Have We Hit The Top?

[Red Lion]

18 hours ago, TwoCitiesCapital said:

 

It's not doom and gloom. It's factual. 

 

Aggregate statistics suggest that the average/median person's in this society are worse off financially than they were 3-years ago. 

 

 

I'm not a statistician but I wonder if average/median are the issues here? 

 

I hate to be a massive dick, but median only counts the 50th percentile, and let's face it, the top 10-20% count for the vast majority of the economy/spending/real estate/investments/etc. I don't think this is because we have a broken system, it's human nature. 

 

So I think that "median" worker has been getting worse off in America for decades. This is probably a function of the fact that well over half the population are kind of losers when it comes to finances. 

 

I suspect well over 90% of @thepupil's anecdotal connections fall in the top 10%, so I'm not really shocked. 

 

 

[thepupil]

40 minutes ago, RedLion said:

 

I'm not a statistician but I wonder if average/median are the issues here? 

 

I hate to be a massive dick, but median only counts the 50th percentile, and let's face it, the top 10-20% count for the vast majority of the economy/spending/real estate/investments/etc. I don't think this is because we have a broken system, it's human nature. 

 

So I think that "median" worker has been getting worse off in America for decades. This is probably a function of the fact that well over half the population are kind of losers when it comes to finances. 

 

I suspect well over 90% of @thepupil's anecdotal connections fall in the top 10%, so I'm not really shocked. 

 

 

 

kind of my point. if the aggregates (real and nominal) have seen very good trailing 3-5 year growth and the top 20% of companies and people who drive the income, asset ownership and spending all have inflated NW's from ZIRP era can now invest their NW's (just a hair off peak values) at positive REAL interest rates, it feel to me that rising rates doesn't do much until it really really breaks something.

 

feels like stimmy as much as highly negative rates felt like stimmy, just with a different course of action..

 

and the to date damage is just kind of myeh little flesh wounds or niches blwoing up (like a bank with 10 venture firms as its entire deposit base, or some value add sunbelt multifamily floating rate folks or whatever). 

 

the bottom 50% were and are poor. no change. until the tax man or social upheaval man ruins the party, 

[Gregmal]

Exactly. But why be surprised? They announced and coordinated all this(the rate hikes) so far in advance I don’t know why we’d think that by and large people and corporations weren’t prepared? 
 

Which then leads us to ask…what is more likely? That the bulk of the stock market decline last year was driven by charlatans hogging headlines and verifiable data indicating short selling by knee jerk institutions? Or that the market was substantially overvalued and only recovered because the folks who we’ve claimed are tapped out on savings found enough shekels to take the market back to where it was before all the screaming in the movie theatre occurred? 
 

Personally I’ve always thought last year was a tad overboard. 

Edited October 10, 2023 by Gregmal

[Gregmal]

Like do people all forget how many pieces were out last summer and into fall about record put option activity, and hugest jumps in short interest since GFC? The bulk of people were kind of prepared and I’d say there’s clear evidence much of the decline was artificial and driven by suit wearing weasels rather than anything of substance. Which isn’t to say the garbage companies; shitcos, and ponzis didn’t deserve to come down, but the widespread stuff was not driven by anything other than sensationalism. 

[mattee2264]

Fascinating that when you look at the EAFE index that total returns for the last 5 years and 10 years have been around 3-4% a year and YTD its been pretty much flat and the index is pretty much back where it was before COVID. And difficult to imagine things getting better as inflation is higher than the USA and growth prospects are weaker and unlike the USA the markets impose fiscal discipline and the companies in the index are more economically sensitive. 

 

And I am sure if you took the Magnificent 7 out of the S&P 500 then a S&P 493 would probably be more like high single digit returns over those time spans and also probably trading around the same level as before COVID and showing very little recovery YTD after the initial bounce from the August/October 22 lows. 

 

And Magnificent 7 now make up around 30% of the S&P 500.  And seem fairly immune to the macroeconomic backdrop. Probably because if you have a long duration and don't think there is a sea change and higher interest rates are temporary and a hard landing is off the cards then why would you even worry and risk getting off the gravy train especially with AI extending the growth runway. 

[Spooky]

I'd buy an S&P 493 index today over the S&P 500 over a long investment horizon. The biggest companies today won't be the biggest ones 30 years from now. Plus you get less exposure to the overvalued Tesla / Nvidia fad stocks.

[Spekulatius]

Looks like inflation comes in a bit hot:

https://www.cnbc.com/2023/10/12/cpi-september-2023.html

[mattee2264]

Yeah that is the flip side of avoiding recession. 

 

Running trillion dollar deficits with the economy at full employment is a recipe for inflation and 5% interest rates are not going to be enough to bring inflation back to target. 

 

Fed doesn't have the balls to do much more than higher for longer and hope. 

[Dinar]

2 hours ago, Spekulatius said:

Looks like inflation comes in a bit hot:

https://www.cnbc.com/2023/10/12/cpi-september-2023.html

Isn't it half of it housing driven, which goes through with a lag?

[thepupil]

6 minutes ago, Dinar said:

Isn't it half of it housing driven, which goes through with a lag?

 

yes, I'm not a big "follow the CPI" guy but this one seems particularly dumb. 

 

Quote

The index for shelter was the largest contributor to the monthly all items increase, accounting for
over half of the increase. An increase in the gasoline index was also a major contributor to the all
items monthly rise. While the major energy component indexes were mixed in September, the energy
index rose 1.5 percent over the month. The food index increased 0.2 percent in September, as it did
in the previous two months. The index for food at home increased 0.1 percent over the month while the
index for food away from home rose 0.4 percent. 

 

 

Quote

The
shelter index increased 0.6 percent in September, after rising 0.3 percent the previous month. The
index for rent rose 0.5 percent in September, and the index for owners' equivalent rent increased 0.6
percent over the month. The lodging away from home index increased 3.7 percent in September, ending a
string of 3 consecutive monthly decreases. 

 

Quote

The shelter index increased 7.2 percent over the last year, accounting for over 70 percent of the total increase
in all items less food and energy. 

 

[EBITDAg]

This guy does a pretty good job of covering CPI. http://bonddad.blogspot.com/2023/10/except-for-fictitious-shelter-and.html

[changegonnacome]

Yeah OER nonsense etc makes headline not a great read.....psychologically including it actually doesn't help "fight" inflation.......people walk into wage neg with a CPI figure

 

But again SuperCore....made in America inflation just wont go down......this is just not good IMO.....in and off itself you might be able to live with it where it is.....but as I've said before.....SuperCore where it is becomes the foundation on which trips BACK to 4 or even 5%+ on headline can be achieved

 

You can't get inflation with a 2-handle with supercore where it is......and as I've been consistent on it becomes the basis for trips to 4 or 5%.......inflationn is not good.......what's worse is volatile inflation.

 

[Sweet]

The Jim Cramer of economists

Just exclude all the major life expenses and claim victory lol

 

Edited October 12, 2023 by Sweet

[Spekulatius]

7 hours ago, Dinar said:

Isn't it half of it housing driven, which goes through with a lag?

I think the CPI shelter index with lag represent what the majority of the people who own houses or rent actually see. Market to Market rents matter if you happen to change apartments. The CPI is designed (or tries to) to measure what the population actually sees in reality, so I would argue it matters. Sure the market to market rents arena leading indicator, that’s true, but why shouldn’t care?

 

Or should the Fed in the future bump up rates immediately when market to market rents rise?

Edited October 12, 2023 by Spekulatius

[TwoCitiesCapital]

41 minutes ago, Spekulatius said:

I think the CPI shelter index with lag represent what the majority of the people who own houses or rent actually see. Market to Market rents matter if you happen to change apartments. The CPI is designed (or tries to) to measure what the population actually sees in reality, so I would argue it matters. Sure the market to market rents arena leading indicator, that’s true, but why shouldn’t care?

 

Or should the Fed in the future bump up rates immediately when market to market rents rise?

 

This is right. 

 

We can debate the efficacy of the lag, but it's intentional because people's rent don't go up overnight simply because home prices rose. 

 

It takes time to filter through to rents and then time to filter through to tenants who tend to be on fixed leases for 1+ years. The lag is intended to reflect increasing prices for a small percentage of the population each month whose leases are renewing a d etc instead of pricing in the inflation that almost no one sees the month it occurs. 

 

It makes it a more useful "average", but a less useful indicator of what is actually happening as it will lag actual inflation and is why inflation typically peaks inside of the recession instead of before it. 

[Gregmal]

This issue is that the Fed is the cause of it being elevated lol. It’s the only remaining thing between that and this manufactured fairy dust 2% figure. We all know how to kill housing. And it’s not by excluding 85% of the population from accessing it. 

[Spekulatius]

7 hours ago, changegonnacome said:

what's worse is volatile inflation.

Inflation is almost always volatile. It hits different parts/ goods at different times and to different degrees. It’s makes it hard to plan ahead and for this reasoning is detrimental to business.

Edited October 13, 2023 by Spekulatius

[changegonnacome]

14 minutes ago, Spekulatius said:

Inflation is almost always volatile. It hits different parts/ goods at different times and to different degrees. It’s makes it hard to plan ahead and for this reasoning detriment to business.

 

For sure what I meant more was that given the volatile nature of inflation that floats around the 1.5% to 2.75% range is fine.......whats not fine is where we are now potentially....which is inflationary volatility that is let's call it 'headline worthy 'and so feeds into inflation psychology and anchoring....this sticky supercore base we have now is dangerous jumping off point to easy vol trips to headline catching 4%+ inflation.......as you say inflation & price stability is where inflation is NOT part of business planning. We are not there yet.

Edited October 13, 2023 by changegonnacome

[LC]

3 hours ago, Gregmal said:

This issue is that the Fed is the cause of it being elevated lol. It’s the only remaining thing between that and this manufactured fairy dust 2% figure. We all know how to kill housing. And it’s not by excluding 85% of the population from accessing it. 

Rather than raising rates, do you think if they instead had raised taxes on the upper deciles it would’ve avoided a lot of the painful excess at the top end of the market, while still keeping the bottom half or 2/3rds of the housing market active?

Edited October 13, 2023 by LC

[Gregmal]

7 hours ago, LC said:

Rather than raising rates, do you think if they instead had raised taxes on the upper deciles it would’ve avoided a lot of the painful excess at the top end of the market, while still keeping the bottom half or 2/3rds of the housing market active?

I can’t really say. I just think it’s become clear that they are doing something because the textbook told them to, but also doing something that common sense tells you doesn’t make any sense and perhaps ends up being disastrous.
 

I even think you maybe see some modest weakness in home prices if rates do fall too fast. They’ve made it impossible for people who are in a home and want to move to do so. They’ve made it impossible for non cash buyers in the starter home market. It’s hard to get a totally clear picture and it’ll likely be bifurcated but I can totally see prices of older homes dropping a bit and new build holding once rates make mortgages more accessible.

 

Raising taxes above a certain threshold, say $10m annually, makes tons of sense, regardless of inflation or housing pressures.

[Castanza]

13 hours ago, Gregmal said:

manufactured fairy dust 2% figure.

2% rate has always given me a chuckle. It literally did come out of nowhere and everyone just hopped on board. 
 

https://sites.lsa.umich.edu/mje/2023/09/04/why-the-2-inflation-target/

[LC]

1 hour ago, Gregmal said:

I can’t really say. I just think it’s become clear that they are doing something because the textbook told them to, but also doing something that common sense tells you doesn’t make any sense and perhaps ends up being disastrous.

Agree with that. It’s like Jpow picked up a macroecon textbook and looked up “inflation”. 

[Gregmal]

1 minute ago, LC said:

Agree with that. It’s like Jpow picked up a macroecon textbook and looked up “inflation”. 

Plenty of places, most notably Canada have run on stupid expensive housing markets for decades and life went on. At this point it is only housing influencing this dumb crusade based on a fabricated number. 
 

Recently, there seems to be some pain in Canada, but driven by decades of expensive housing reinforcing certain behaviors and the variable rate mortgage situation. We have none of that here. There’s just no really way these guys can expect raising rates to have any impact on housing, for a really long time. While not apples to apples, maybe ten years ago I was shocked when looking for office space how normal it was for offices in suburban NY/NJ area to run standard at 75-80% occupancy in order to hold price. With residential, you have that element going for you, but with actual rental demand through the roof. At current rates no one is building. The only way Fed gets the core housing down is by wiping out so many jobs people literally just can’t afford anything, even at 70-80% of income going to housing. In that situation they’d fully be deserving of a terrorist organization designation. 

[Malmqky]

Just got to lower rates a bit here and encourage/allow building. Ya know, the whole supply vs demand thing…

[mattee2264]

It is not completely made up. 2% is seen as low enough to deliver the benefits of price stability but also providing a margin of safety against deflation (which worries central banks a lot more) and allowing for the fact that a little inflation improves the flexibility of an economy preventing downward wage rigidity etc. 

 

Even within the confines of a 2% inflation target central banks move the goalposts by changing the measures of inflation and many central banks also adopt a range approach with Powell's average inflation targeting the latest example of that. But at least having a 2% number that is pretty much orthodox in the developed world provides some kind of anchoring to inflation. That anchor will be undermined if central banks can just change the inflation target whenever it suits them. 

 

For example if we decide it is too painful to return to 2% inflation and adopt a target of 4% inflation then what happens when that target becomes difficult to achieve? How on earth are you supposed to anchor long term inflation expectations on that basis? 

 

In fact a lot of the problems we are facing is because the Fed extended its mandate too far. And as a result kept interest rates too low for too long and allowed imbalances in the economy to build up to an extend that normalising interest rates to a reasonable level is causing issues. 

 

And also because the US government is irresponsible and is still running trillion dollar deficits when the economy is at full employment which is adding fuel to the inflationary fire which is requiring the Fed to be more aggressive than it would ideally like to be.