credit-worth investors. Not all that different from where we're at today: https://betterdwelling.com/forget-subprime-canadian-real-estate-buyers-investors-crashed-the-us-market/

It’s never that black and white but yes the speculation/investor combo plus rise of subprime popped the housing prices once rates rose. I think Wikipedia actually sums it up quite well (attached snip)

but you have to be careful to differentiate between the real estate downturn (normal part of any market cycle to some extent) and the ensuing global financial crisis, which was kickstarted by the housing downturn and the extremely overlevered banks who held all those mortgages (whether in a warehouse waiting to be offloaded - if we know we can package them up and sell them after we can hold 40x notional!! - or in the affiliated hedge funds that levered up the already attractive yield) that led to fund failures and eventual freezing of credit Mkts. Plus insurers down the line were the cherry on top. Today, Bank leverage is nowhere near 07 levels and the subprime market as it existed back then is essentially nonexistent today. Sure, housing prices are due for similar pullback just based on natural cycle and obviously rising rates, but it’s very different situation today, e.g., how many mtgs were variables back then - almost every Mtg is fixed rate now. No teasers, no surprises. 

[Andie]

On 6/18/2022 at 4:22 PM, Deweydog said:

DeSantis’ problem will be assuming a position of power within what has become such a tribalistic electorate. He’s a pretty dull statesman overall.

Have to wonder how Donnie will respond if it looks like things really start breaking bad for him. Does he take his narcissism to the next level and run as a third party/independent?

No drama is what we need.  I’ve always found good administrators are essential dull as dishwater. And man, does this country need a firm hand that just gets it done.  Florida loves him so he has something.  Also, international tensions need a firm grownup at the helm. 
 

Trump and DeSantis had a multi day visit about 6 months ago.  Little information came out of that.  They’re up to something but I hope it isn’t Trump running with DeSantis as VP.  
The nation is just sick of drama.  

[Front Ranger]

14 hours ago, RentonHillTC said:

It’s never that black and white but yes the speculation/investor combo plus rise of subprime popped the housing prices once rates rose. I think Wikipedia actually sums it up quite well (attached snip)

but you have to be careful to differentiate between the real estate downturn (normal part of any market cycle to some extent) and the ensuing global financial crisis, which was kickstarted by the housing downturn and the extremely overlevered banks who held all those mortgages (whether in a warehouse waiting to be offloaded - if we know we can package them up and sell them after we can hold 40x notional!! - or in the affiliated hedge funds that levered up the already attractive yield) that led to fund failures and eventual freezing of credit Mkts. Plus insurers down the line were the cherry on top. Today, Bank leverage is nowhere near 07 levels and the subprime market as it existed back then is essentially nonexistent today. Sure, housing prices are due for similar pullback just based on natural cycle and obviously rising rates, but it’s very different situation today, e.g., how many mtgs were variables back then - almost every Mtg is fixed rate now. No teasers, no surprises. 

Yeah, definitely complicated with many variables then. As it is today. 2004-07 run up in home prices did not have the record low borrowing rates that we've had the past few years.

The biggest thing in common is that era reached record unaffordability (income/housing cost ratios), and we have again in 2022 thanks to the unprecedented rise in interest rates.

[Deweydog]

5 hours ago, Andie said:

No drama is what we need.  I’ve always found good administrators are essential dull as dishwater. And man, does this country need a firm hand that just gets it done.  Florida loves him so he has something.  Also, international tensions need a firm grownup at the helm. 
 

Trump and DeSantis had a multi day visit about 6 months ago.  Little information came out of that.  They’re up to something but I hope it isn’t Trump running with DeSantis as VP.  
The nation is just sick of drama.  

Sure about that?