Where Does the Global Economy Go From Here?

[Parsad]

47 minutes ago, Longnose said:

 

Agreed, I think we've stabilized and most inflation happen last year / early this year. Unless the fed gets wild again or supply chains get worse I think we will continue to see stabilization but likely wont see many prices come down. 

 

 

 

I agree on the stabilization part. 

 

In my opinion, If any thing, some retail prices will come down before Christmas as retailers have to get rid of excess inventory.  Also, they will still have a glut of inventory as the supply chain opens up and backlog items show up on shelves. 

 

I think most prices will come down through the end of the year and we have already started the expected rally...markets predict out 6 months.  With interest rates higher, discounts have to be greater to get revenue numbers to stay comparable or better than previous quarters.  So as we saw this quarter, revenue numbers are comparable but margins are being squeezed. 

 

Does this mean we are out of trouble?  Not a chance.  There are still a ton of risks out there.  So buy cheap, sell dear when you know you are getting a good deal.  Ignore the noise.  It's a sideways, volatile market for a couple of years as corporations become more efficient and equilibrium is reached with the new level of interest rates.  Cheers!

[changegonnacome]

32 minutes ago, Gregmal said:

Open back up and let shit revert. 6 months, maybe 12 cures it. 

 

Ok were back open dont think anyone can lean on that idea anymore. Went to go to my favourite ice-cream place in Manhattan yesterday.......closed.....sign said sorry cant get staff had to close today if u know anyone please text xxx-xxx-xxx.....this in Manhattan! We go occasionally up to the Hudson Valley & small towns up there. Half of them closed, half the time because of staffing problems. This what an over-heating economy with inflationary pressures looks like. Classic Milton Friedmanism - too much money chasing too few goods and services. My little ice-cream problem today is a service problem (not a supply chain problem created and to be blamed on China or shipping ports or semi-conductors or just-in-time manufacturing). Look around lots of domestic led service supply problems (that are driving inflation) that are 100% indigenous to the US economy & a symptom of a monetary inflation problem.

 

Time will tell......but you know Greg at what point I wonder do you pivot?.....you've said 6 months, 12 months above....but you were saying that if a remember correctly a few months ago......the thesis cant keep moving out a few months..........like in six months if Core PCE ex food energy is still running at late 3.x/4%+ do you step back and say OK there's an issue here, that stuff should be rolling off in the YoY data. Respectively wondering what YOUR dis-confirming data might be on the trillion dollar inflation question cause right now I think what your saying is that month-over-month inflation has reverted to normal...and what were seeing now is a kind of base effect from 21 and locksdown/supply chain stuff? Got that about right? and genuinely interested in what your watching out for data wise because I remain as you know someone with a strong opinion on this but an opinion that is loosely held (as the saying goes & as i think anyone making pompus macro calls should be). I remain a pretty much fully invested bear.....so I hope your 100% right and I'm a complete idiot.....because I'll make more money that way.

Edited July 29, 2022 by changegonnacome

[Gregmal]

5 minutes ago, changegonnacome said:

Ok were back open dont think anyone can lean on that idea anymore.

You realize as recently as like January there were parts of the country still imposing restrictions and firing people over vaccines? This was the first summer where people have been free to live again. 

[Gregmal]

I mean we wanna talk helping or hurting the labor market that’s already super tight? How dumb was mandating businesses fire non vaxxed employees? Almost as brilliant as shutting a baby formula factory and then wallowing about a shortage. Governments responsible for like 90% of this. Maybe 10% is corporate and individual greed. IE stimulus checks over working and price gouging. 

[Gregmal]

14 minutes ago, changegonnacome said:

Time will tell......but you know Greg at what point I wonder do you pivot?.....you've said 6 months, 12 months above....but you were saying that if a remember correctly a few months ago......the thesis cant keep moving out a few months...

It’s already occurring. A few months ago I thought probably July or so. Said it a few times in different threads. February or March is where it seemed everyone finally threw in the towel on the COVID crap. That’s where the 6-12 started. And on cue July is turning out to be where we start seeing overwhelming evidence of the widgets and gadgets and 2x4s reverting to more normal prices and availability. 

[changegonnacome]

 

7 minutes ago, Gregmal said:

You realize as recently as like January there were parts of the country still imposing restrictions and firing people over vaccines? This was the first summer where people have been free to live again. 

 

I do realize but "parts" of the country aren't really driving the national macro numbers in an economy the size of the USA...sure small effect but this not the issue & then most importantly of all how do you explain my little ice-cream problem yesterday . I see inflation everywhere especially when it comes to calories  

[Gregmal]

NY area and West coast would absolutely drive it. If we opened up full steam in February or March as they did you’d expect probably a 2-3 month adjustment period where people go bonkers and distort the demand side(which is what happened) and then you also expect a lapse but eventual reaction to that demand surge with the supply chain…overproducing.. there’s you’re inventory glut. Behavior normalizes, inventory gets absorbed, then back to normal. It’s all kind of played out exactly as I’d have expected it to so I keep leaning towards the next leg of that continuing to play out.

[Gregmal]

The inflation trade was beautiful and money in the bank all last year because you had no end in sight to the COVID hysteria once you saw Biden go bonkers with the stimulus check and then the way everyone wanted to fabricate another crisis every time there was a new variant. However the sheer case numbers/size over Xmas plus mid terms eventually forced even the blue states to move on. Now COVID is a nothing burger and the checks have stopped. Those things drove the “inflation” trade. Why would it continue once they’re done?

Edited July 29, 2022 by Gregmal

[changegonnacome]

19 minutes ago, Gregmal said:

It’s already occurring. A few months ago I thought probably July or so. Said it a few times in different threads. February or March is where it seemed everyone finally threw in the towel on the COVID crap. That’s where the 6-12 started. And on cue July is turning out to be where we start seeing overwhelming evidence of the widgets and gadgets and 2x4s reverting to more normal prices and availability. 

 

Got ya - yeah if its base effects from 2021 bs they start aggressively rolling off in the next few months....and i've always agreed with that idea that the headline inflation rate now has supply chain problems + the outrageous demand for physical goods when peeps were locked up in their homes 'baked in'.....supply chains are sorting themselves out and nobody wants bullshit Made in China stuff anymore cause hopefully they are out having dinner at Tao & going to shows at MSGE  .....so you know that side is gonna moderate 1000000% and already has......its the USA domestic demand exceeding the supply of domestically produced goods & services (but mainly services) where I see the inflation issue as being non-transitory. Gonna be very interesting to watch it play out. It WILL moderate in the coming months but this is will be a head fake revealing the stubborn belly fat of monetary inflation underneath. Let's see. Its amazingly interesting to watch & try to figure out.

 

 

P.S:

 

as I type this I'm struck by all the noise mainly from the GOP side about the problems at the 'southern border'.......Yeah i like totally agree the problem down there is that there is NOT enough people coming across the border.............of course who are descent, smart & hard working but two lunatic parties cant figure out an immigration system to suck up the best and brightest and the most industrious from you know like the other 7.5 billion people who live on planet Earth and who'd move here tomorrow to take up an oppurtunity. Bonkers and shameful on the Dems and GOP & a lost opportunity, forget this bullshit inflation reduction bill....that would change the maths tomorrow.

 

PPS:

 

For all the talk of on-shoring/safe shoring thats supposed to happen in the West...nobody has been quite able to explain to me how literally millions and millions of jobs/factories are gonna come back to countries with shrinking populations (Europe) and horrible demographic trends that are already in most cases operating today at full employment. Now that, if it comes to pass, will be inflationary 

Edited July 29, 2022 by changegonnacome

[mattee2264]

I think a lot of companies have been quite opportunistic with price hikes and getting away with it for now and preserving their margins as a result. But eventually volumes will suffer which will require lower prices and lower margins which leads to lower earnings and that is probably going to drive the next leg down in markets. Especially once the rate increases feed through (monetary policy operates with a lag) and the self-reinforcing responses to slowing demand kick in (job layoffs and reduced investment spend) and so on.  But of course right now markets are looking through to inflation moderating and the Fed easing off on rate hikes but still assuming any recession will be mild. They could well be right-they did a better job than economists at predicting the V shaped recovery from the pandemic-but if they aren't then lower earnings could be a significant tailwind.  

[Gregmal]

Yea immigration is perplexing. If done the right way it is the answer to everything. Between Eastern Europe and South America we have future Americans of great value and our politicians want to get in the way by either incentivizing people to do it the wrong way or simply shutting them out entirely. 
 

Personally I’m starting to lean towards thinking either some immigration crisis or something around the Hunter Biden investigation is going to give Dems an excuse to turn on Biden and get someone more appealing to the base on the ticket in 24.

[mattee2264]

Other point is that the job market is strong and we are near to full employment and ALREADY in a technical recession. So imagine what would happen if companies did start laying off workers en masse.

 

Maybe what is really transitory is the "strong economy" which was mostly a product of irresponsible fiscal spending and money printing. And that is what markets are basing earnings estimates off. 

[Gregmal]

5 minutes ago, mattee2264 said:

Other point is that the job market is strong and we are near to full employment and ALREADY in a technical recession. So imagine what would happen if companies did start laying off workers en masse.

 

Maybe what is really transitory is the "strong economy" which was mostly a product of irresponsible fiscal spending and money printing. And that is what markets are basing earnings estimates off. 

Yea I’d still lean towards using 2018-19 numbers to safely handicap COVID mirages unless there’s a very clear body of evidence something material changed on the company specific fundamental side.

[changegonnacome]

3 minutes ago, mattee2264 said:

Maybe what is really transitory is the "strong economy" which was mostly a product of irresponsible fiscal spending and money printing. And that is what markets are basing earnings estimates off. 

 

Yep as I've said before record margins, record profits are centered around 2021, we will be look back nostalgically in a few months/years .........earnings recession is up next. Got the feeling from reading quite a few Q2 reports.....that companies were able to 'make the numbers' this quarter but really by doing short term stuff like reducing direct marketing spend and all those malarkey levers one can pull half way through the quarter when the CFO shits his pants and sends people looking for money down the back of the couch..........one can do that once, Q3 lets see.

[changegonnacome]

4 minutes ago, Gregmal said:

towards using 2018-19 numbers to safely handicap COVID mirages

 

yep totally agree on this approach - reduces ur ass getting handed to you risk! 

[mattee2264]

Agree for the most part re 2018-2019. But I think the earning power of the S&P 500 probably is quite a bit higher in part because of inflation (and most companies have enough pricing power to pass most of it on increasing earning power in nominal terms) but also because of the tech dominance and the pandemic has meant increased adoption of e-commerce and cloud computing and that will be somewhat sticky.  And of course share counts are lower as a lot of the temporary profit surges during the pandemic were used towards reducing share counts increasing EPS.  

 

I think the other question is whether it is still appropriate to use 20+ PE multiples that are sustainable in a low interest rate low inflation environment or whether we will revert to the 15 historical average. 

 

 

[Gregmal]

10 minutes ago, mattee2264 said:

think the other question is whether it is still appropriate to use 20+ PE multiples that are sustainable in a low interest rate low inflation environment or whether we will revert to the 15 historical average. 

The 10 yr is 2.6 and headed lower. It’s range despite everyone making a stink, has never really left the range they were in the past decade. So I’d be a little pickier than normal but not by much. I still come back to Costco. I top ticked it perfectly, got I think 559 right before everything went down. Then we got the hooting and hollering and see it goes down like everything else but assumed it went down specifically because of rates and a high multiple ….and what do ya know…printing 540s again. I’d have been better just sitting on my hands. I think company valuations largely exist in relation to each other and all else equal the 5 pe stuff and the 40 PE stuff generally speaking will all move more or less the same. Amazon, General Motors, Nintendo, Berkshire…peak to trough during the decline, was there any benefit to the PE multiple being higher or lower? Not really. 

Edited July 29, 2022 by Gregmal

[changegonnacome]

Last I checked Larry hasn’t got any levered interest rate options and no book to talk……and is agreeing with Bill (& me)….they must be in cahoots  

 

Larry to be far to him called bullshit on transitory louder and way before anyone else.

 

[changegonnacome]

Anyway put my money where mouth was today…..and have shorted a bunch of Covid bubble crap (Tesla et al) that have rallied the hardest into this Powell pivot nonsense fairytale everyone’s telling themselves……they’re wrong and Bill & Larry & me are right  . Powell will be back in September dropping the hammer on more chunky rates rises.

 

The Covid bubble isn’t dead it was just asleep and until I see AMC/GameStop stopping rallying to nonsense we aren’t even near a bottom yet, not even close.
 

Bonus points - now with Fed fund rates you get nice little interest rate carry on your short book.

[Gregmal]

Tit for tat my dinner is deflating again. Pre COVID lobster were typically $11-12 a pound. Third week of March 2020 I got a 9 pounder for $58. Late last year and early this year they were $18 a pound for the 1-2 lb which I don’t even bother with. Today I got a 5.5 for $48. Among the daily chore stops was Home Depot; 2x4s are now under $5 again, down from a peak of $11. 

[mattee2264]

Seems as though the assumptions are that:

 

a) Any "recession" will be mild and shallow 

b) Fed is almost done with the hiking cycle and will slow the pace of hikes and stop out around 3-3.5% and may even then drop back to neutral once it is considered that inflation is under control

c) Inflation for the most part will fall to a more acceptable level of its own accord over the next year 

d) S&P 500 earnings will be much the same or even higher than 2021 

e) Nothing will break as the Fed finishes off its tightening cycle

 

 Seems quite rosy but in this long long cycle a ~20% drop followed by a fairly rapid recovery once market nerves are soothed is quite typical e.g. European debt crisis 2011-2012, mild slowdown led by commodity price crash 2015-2016 trade war/slowdown/Fed tightening end of 2018 and now a Fed tightening/inflation scare which markets are now seeing as mostly a mirage.  

[Guest]

15 hours ago, changegonnacome said:

Anyway put my money where mouth was today…..and have shorted a bunch of Covid bubble crap (Tesla et al) that have rallied the hardest into this Powell pivot nonsense fairytale everyone’s telling themselves……they’re wrong and Bill & Larry & me are right  . Powell will be back in September dropping the hammer on more chunky rates rises.

 

The Covid bubble isn’t dead it was just asleep and until I see AMC/GameStop stopping rallying to nonsense we aren’t even near a bottom yet, not even close.
 

Bonus points - now with Fed fund rates you get nice little interest rate carry on your short book.

 

Were you short before they dropped 90%?

[changegonnacome]

6 hours ago, stahleyp said:

Were you short before they dropped 90%?

 

No I wasn't - not a good idea to short bubbles in full flight/full mania mode and where the central bank has everybodys back flooding the system with liquidity........now were in much different territory i think its clear to me now with inflation where it is, with Fed moving against it actively, what has to be done from a liquidity/FED point of view....so my thesis is simple were in a bear market....with rallys that will rip your face off (like this one right now) but the overall trend is down.....because it has to be....inflation @ 9%, too much money printed...signs of an overheating domestic economy everywhere you look especially in the jobs market.....weakening consumer feeling the inflation squeeze, consumer confidence ebbing away, literal recession GDP prints from the FED and definitive sign IMO in Q2 results of companies desperately trying to make the quarter (eg. Apple China iphone sales, unheard off)...... alot did make the numbers, some didnt but you cant reach forever and get away with it....ad spend being the variable canary cost where this Q the non-core ad budgets for SNAP, Twitter, Pintrest got cut.......Google/FB held up....but what companies gonna do next quarter?......big rallys up like this are bonkers IMO. Now I'm not short 100%.....but to be clear I'm net long very long and mainly outside of US markets cause i think the beta sucks in the US and its very hard to swim against the beta......but I make more money when stuff goes up, I love when stuff goes up....the moderate shorts I have on now (some deep OTM calls, some straight shorts) just let me be a little bit more leveraged elsewhere.....best case for US markets right now is sideway for the next 18-24 months with high vol while inflation gets fixed. Inflation adjusted ATH's for the SPY & QQQ are a fantasy so I've sold some calls at those levels. Deep OTM calls on shitcos is one way to play this. They triple/quadruple I'll lose some money sure but the rest of the portolfio should be doing just fine in that world then too. I'm not "all in" on my bear call.....I'm fully invested bear with what I consider some smart hedges. 

Edited July 30, 2022 by changegonnacome

[Guest]

10 hours ago, changegonnacome said:

 

No I wasn't - not a good idea to short bubbles in full flight/full mania mode and where the central bank has everybodys back flooding the system with liquidity........now were in much different territory i think its clear to me now with inflation where it is, with Fed moving against it actively, what has to be done from a liquidity/FED point of view....so my thesis is simple were in a bear market....with rallys that will rip your face off (like this one right now) but the overall trend is down.....because it has to be....inflation @ 9%, too much money printed...signs of an overheating domestic economy everywhere you look especially in the jobs market.....weakening consumer feeling the inflation squeeze, consumer confidence ebbing away, literal recession GDP prints from the FED and definitive sign IMO in Q2 results of companies desperately trying to make the quarter (eg. Apple China iphone sales, unheard off)...... alot did make the numbers, some didnt but you cant reach forever and get away with it....ad spend being the variable canary cost where this Q the non-core ad budgets for SNAP, Twitter, Pintrest got cut.......Google/FB held up....but what companies gonna do next quarter?......big rallys up like this are bonkers IMO. Now I'm not short 100%.....but to be clear I'm net long very long and mainly outside of US markets cause i think the beta sucks in the US and its very hard to swim against the beta......but I make more money when stuff goes up, I love when stuff goes up....the moderate shorts I have on now (some deep OTM calls, some straight shorts) just let me be a little bit more leveraged elsewhere.....best case for US markets right now is sideway for the next 18-24 months with high vol while inflation gets fixed. Inflation adjusted ATH's for the SPY & QQQ are a fantasy so I've sold some calls at those levels. Deep OTM calls on shitcos is one way to play this. They triple/quadruple I'll lose some money sure but the rest of the portolfio should be doing just fine in that world then too. I'm not "all in" on my bear call.....I'm fully invested bear with what I consider some smart hedges. 

 

 

How long have you been investing?

[changegonnacome]

8 minutes ago, stahleyp said:

How long have you been investing?

 

About five years