Where Does the Global Economy Go From Here?

[Gregmal]

Those products are toxic and they have malfunctioned horrifically on several occasions. Plus they just own the futures. Might as well save yourself the headache and just buy the futures or futures options.

[Paarslaars]

On 6/14/2022 at 8:34 PM, rkbabang said:

 

Same.  All of my oil positions were purchased Nov-Feb based on a lot of discussions on this board as well as reading Kuppy's blog.  People DID see it and DID take advantage of it.  That and real estate stocks are the reason that I am not down anywhere near what the market is YTD.

To my surprise I'm actually still up YTD thanks to O&G.. Which is not an easy feat with 50% in BRK and some crypto/BABA plays. ^^

[thowed]

Saw this on VXX in a second, so may be more updates, but worth being aware of:

https://www.ft.com/content/386df3ee-4b9d-45c5-9ae1-d5dffb2a822e

 

As a pretty 'basic' investor, I would love to have an ETF that I could use for protection, as I still don't really feel confident enough with Options.  But I've looked at them on-and-off for years, and never found one that does what it's supposed to.  They're all a bit black-box, so you're never sure WHY they're not working.

 

It's a bit different, but in the UK I've been using BHMG for general protection.  It's a liquid, closed-end feeder to a classic Macro fund, has very good downside protection & tends to go up consistently if lumpily.   Slow & steady. Has done exactly what I hoped it would this year (& the latest factsheet shows that almost all its gains this year come from Rates). 

[rkbabang]

6 hours ago, Paarslaars said:

To my surprise I'm actually still up YTD thanks to O&G.. Which is not an easy feat with 50% in BRK and some crypto/BABA plays. ^^

 

Nice.  I was way too cautious buying O&G.  I sold some tech and bought some O&G, but not a large enough percentage to keep me in the green.  I'm glad I bought what I did though.  I'm up over 100% on ATHOF, over 85% on OBE and have done well on a few others as well such as CVEWS.

 

Also my Apple and Tesla puts are doing well.  Now I have to decide when to sell them, which is always the hard part.

 

 

[Ulti]

 

And Crypto isn't even shown ?

 

 

[Viking]

1 hour ago, Ulti said:

 

And Crypto isn't even shown ?

 

 

My guess is real estate was likely the biggest wealth creator the past 2.5 years. In the US we could see some wealth destruction in that sector before it is all said and done. It is already happening in Canada (house prices are off 8-10% from the bubble top in Feb/March).

[TwoCitiesCapital]

17 minutes ago, Viking said:

My guess is real estate was likely the biggest wealth creator the past 2.5 years. In the US we could see some wealth destruction in that sector before it is all said and done. It is already happening in Canada (house prices are off 8-10% from the bubble top in Feb/March).

 

Asking prices in a number of US cities are down 10-15% based on some headlines/articles I've read.

 

We'll see how that impacts values going forward. I don't expect another 2008, but I do think something has to give between 6+% mortgage rates and median sales prices being up 30% post-covid.

 

Monthly payments on new purchases are through the roof relative to anyone's current rent/mortgage. 

[Ross812]

At a 6.3% rate, servicing a mortgage is up 52% from lows of 2.7%. From the last "affordability crisis" Q3 2018 (393k avg. house and 4.9% rates) prices are up to 508k at a 6.3% rate. That is $1670/month (20% down) to $2520/month which is a 50% increase as well.   

[Gregmal]

Uh huh. How do you solve the affordability crisis? Make housing even more unaffordable and force folks to waste money renting. Genius 

[Viking]

I have been saying this for a while…. All of the ‘wealth creation’ the past 2 years was fiction. A desert mirage. It was not real.
 

The problem is people get mentally anchored to the highs. So house goes up from $800,000 to $1,200,000 million over 2 years. People are giddy… their net worth is through the roof. And then a year or two later the house falls to $1,000,000 and they fell like a thief has robbed them. They feel much poorer. And they look for someone to blame. Meanwhile, their net worth is still up significantly over a couple of years. 
 

Anchoring is a big, big problem for most people. It stops them from thinking and acting rationally about lots of financial things. 

Edited June 16, 2022 by Viking

[Gregmal]

On 6/15/2022 at 7:41 AM, brk64311 said:

Gregmal, Do you mind sharing your VIX -spike related trade? Thanks.

An interesting setup here for the 6/21 and 6/28 VIX options. Especially with today and depending on tomorrows tape heading into the long weekend. Tuesday could be wild, and crypto can sometimes do funky shit over the weekend. Individual securities are just too pricy on the put side and IMO a waste of time shorting because down here you should be spending as much time as possible locating good investments. 

[Gregmal]

I always get a kick out of the election cycle fear mongering that occurs. Like it’s always crazy and over the top. And I honestly don’t think it’s all Bidens fault, although he has his hands in most of it. But man, if you had written up a list of all the shit that’s gone to hell since he took office and blasted it out as propaganda during the summer and fall of 2020 election cycle, I don’t even think far right folks would have believed all this could happen since there’s just so much of it in such a short period of time. All this “this will happen if you elect this guy” stuff….well….

 

Makes you long for the days of Russiagate and sham impeachment hearings

[crs223]

1 hour ago, Viking said:

house goes up from $800,000 to $1,200,000 million over 2 years.

 

then a year or two later the house falls to $1,000,000 and they fell like a thief has robbed them.

 

stops them from thinking and acting rationally about lots of financial things

 

 

What “non rational financial decisions” do you think people will make when they find their home value has gone from $800k to $1.2M and back to $1.0M?

[Gregmal]

I really don’t know anyone who’s done anything crazier than tap a home equity loan to do some remodeling or whatever. Those sort of things actually tend to add value.
 

I’ve even tried talking some close friends into doing cash out refis last year for both the cash and the rate benefit and they just don’t want to mess with it. They’re definition of normal middle class folks too. Housing wealth mainly just facilitates an earlier retirement. The number of folks doing cashouts or heloc to buy nicer clothes or cars or vacations is probably pretty immaterial.  

[Blugolds]

43 minutes ago, Gregmal said:

I really don’t know anyone who’s done anything crazier than tap a home equity loan to do some remodeling or whatever. Those sort of things actually tend to add value.
 

I’ve even tried talking some close friends into doing cash out refis last year for both the cash and the rate benefit and they just don’t want to mess with it. They’re definition of normal middle class folks too. Housing wealth mainly just facilitates an earlier retirement. The number of folks doing cashouts or heloc to buy nicer clothes or cars or vacations is probably pretty immaterial.  

LOL In my experience the people that are blowing cash on dumb stuff that I know or work with, are not financially savvy enough to do HELOCs or cashouts, they wouldn’t even think of it unless they saw the Tom Selleck commercial I’ve posted before. And why would they do a HELOC to blow it, they didnt need to when they could just continue to run up the CC balance at 23% and not have to go through the “hassle” of paperwork, appraisals, applications etc…VISA is already giving them a line of credit and all they have to do is make the minimum payment.

 

For a lot of those folks…”wealth perceived is wealth achieved”

 

 

 

[Ulti]

https://www.mortgagenewsdaily.com/mortgage-rates

[Viking]

Bank of America has consistently been saying US consumers have record amounts of savings in their bank accounts (generally 4 or 5 TIMES historical levels). Crazy amounts. How can this be? +20% house appreciation = biggest mortgage equity withdrawals since GFC. $63 billion and 1.1 million households in just one quarter (Q2 2021 for example). Cha ching… 

—————

Red-Hot Housing Market Drives Biggest Home-Equity Drawdown Since 2007

- https://www.fa-mag.com/news/red-hot-housing-market-drives-biggest-home-equity-drawdown-since-2007-64781.html

Homeowners are taking advantage of a global housing boom by pulling equity out of their homes at the highest volume since the financial crisis.

 

In the U.S., homeowners withdrew $63 billion in equity from their properties through more than 1.1 million cash-out refinances in the second quarter of the year (2021)—the largest quarterly volume since mid-2007, according to data company Black Knight. Just under one in five American homeowners say they have pulled money out of their properties in the last year, according to a survey in late October by market research firm Harris Poll, with another 18% saying they are considering it.

Edited June 17, 2022 by Viking

[Gregmal]

I was one of those. Actually four of them. And this, barring stupid spending, is a good thing, not a bad thing. Now those folks have cash, the Zillow price of their home doesn’t matter, and over time it gets paid down again regardless. My only regret is not being more aggressive on the LTV. I don’t think we ll see 3% 30 year fixed rate mortgages on investment properties again any time soon. Maybe you get there again in a few years on primary homes, but I doubt that happens either. 
 

So all I’ll say is if you went from 800 to 1.2 and cashed out last year, you most definitely aren’t feeling bad about it. Or poor. $100k-400k is pretty meaningful money to some, if not most people. I mean now you can put that cashed out equity in 1-2 year government paper and get 3% which is what you borrowed it at.

Edited June 17, 2022 by Gregmal

[Cigarbutt]

2 hours ago, Viking said:

...US consumers have record amounts of savings in their bank accounts (generally 4 or 5 TIMES historical levels). Crazy amounts. How can this be? +20% house appreciation = biggest mortgage equity withdrawals since GFC. $63 billion and 1.1 million households in just one quarter (Q2 2021 for example). Cha ching… ...

...

A bit of perspective here?

'Our' bank had looked into this recently:

Home Equity Extraction and Household Spending in Canada - Bank of Canada

and described the "collateral effect".

However,

1-Using a longer term perspective, this is not so impressive especially compared to pre-GFC trends (from Calculated Risk):

2-Refinancings and Helocs account for a relative drop in the bucket in relation to the steep increase in deposits (deposits went up by 4.6T since March 2020) which is mostly explained (about 80-85% since March 2020) by large scale QE (asset swap in accounts, 'new' dollars for bonds) and by large scale acquisition of US government debt by commercial banks ('new dollar' in one private account vs the government debt issued and held as asset by bank).

3-A large part of this debt (and related new cash) has been used for residential renovation (as the Bank of Canada report suggests) and as this data shows in a significant way since March 2020:

-----

i'm not saying this trend will not impact consumption as a separate and independent issue, just saying that the impact will be material if it's a symptom of a larger disease.

[Viking]

Great discussion of where we are at today. The host is too pessimistic. I think the money manager has a pretty balanced perspective. 
 

I think corporate earnings are the next shoe to drop. Current earnings estimates are for growth in 2022 and 2023. if earnings estimates come down over the next 6 weeks i think the stock market makes its next move lower. (Or something breaks first… perhaps in credit or currency markets.)
 

Druckenmiller said corporate profits always come under pressure when the three horsemen show up at the same time:

1.) rising interest rates

2.) rising oil prices

3.) rising US$
 

 

Edited June 18, 2022 by Viking

[Gregmal]

On 6/16/2022 at 6:07 PM, Gregmal said:

An interesting setup here for the 6/21 and 6/28 VIX options. Especially with today and depending on tomorrows tape heading into the long weekend. Tuesday could be wild, and crypto can sometimes do funky shit over the weekend. Individual securities are just too pricy on the put side and IMO a waste of time shorting because down here you should be spending as much time as possible locating good investments. 

May be happening....

[rohitc99]

1 minute ago, Gregmal said:

May be happening....

spot on !! you are good at this

[Gregmal]

35 minutes ago, rohitc99 said:

spot on !! you are good at this

If I had to guess the way a textbook bottom plays out…crypto posts massive weekend losses, Europe plummets Monday. US futures gap down big. Tuesday is massive down day. Wednesday or Thursday the full flush-out, starting from the February 2021 speculative blowoff up til now, and that whole thing has run its course. Obviously all just piece work for connecting guesses. But again, a lot of this stuff occurs in similar patterns to past. The past couple weeks absolutely everything, even stuff having nothing to do with the current situation or even beneficiaries of it, has gotten whacked. That’s typically occurs near the end. Friday seemed like a short covering rally driven by crap tech stocks and economically sensitive stuff like cruise ships. 
 

This all further accomplishes the Fed objective of wringing the excess out of the market, killing sentiment, getting the techies and crypto bros back into real jobs, etc. 

[Ulti]

https://stayathomemacro.substack.com/p/we-are-not-in-a-recession-nor-is

[Spekulatius]

Here is one risk of heightened inflation expectations. Workers got screwed last year by having wages increase much less than inflation and are now demanding more:

https://www.reuters.com/article/germany-wages/germanys-ig-metall-union-recommends-7-8-pay-rise-for-workers-idUSS8N2XQ03X

 

I think we will see this in the USA as well. Once we get 7-8% wage increases (in line with inflation) it's off to the races.