Have We Hit The Top?

[Gregmal]

4 minutes ago, changegonnacome said:

 

I dont.....but inflation doesn't have to stay at this level for SPY/QQQ margins/earnings to get wrecked.....while at the same time the risk free rate is increasing providing competition to equites.......so in P/E terms.......E is compressing while at the same time the P/E multiple is contracting.....and like a levered equity CableCo.....small changes in the numerator &  denominator results in big moves in the underlying equity.

Well yea, those levered cable cos suck anyway LOL. I generally even in normal times dont like stuff with debt unless its fixed rate and termed out. I would think bond yields normalize a bit, but not sure how we get carried away with it. If inflation tanks the economy then rates come down, no? If it normalizes, they stabilize and probably head lower from here simply because of where the rest of the world is at. So what are people betting on? 

Edited May 14, 2022 by Gregmal

[Gregmal]

If much of the "inflation" inputs come down, doesnt that enhance profit margins in a bunch of sectors? You think NVR is lowering their building prices? Coke/Pepsi? Live Nation? Ford?

[Viking]

56 minutes ago, Gregmal said:

Do people really think inflation is going to continue at 8% for the next several years? Its funny to me how last year there were like 2-3 people here tops who said this would happen, everyone else was in the transitory, camp. Now, everyone thinks its 5-10% a year in perpetuity. I guess thats why markets move and sentiment is powerful. But again, most of this "inflation", is fixable. So yea, tech stock based comp will blow for a few years. But the idea that markets need to price in 5%+ inflation OFF OF the already elevated base, seems to a little ridiculous to me. 

 

Similar to the housing market, the labor market is so tight that people ARE getting meaningful raises simply due to supply/demand imbalances. We all know the government lies about inflation. But again, theyre handling it right now, exceptionally well. Dining, travel, home improvement. AT THESE PRICES. So we can talk generally about "oh inflation"...great. Plug in x% inflation in perpetuity and get a crazy bearish picture. Tell me how stupid shit like 2x4s, automobiles, desktop computers, etc....are going to go parabolic on prices for the next half decade? I'd take the other side of that bet all day. Energy and housing will take time, but Im pretty certain policies will start shifting either soon, or starting in November to be more favorable on that front too. It just seems like we have big and popular story, and people are getting carried away with applying it to the future. 

i really have no idea where inflation goes from here. Will it stay at 8%? Probably not. Will it drop back to 2% in the next 6-9 months? Probably not. 
 

It is looking more and more like we have a severe labour shortage in North America. And lots of economic tailwinds. Housing is extremely resilient. Commodities are booming and this may run for years. Oil at +$130 would not surprise me. De-globalization looks real (with more production shifting to NA from Asia - chips being just one example). Electric vehicles and green energy is coming. Absent a recession it looks like inflation pressures could stay elevated (@4%) for some time. Well ahead of Fed targets. And high enough to still hit real incomes of consumers. Interesting times…

—————

Now if the Fed starts to panic i also think they will be very quick to reverse interest rate policy and the path of QT. My guess is when push comes to shove they will chose employment over inflation. And the stock market will likely smoke higher. Just like Bill Murray in Groundhog Day. 

Edited May 14, 2022 by Viking

[Gregmal]

I think 4% inflation is a nothing burger. People have been getting 3% raises every year just cuz. Now you have the most robust job market we’ve ever seen. Energy going higher is multi faceted, but inevitably will lead to greater energy production. Which will….further increase the demand for labor. If you had to draw up how the roaring 20s were born, it would be exactly as we are seeing it unfold. My wife the other day turned down a job offer with a 20% raise because it required driving 45 minutes to work 1 day a week. That’s happened multiple times now this year. People are gonna get paid. Don’t feel bad for the tech engineers we hear about getting laid off from the $500k a year jobs. They had their decades of excess and now it’s the middle class workers turn.

[changegonnacome]

1 hour ago, thepupil said:

One of the reasons I look at “quality” indexes such as the MSCI Quality or GMO funds or whatever is that historically these are the types of companies which can pass on prices in an inflationary period; honestly I don’t worry too much that Visa, Microsoft are overearning. No company is infallible, things can change (like corporate tax rates) etc, but ultimately I think a lot of the market has pricing power and those companies have fallen in absolute price. 
 

everyone is worried about peak margin/peak multiple; you’ve had a nice chopping of the multiple  and I haven’t seen mean reversion in margin in the ten years folks have been calling for it and I honestly don’t expect much of it for most high quality companies. 

I’m partly just throwing some bullish vibes out there to be contrarian…you can’t be complacent, but just don’t want y’all to become too wound up on the “regime change!!! Stagflation!!! “ narrative…

 

with that said my portfolio does kind of look Like big inflation bet and is short on regular way high quality co’s so I’m starting to worry about not having enough of that (normal good companies) vs inflation protection. 

 

 

 

 

 

 

The last decade has been characterized by expanding margins/Trump tax cuts driving "E" up to a record, offshoring, globalization reducing SPY/QQQ firm wide costs & expanding addressable markets, low/zero inflation, falling interest rates/risk free rates & therefore multiple expansion.....put it in a pot, the perfect bitches brew for a rising equity market.

 

In a real sense things are either getting better for equity prices or they are not. What i described above was great for US equities.....i dont think one can describe a bitches brew like that for the next handful of years.

 

I guess what Im saying is dont see those same forces continuing in the next decade, the world has changed due to COVID, Cold War 2.0 & inflation.....we have corporate on-shoring (Intel), de-risking, degloblization......I see it everyday in my job SPY/QQQ firms are prioritizing resiliency over cost optimization .............& and I would be interested to hear the bull case for how earnings continue their upward march in an inflationary world ,conjoined with a rising rate environment...where the Feds stated aim is to reduce aggregate demand by increasing the cost of money....bad for demand, bad for E.......while the Fed's transmission mechanism by which they do that (cost of money) has material effect on the risk free rate & by extension the discount rate > bad for P.

 

This at the same time that the least well off in society are, in a real sense, getting globbered by inflation.....they will need to be helped by fiscal transfers IMO if this continues......at the same time the sovereign cost to borrow is ramping up such that borrowing money has real number attached to it now, if the 10yr gets back to I dunno 4% or 5%........republican congresses at a state & federal level........full of fiscal conservatives screaming about the deficits are not going to be able reduce corporate tax rates again......they might do the unthinkable and actually raise income/real estate taxes on the wealthy & corporations to help the squeezed middle.....and lets not forget the new republican voter tent includes a new constituency that Trump helped soldify & ride to the WH & republics in Nov will need to win back congress.....the JD Vance constituency

 

Anyway so much reflexivity in macro.....you can tie yourself in knots........I have a simpler framework, until inflation is under control (which I think we can all agree will take time lets say 12 - 18 months).....the indexes especially the QQQ's & the COVID beneficiaries will NOT regain their ATH's.....one can do alot with that insight on the short side while trying to do sensible things on the long side for an aggregate good result. Blll Miller spoke about what worked in the 70's on CNBC recently......low P/E, high dividend yielding.....I smell out-performance for the Einhorn's of the world in the short-meduim term.

Edited May 14, 2022 by changegonnacome

[Gregmal]

I mean can’t you simplify some of this. Forget the entire market, SPY and all that junk. I don’t invest in etf or index funds. Focus on the consumer. Folks are good right now. And if they need more money…..we’ll there’s tons of jobs available to fix that. Focus on that universe. There is hardly a scenario I can envision where all of a sudden no one is hiring anymore. If anyone sees one, please throw it out there.

[Dinar]

30 minutes ago, changegonnacome said:

 

The last decade has been characterized by expanding margins/Trump tax cuts driving "E" up to a record, offshoring, globalization reducing SPY/QQQ firm wide costs & expanding addressable markets, low/zero inflation, falling interest rates/risk free rates & therefore multiple expansion.....put it in a pot, the perfect bitches brew for a rising equity market.

 

In a real sense things are either getting better for equity prices or they are not. What i described above was great for US equities.....i dont think one can describe a bitches brew like that for the next handful of years.

 

I guess what Im saying is dont see those same forces continuing in the next decade, the world has changed due to COVID, Cold War 2.0 & inflation.....we have corporate on-shoring (Intel), de-risking, degloblization......I see it everyday in my job SPY/QQQ firms are prioritizing resiliency over cost optimization .............& and I would be interested to hear the bull case for how earnings continue their upward march in an inflationary world ,conjoined with a rising rate environment...where the Feds stated aim is to reduce aggregate demand by increasing the cost of money....bad for demand, bad for E.......while the Fed's transmission mechanism by which they do that (cost of money) has material effect on the risk free rate & by extension the discount rate > bad for P.

 

This at the same time that the least well off in society are, in a real sense, getting globbered by inflation.....they will need to be helped by fiscal transfers IMO if this continues......at the same time the sovereign cost to borrow is ramping up such that borrowing money has real number attached to it now, if the 10yr gets back to I dunno 4% or 5%........republican congresses at a state & federal level........full of fiscal conservatives screaming about the deficits are not going to be able reduce corporate tax rates again......they might do the unthinkable and actually raise income/real estate taxes on the wealthy & corporations to help the squeezed middle.....and lets not forget the new republican voter tent includes a new constituency that Trump helped soldify & ride to the WH & republics in Nov will need to win back congress.....the JD Vance constituency

 

Anyway so much reflexivity in macro.....you can tie yourself in knots........I have a simpler framework, until inflation is under control (which I think we can all agree will take time lets say 12 - 18 months).....the indexes especially the QQQ's & the COVID beneficiaries will NOT regain their ATH's.....one can do alot with that insight on the short side while trying to do sensible things on the long side for an aggregate good result. Blll Miller spoke about what worked in the 70's on CNBC recently......low P/E, high dividend yielding.....I smell out-performance for the Einhorn's of the world in the short-meduim term.

Based on what are you saying that the least well off are getting clobbered by inflation?  If you are referring to retires, ok, I can understand, but wages for unskilled labor are 30-50% higher than in 2019, prices are not.  Skilled tradesmen are getting very well paid as well.  

[changegonnacome]

38 minutes ago, Gregmal said:

I think 4% inflation is a nothing burger. People have been getting 3% raises every year just cuz. Now you have the most robust job market we’ve ever seen. Energy going higher is multi faceted, but inevitably will lead to greater energy production. Which will….further increase the demand for labor. If you had to draw up how the roaring 20s were born, it would be exactly as we are seeing it unfold. My wife the other day turned down a job offer with a 20% raise because it required driving 45 minutes to work 1 day a week. That’s happened multiple times now this year. People are gonna get paid. Don’t feel bad for the tech engineers we hear about getting laid off from the $500k a year jobs. They had their decades of excess and now it’s the middle class workers turn.

 

I think @Gregmal you're envisaging a world where the real economy does fine/good. I think what you've described above is not in conflict with lets call it the Grantham view / my post above envisaging what will happen to the corporate sector earnings & equity market valuations...the economy & equity markets are correlated over the long term but they are not the same thing in the intermediary term.

 

My main mental framework is how do SPY/QQQ companies exceed their 2021 earnings/margins, in the world I described (labor rates for skilled staff like your wife ratcheing up, opex, PP&E costs increasing, while Fed is moderating demand though the price of money).......while at the same time receiving a comparable or higher market multiple (Fed put gone, rising risk free rate till inflation is under control)......the real economy can grow or hold up, while carnage ensues on the quoted prices of equity assets. You can hold both these views at the same time, I dont think they are diametrically opposed. SPY/QQQ earnings can slip modestly on rising costs/slight softening of demand, while multiples contract in response to a modestly rising risk free rate...both combined can have outsized effects on equity prices....especially when equity prices reached a point of being priced for perfection as they were you could argue the indexes were in Nov/Dec 2021.

[Gregmal]

6 minutes ago, changegonnacome said:

 

I think @Gregmal you're envisaging a world where the real economy does fine/good. I think what you've described above is not in conflict with lets call it the Grantham view / my post above envisaging what will happen to the corporate sector earnings & equity market valuations...the economy & equity markets are correlated over the long term but they are not the same thing in the intermediary term.

 

My main mental framework is how do SPY/QQQ companies exceed their 2021 earnings/margins, in the world I described (labor rates for skilled staff like your wife ratcheing up, opex, PP&E costs increasing, while Fed is moderating demand though the price of money).......while at the same time receiving a comparable or higher market multiple (Fed put gone, rising risk free rate till inflation is under control)......the real economy can grow or hold up, while carnage ensues on the quoted prices of equity assets. You can hold both these views at the same time, I dont think they are diametrically opposed. SPY/QQQ earnings can slip modestly on rising costs/slight softening of demand, while multiples contract in response to a modestly rising risk free rate...both combined can have outsized effects on equity prices....especially when equity prices reached a point of being priced for perfection as they were you could argue the indexes were in Nov/Dec 2021.

Yea I do that sometimes. LOL we are talking about similar things but yes “the markets” and SPY, totally unattractive to me. I luckily sold all my high multiple stuff before things fell off. Luckily, you can find plenty of companies like BC, WHR, GRBK, BXC to name a few, trading at 5-10x. I think stuff like that, hinged to the real economy, robust cash flow, rather than a high multiple…..probably does ok. If not a little better than ok.

[aws]

15 minutes ago, Dinar said:

Based on what are you saying that the least well off are getting clobbered by inflation?  If you are referring to retires, ok, I can understand, but wages for unskilled labor are 30-50% higher than in 2019, prices are not.  Skilled tradesmen are getting very well paid as well.  

 

And they seem to have unlimited backlogs of business at whatever price they want to charge. I have been trying to get contractors for some repairs on a building I own, a roughly 50k job. Most are too busy that it's not even worth their time to come out and take a look at the job.  Four came and looked at it, but of those three didn't even bother writing up an estimate and won't return my calls or make excuses. I started looking in January and still haven't been able to get a contract signed for work. I have to imagine business has never been better for these types of contractors to be able to turn down this kind of work so easily.

[changegonnacome]

1 hour ago, Dinar said:

Based on what are you saying that the least well off are getting clobbered by inflation?  If you are referring to retires, ok, I can understand, but wages for unskilled labor are 30-50% higher than in 2019, prices are not.  Skilled tradesmen are getting very well paid as well.

 

Yes alot of this is deeply interlinked  @Dinar so we can talk ourselves into literally circular arguments such is macro....as everything in economics is a 'then what happens'.

 

Again though, linking it back to the equity markets which is my concern, I think the Fed is trying to stop the most circular of reactions which is the wage-price spiral feeding on itself...i think they've signaled "no more" and are determined to get price inflation under control in the next 18 months I sense a do 'whatever it takes' attitude backed up by polling which inflation as citzens No.1 concern, well its the Feds no.1 concern................the music will stop for corporates to push price in that environment as the Fed shrinks demand in the economy...while the employees, if unemployment holds up secure/hold higher wages remains = structurally lower margins/earnings for corporates. 

 

This is the way i think about the circularness of it and probably the most important part & it's a timing thing thats REALLY REALLY important here.

 

Firms initially push price > leading to higher margins/profits> this leads to > Higher Wages > leading to > higher prices ad infinitum....HOWEVER assuming a Fed determined to kill inflation which in my model they are AND because wage negotiations happen with a lag i.e. they "look back" at 12 month historical CPI......Corporates IMO ultimately get left "holding the bag" so to speak i.e. the ability to push price is the first thing to evaporate but CPI linked wage demands from employees continue. Result: profit margins & earnings getting wrecked. 

 

The Fed is the circuit breaker in the circular model of wages & price inflation....and in my opinion using the time lag theory, corporate margins flatter in the short term but ultimately compress as the Fed steps in to halt to stop the wage price spiral.

 

 

Edited May 14, 2022 by changegonnacome

[Gregmal]

Think in general you have to be careful with generalizations. How far has “the market” fallen if you back out energy from the index? My big thesis in 2020 was a blow off top in tech and then new economy leadership changes. Value rotation started in 2021. Sometimes it’s painful. But I still see that trend continuing. So yea, high multiple stuff probably has trouble. But low multiple stuff probably rerates up too.

[changegonnacome]

1 hour ago, Gregmal said:

Yea I do that sometimes. LOL we are talking about similar things but yes “the markets” and SPY, totally unattractive to me. I luckily sold all my high multiple stuff before things fell off. Luckily, you can find plenty of companies like BC, WHR, GRBK, BXC to name a few, trading at 5-10x. I think stuff like that, hinged to the real economy, robust cash flow, rather than a high multiple…..probably does ok. If not a little better than ok.

 

Totally agree.........to sum up my blathering:

 

The indexes are screwed & arent going back to their ATH until the inflation genie is back in the bottle with the lid tightly screwed on  .....both the E & P contracting are going to drive this ........near term cash flow generating / low PE stocks are now king cause you cant really squeeze the P much more than they already are mathh wont let.....luckily there are alot of these around as you said...........volatility is going to be through the roof, so you gotta really know what you own, as the card deck gets reshuffled its going to painful & if you dont know what you own, you dont OWN anything.

 

Exactly why I'm interested to see how Einhorn gets on and wether his strategy redeems itself....cause what I've described is a perfect environment for a long/short value focused hedge fund like his. His bubble basket at least must have performed well.

[changegonnacome]

3 minutes ago, Gregmal said:

So yea, high multiple stuff probably has trouble. But low multiple stuff probably rerates up too.

 

Yep they are going to meet in the middle somewhere i think.....the classic growth-value gap......its just one side has a big painful journey to make and the other one not so much. You can play both IMO...long/short etc....for an outstanding result but you need to very careful.

Edited May 14, 2022 by changegonnacome

[Gregmal]

Without mentioning names, I think there’s still one remaining poster boy for the past decades investing environment which hasn’t really been hit bad relative to other stuff, with a guy you don’t want to bet against, in businesses that are pretty cool….that might be a ridiculously asymmetric short here.

[changegonnacome]

8 minutes ago, Gregmal said:

Without mentioning names, I think there’s still one remaining poster boy for the past decades investing environment which hasn’t really been hit bad relative to other stuff, with a guy you don’t want to bet against, in businesses that are pretty cool….that might be a ridiculously asymmetric short here.

I have no idea who your talking about 

[bizaro86]

3 hours ago, changegonnacome said:

I have no idea who your talking about 

 

He didn't want to mention names, but I bet it rhymes with Mellon Tusk.

Edited May 15, 2022 by bizaro86

[Blugolds]

Just another point of view, I have a fairly diverse group of friends/family with regard to socioeconomic status. Those in the upper echelons arent feeling much even with elevated inflation. The club dues are paid, the new range rover is in the garage, but it was a "pain" to find one with the exact options they wanted, the new Au Pair is settled in, they know whats going on but it doesnt really effect the day to day. The tip on the bill for a Friday night out is more than the cost to fill up the ranger rover....they dont care.

 

If I only hung around these folks at the same level, I wouldnt think twice about what was going on, probably would have a more optimistic view that things would be inconvenient but would work themselves out. 

 

The other half are really feeling it. When you're already living essentially paycheck to paycheck, that extra couple hundred a month for rent, plus fuel, plus groceries adds up, many dont have the extra grand a month to bridge the gap and their paltry 3% raise (if they get that) is a token bread crumb thrown. What does that translate to for the majority of American middle class, net actually in their pocket? maybe $2k/yr? couple hundred a month if that. 

 

I'm talking about these folks: 

https://www.cnbc.com/2022/01/19/56percent-of-americans-cant-cover-a-1000-emergency-expense-with-savings.html

 

https://www.pollfish.com/blog/original-insights/over-half-of-americans-couldnt-cover-1500-emergency-expenses-pollfish-survey-finds/

 

The only option is to do what they have been doing, but on a greater scale...charge it. Consumer debt will go up considerably. Most on this board (myself included) would just think, labor market is hopping, go find a better job, make more, hustle, but for many that isnt an option due to skillset, location etc, so basically they are stuck and take what they are given. Word on the street is that the truck is parked, the fishing trips are canceled, staying closer to home, they are buttoning down the hatches, because they dont have a choice and they are still falling further into the hole even with a slight pullback in spending. Evidently there is a run on wide mouth canning jar lids of all things. These folks wages are not 30-50% higher than they were in 2019. 

 

So what example best reflects the majority of Americans, I tend to think its those feeling the pinch and that will eventually work its way to the bottom line for many companies. 

 

Sometimes hard to remember that the avg salary in the US (2022) is $53,4900/yr or $1,028/week GROSS..

 

https://www.jobted.com/salary#:~:text=According to the latest data,40-hour work week).

Call that $40k/yr take home or $3300/ month, lets call it both working with only 1 kid. 

$6600/month net

-$1500 mortgage payment 

-$250 property tax

-$120 Homeowner insurance

-$250 utilities (water, gas, electric, garbage)

-$100 insurance 2 vehicles

-$1000 groceries (family of three)

-$1200 childcare

-$1000 car payments (2 cars, conservative)

-$500 fuel (20gal tank @4.20/gal=$84 fill up 5-6 fill up per month between 2 vehicles)

-$200 2 cellphone plan

-$50 internet 

-----------------

$430/month remains and I think these are pretty conservative estimates without any superfluous spending or saving for retirement etc. No clothing, vacations, toys/activities for the kids etc. Streaming services, unexpected repairs on vehicles or home. 

 

For those that pay more in taxes per year than the avg dual combined income family in the US, sure, you notice inflation but you dont really "feel" it...but those guys do and sooner or later that starts showing up on the balance sheet. The majority of Americans arent the tech engineer pulling down $500k/yr, nobody feels bad for that guy and he isnt gonna notice if his triple whip soy frappa mocha latte blah blah even doubles in price. the reality is I think the majority of Americans are barely getting by already and when you're already on the edge it doesnt take much to tip. 

 

 

[changegonnacome]

4 minutes ago, Blugolds11 said:

the reality is I think the majority of Americans are barely getting by already and when you're already on the edge it doesnt take much to tip. 

 

Agree - avg. household balance sheets ballooned during lockdown.....folks are running down that b/s now....if not already on on to the CC's as you say....need to pay more attention to aggregate/median checking/savings account balances & the other side of that coin credit card balances @wabuffo is always good on that stuff. Any tea leaves your seeing @wabuffo?

[Dinar]

With all due respect, I wonder how many of those statistics are accurate.   

There are a great number of people with very high cash incomes who report next to nothing to the IRS, so how do they affect the above statistics?  A lot of these people have very high cash incomes (nannies, waitresses, barbers, doormen, handymen, electricians/plumbers/carpenters, cleaning ladies, dog walkers, tutors, private trainers, and the list goes on.  Hell, in Manhattan there are cash only restaurants and some that give a 5% discount for paying in cash.)  There are literally millions if not tens millions of these people in the US.  The superintendent of our building has a $50K salary, yet he gets a free apartment, plus 20-40K a year in cash tips/kickbacks + odd jobs.  He eats out daily, on a $50K official salary..., so of course he complains that he has no savings.  Same guy flew business class to South Africa for a wedding.  

Why $1500 per month mortgage?  This implies at 3.25% interest rate that prevailed for the last several years a $350K mortgage or $460K house price, assuming 20% down.  Do people with $106K pre-tax family income really buy such expensive properties?  Hell, even in NYC suburbs a year or two ago, there were plenty of 2-3 bedroom houses under $400K.  

Also, why 1000 per month in car payments?  You can get a new Toyota Corolla for lease for under $350 per month, so that's 700 per month.  Fuel at 34 mpg, implies 7K miles driven per month to get to $500 fuel bill at $4.20 per gallon.  How many families drive 84K miles per annum?  

$200 cell phone plan?   I have four lines with Verizon and we pay $120 per month including taxes and fees.  

 

May be the lower classes are hurting, but every employer that I talk to cannot find unskilled labor, and hard pressed to find skilled labor, and double digit wage increases are common place, so hard to believe.  

As for lack of savings, could it be because people keep spending beyond their means?  Eating out regularly + buying apple watches and Nike sneakers when you make $25 per hour is not going to result in savings.

[Blugolds]

@DinarI welcome holes poked in the above. Method for determining the above numbers were  avg cost of car payments in the US, used was just over $400 and new was just over $600 on avg so I split the difference at $500/vehicle. The same with avg mortgage payments in the US (via google) combined with the fact that I charge rent of $1400 per side of a duplex (2bd 1bath) in an avg area.

 

I dont know anyone who drives a Corolla, most moms would want a x-over or SUV, almost every guy I know drives a truck or SUV = lower MPG and increased expense. Most truck/SUV mileage is in the teens.

 

$300-350k is solidly in starter home territory in our area for probably the last 5 years in a non-prime area, to get something in a decent neighborhood that I could see living in for the next 20-30 years its over $500k now, and thats not me being bougie. Do people in the aforementioned financial situation qualify for the best rates on a home loan? Maybe past credit history isnt stellar, maybe tough to come up with 20% down etc. 

 

Cellphone: We have a family plan now and are grandfathered in for reduced rate with our carrier, but before when I was on my own through Verizon for my plan with fees and taxes (they are almost as much as the plan itself) I was at $90/mo and that was nothing special, I think the actual plan was like $55/mo but the fees and taxes get ya. Sounds like you have a pretty good deal, maybe I was getting hosed. 

 

We can play the game and say...make $50k/yr...live in a trailer, drive a 20yr old corolla, live on Ramen noodles, shop at the Goodwill. These numbers are just some quick napkin figures based of people I know, exceptions to every rule, but those are pretty close to accurate based on people I know. The question isnt how to make $50k/yr work, its at what point do they START to make $50k/yr work, meaning, cutting back on the Nikes/Apple products, dining, entertainment etc. 

 

As for the cash employees, yeah cant argue that, the Au Pair gets cash bonuses and will probably be fine, anyone who caters to those unaffected will probably be fine...I dont know what percentage of underreported income is out there. Hopefully those services are in affluent areas with clientele that dont feel the squeeze. But they arent really the ones in question because the above example couple doesnt have a doorman, cleaning lady, dog walker, tutor or private trainer so IMO its basically a wash. Those you mentioned with high cash incomes were fine before and probably fine now. 

 

Skilled labor is just that, cant switch career fields to be skilled at the drop of a hat, takes time/training. Maybe they're not physically able to do demanding work.  Plumbers/Electricians, the trades make decent money and well above average but not everyone can do that. in my hometown, there are several warehouse/factory jobs and they are definitely not receiving double digit raises and the avg income is in-line with the above figures. 

 

Like I said, I welcome some constructive feedback, and I certainly could be off $20-$100 here or there, but I think you hit the nail on the head with the last few lines of your comment and illustrated my point:

 

"As for lack of savings, could it be because people keep spending beyond their means?  Eating out regularly + buying apple watches and Nike sneakers when you make $25 per hour is not going to result in savings."

 

The answer is...maybe they wont/cant anymore...and what does that look like for companies/economy that depends on them doing so...at what point does it get bad enough that they dont go out and buy the newest cellphone, hold off on the new pair of sneaks etc.

 

Thats the big question...where is the tipping point for the majority to really feel it and scale back significantly. I obviously dont think we are there yet, but I think we are closer than we have been in a long time and I dont think it will take much more to get there. Just illustrating, based off experiences of people I know, how it can happen and why I think we could see that in the next 12-? months.

 

To be clear, I genuinely hope Im wrong, but I havent seen this sentiment from those bottom folks for a decade or so. Take it for what its worth, relatively small data set but the overall sentiment has changed from what I am seeing/hearing.

Edited May 15, 2022 by Blugolds11

[bizaro86]

I think for people at the very bottom inflation has been considerably more than CPI in the last year in many places. If 30-40% of your net income is rent, and your rent goes up 25%, that eats up a 7-10% raise in wages all by itself. And everything else is up too.

[Gregmal]

4 hours ago, Blugolds11 said:

Just another point of view, I have a fairly diverse group of friends/family with regard to socioeconomic status. Those in the upper echelons arent feeling much even with elevated inflation. The club dues are paid, the new range rover is in the garage, but it was a "pain" to find one with the exact options they wanted, the new Au Pair is settled in, they know whats going on but it doesnt really effect the day to day. The tip on the bill for a Friday night out is more than the cost to fill up the ranger rover....they dont care.

 

If I only hung around these folks at the same level, I wouldnt think twice about what was going on, probably would have a more optimistic view that things would be inconvenient but would work themselves out. 

 

The other half are really feeling it. When you're already living essentially paycheck to paycheck, that extra couple hundred a month for rent, plus fuel, plus groceries adds up, many dont have the extra grand a month to bridge the gap and their paltry 3% raise (if they get that) is a token bread crumb thrown. What does that translate to for the majority of American middle class, net actually in their pocket? maybe $2k/yr? couple hundred a month if that. 

 

I'm talking about these folks: 

https://www.cnbc.com/2022/01/19/56percent-of-americans-cant-cover-a-1000-emergency-expense-with-savings.html

 

https://www.pollfish.com/blog/original-insights/over-half-of-americans-couldnt-cover-1500-emergency-expenses-pollfish-survey-finds/

 

The only option is to do what they have been doing, but on a greater scale...charge it. Consumer debt will go up considerably. Most on this board (myself included) would just think, labor market is hopping, go find a better job, make more, hustle, but for many that isnt an option due to skillset, location etc, so basically they are stuck and take what they are given. Word on the street is that the truck is parked, the fishing trips are canceled, staying closer to home, they are buttoning down the hatches, because they dont have a choice and they are still falling further into the hole even with a slight pullback in spending. Evidently there is a run on wide mouth canning jar lids of all things. These folks wages are not 30-50% higher than they were in 2019. 

 

So what example best reflects the majority of Americans, I tend to think its those feeling the pinch and that will eventually work its way to the bottom line for many companies. 

 

Sometimes hard to remember that the avg salary in the US (2022) is $53,4900/yr or $1,028/week GROSS..

 

https://www.jobted.com/salary#:~:text=According to the latest data,40-hour work week).

Call that $40k/yr take home or $3300/ month, lets call it both working with only 1 kid. 

$6600/month net

-$1500 mortgage payment 

-$250 property tax

-$120 Homeowner insurance

-$250 utilities (water, gas, electric, garbage)

-$100 insurance 2 vehicles

-$1000 groceries (family of three)

-$1200 childcare

-$1000 car payments (2 cars, conservative)

-$500 fuel (20gal tank @4.20/gal=$84 fill up 5-6 fill up per month between 2 vehicles)

-$200 2 cellphone plan

-$50 internet 

-----------------

$430/month remains and I think these are pretty conservative estimates without any superfluous spending or saving for retirement etc. No clothing, vacations, toys/activities for the kids etc. Streaming services, unexpected repairs on vehicles or home. 

 

For those that pay more in taxes per year than the avg dual combined income family in the US, sure, you notice inflation but you dont really "feel" it...but those guys do and sooner or later that starts showing up on the balance sheet. The majority of Americans arent the tech engineer pulling down $500k/yr, nobody feels bad for that guy and he isnt gonna notice if his triple whip soy frappa mocha latte blah blah even doubles in price. the reality is I think the majority of Americans are barely getting by already and when you're already on the edge it doesnt take much to tip. 

 

 

Here’s my thing with this…hasn’t this portion of the population ALWAYS lived like this? Not trying to be an out of touch schmuck, but I mean in my recollection, they’ve always been paycheck to paycheck. They don’t really drive any real economic indicators the same way they don’t contribute to the tax haul our government receives. An upper class family paying 20% contributes infinitely more than a lower class family paying 15-20% taxes. 
 

Additionally, again, there are so many job opening for these types of people. You can paint walls for $35-45 an hour. You can dig holes for a contractor for $50 an hour. At some point they need to look in the mirror but the overall economy, IMO, has never really been driven by them. It’s driven the people above them, plus the people in that group who have ambition. 

Edited May 15, 2022 by Gregmal

[Gregmal]

4 hours ago, Blugolds11 said:

Call that $40k/yr take home or $3300/ month, lets call it both working with only 1 kid. 

$6600/month net

-$1500 mortgage payment 

-$250 property tax

-$120 Homeowner insurance

-$250 utilities (water, gas, electric, garbage)

-$100 insurance 2 vehicles

-$1000 groceries (family of three)

-$1200 childcare

-$1000 car payments (2 cars, conservative)

-$500 fuel (20gal tank @4.20/gal=$84 fill up 5-6 fill up per month between 2 vehicles)

-$200 2 cellphone plan

-$50 internet 

Also cuz you asked for pushback

 

1) these people don’t own homes

2) if they did, they’ve gained substantial equity

3) mortgage payments include taxes and homeowners insurance

4) you get child tax credits on the tax return

5) why do you have 2 cars?

6) I have Sprint but my phone bill for 6 is $156 a month

7) groceries again, if you’re not shopping at Whole Foods, you can still buy a days worth of food, 3 meals, for $25 or less. Eggs are $2.5 a dozen. Eggos or pancake mix are 2.50 a box. Sales on General Mills cereal are $2-3 a box. Breakfast done for the week. Mac and cheese $1 a box, chicken nuggets $3-5 a package with 5 servings, frozen veggies $2-3 a bag. Lunch done. Boxed pasta $1.50, sauce $2, head of broccoli $2, salad $3 a bag. Dinner done. Box of granola bars and fruit snacks, pretzels, $7 combined. Snacks done. It’s doable. People are just greedy and gluttonous.

8 ) Again, you can get $15-20 an hour right now working fast food. You can move your hand in the same motion you do masturbating, with a paint roller and get $40 an hour. You can cut lawn for $30 an hour riding a sit down mower. 

 

I think it’s not a crisis to put it mildly 

Edited May 15, 2022 by Gregmal

[Blugolds]

17 minutes ago, Gregmal said:

Also cuz you asked for pushback

 

1) these people don’t own homes

2) if they did, they’ve gained substantial equity

3) mortgage payments include taxes and homeowners insurance

4) you get child tax credits on the tax return

5) why do you have 2 cars?

6) I have Sprint but my phone bill for 6 is $156 a month

7) groceries again, if you’re not shopping at Whole Foods, you can still buy a days worth of food, 3 meals, for $25 or less. Eggs are $2.5 a dozen. Eggos or pancake mix are 2.50 a box. Sales on General Mills cereal are $2-3 a box. Breakfast done for the week. Mac and cheese $1 a box, chicken nuggets $3-5 a package with 5 servings, frozen veggies $2-3 a bag. Lunch done. Boxed pasta $1.50, sauce $2, head of broccoli $2, salad $3 a bag. Dinner done. Box of granola bars and fruit snacks, pretzels, $7 combined. Snacks done. It’s doable. People are just greedy and gluttonous.

8 ) Again, you can get $15-20 an hour right now working fast food. You can move your hand in the same motion you do masturbating, with a paint roller and get $40 an hour. You can cut lawn for $30 an hour riding a sit down mower. 

 

I think it’s not a crisis to put it mildly 

 

LOL

 

1) true, majority maybe dont, but some do (the ones Im referencing)

2) yes, if they did they have equity..thats untapped, and probably wont be until they sell/die so doesnt help them in the day to day, also the ones I know arent aware of HELOC options or they see some predatory Tom Selleck commercial

 

3) they can, I personally pay them separately because I like to keep an eye on the Ins premiums, when wrapped into a bundle they like to try and sneak them up on you after a couple years. 

4) you're right, didnt account for that. 

5) a car for each person is pretty standard now days, especially if we assume both adults are working...once little Susie/Timmy gets to be 16 they'll likely look for a clunker for them..pretty tough to be a one vehicle family these days unless you have some serious public transportation options in your locale. They dont, no trains or busses even.

6) another cheaper example...I guess I was really getting hosed when I was on my own plan, safe to say I overestimated the cellphone costs

7 ) Like I said before...it CAN be done, look at costs of feeding prisoners every day...but every time I go get groceries I see people with overflowing carts and my hand basket comes to $60 and I dont have expensive taste and not shopping at Whole Paycheck either. Agreed people are gluttonous. Even if you are on the great depression menu and feed 3 people for $25/day thats $750/month. Pretty close to my estimate assuming a couple splurges once in a while.

8 ) Have never thought of painting like that LOL but I suppose you're right.  Shouldn't be hard to find those "qualified".

 

So everyone is saying that you can live a comfortable life on $40k/yr net? Because we have some saying that $53k/yr gross is artificially low, and others saying its totally doable with examples. For the upper skillsets yes, wages have increased to stay competitive and retain talent, but for the lower tiers, the wages have not increased anywhere near other costs.

 

As to your other point, I agree, they probably have always lived paycheck to paycheck (at least the ones I know) but they still had the consumer "enjoyables" that contribute to overall spend in the country. Not debating if this is a wise course of action, I dont think I would be spending like they "did" if I was in the same financial situation...but they were, and they say its slowing. As to the percentage they drive economic indicators, that Im not sure, but I think it might be a little more than people realize. 

 

Again I hope Im wrong on this one, but I think it would be a little naïve of me to ignore feedback Im getting from almost everyone I know at that economic tier. Thats all, was just sharing what I have seen/heard, if you guys are right then nothing to worry about at all, and all this stuff Im hearing is fictitious...maybe they are all short like Ackman LOL

 

If you've worked for the past 10-15 years stuffing packets in a factory, you're in your late 40's or older I dont know that its likely they are gonna make a career change this late in the game. Comfortable/complacent in their position, friends at work, kid/s in school, family in the area, I dont know that they suck it up and switch jobs or move. As someone who did concrete in HS, not a lot of "old timers" in those manual positions because physically it takes its toll. Lawn mowing is seasonal, and probably doesn't provide insurance or vacation time like they get at the ACME factory.

 

I guess it just comes down to what you said, how much do they actually contribute to the economic indicators. If its insignificant then it doesnt even matter, if they make up a noticeable percentage, and they are feeling it, if feedback I have heard is true, might make a difference. 

 

Not trying to convince anyone this POV is absolute, just giving another perspective that I've seen/heard. Something to take into consideration with regard to the Jenga pile.