Is The Bottom Almost Here?

[Spooky]

2 hours ago, stahleyp said:

I hope we keep dropping and people hate the stock market again.

 

Amen

[changegonnacome]

9 hours ago, Spekulatius said:

Bullish or bearish? I think it's the latter. What is the Fed is going to do in this case?

 

Exactly - this is how its going to play out.....you had supply chain inflation, some monetary inflation......but were now headed into a period where inflation is becoming the topic of the day and this is inflation psychology and it embeds in an insidious way. The FED will have some tailwinds in their fight......supply chains do seem to be easing up, we have a bull whip effect coming through from folks who have over ordered............and I have a strong feeling that Russia/Ukraine conflict heading into fall/winter will either be inching towards a negotiated settlement or be effectively wrapped up.

 

So the inflation print will get cut in half....through maybe natural causes.....but I think a stubborn inflation persisting at 3.5-4% is going to sit underneath simply because (1) job openings vs. seekers ratio out of whack (2) inflation expectations as above.........and this will require the FED to really jack rates later this year or early next when this becomes apparent & put the economy into a coma to kill it finally.

Edited July 14, 2022 by changegonnacome

[Gregmal]

3 hours ago, changegonnacome said:

So the inflation print will get cut in half....through maybe natural causes.....but I think a stubborn inflation persisting at 3.5-4% is going to sit underneath simply because (1) job openings vs. seekers ratio out of whack (2) inflation expectations as above.........and this will require the FED to really jack rates later this year or early next when this becomes apparent & put the economy into a coma to kill it finally.

Ok so not to single you out, you're just good at engaging, but wasn't the argument originally that basically the most effected were too dumb to take advantage of the labor market? Now Ive heard several times that theyre going to conquer it? And two, why is 3-4% inflation anything to fret? People have always gotten 3% raises. So maybe those that agin have zero ambition lose a whopping 1% purchasing power? Why would the Fed go crazy on this? This is why im having a hard time buying the inflation argument. None of it really makes sense. The "kill the economy because folks have enough money to pay more for stuff" thing is illogical. And yes, if they didnt have the money to pay more, stuff wouldnt be increasing in price. Its supply and demand. The best argument Ive heard is from my father, who in terms of an investment approach makes Viking look like Bill Hwang. And its that inflation control is integral because did you know, the SECRET SERVICE tracks counterfeit currency because ultimately weakening or destabilizing of the currency is a national security issue. I agree with that. BUT....anyone seen the dollar against other currencies? 

[changegonnacome]

8 hours ago, Gregmal said:

So maybe those that agin have zero ambition lose a whopping 1% purchasing power? Why would the Fed go crazy on this?

so two points:

 

(1) when your purchasing power is already negligible and your at the margins of poverty……1,2,3% hurts…..it hurts like a MF!!!! And as I’ve mentioned before we are in the part or just passing the part of the inflationary cycle where you get 3% raises without asking/negotiating. Now as we’re about to find out with Q2 earnings, profits & margins are about to get whacked. You think HQ doesn’t tell store clerk Betsy, this December hey sorry you got a raise last year & the company isn’t doing that great so you know tough times Betsey….but inflation is still 5%…you do the math.

 

(2) as we’ve talked about before what you believe and what I believe doesn’t matter….it doesn’t even matter if your right and I’m wrong….when I read the Fed minutes and I listen Jay Powell…..I happen to hear my point of view and my believe….but my belief doesn’t matter….. ultimately knowing what Powell believes reveals what he’ll do next and that is key to positioning for this market cycle…..nobody is immune to beta and like it or not the Fed is driving the Beta Bus 

[Gregmal]

8 minutes ago, changegonnacome said:

Now as we’re about to find out with Q2 earnings, profits & margins are about to get whacked. You think HQ doesn’t tell store clerk Betsy, this December hey sorry you got a raise last year & the company isn’t doing that great so you know tough times Betsey….but inflation is still 5%…you do the math.

 

Yea my hunch has been that we may have bottomed, especially some tech, but the scenario you describe seems commonplace and I dont want to totally ignore its probability relative to whats priced in. Guidance will matter because everything is forward looking and I think this is an easy Q for everyone to kitchen sink it. So I've still got a few hedges on mainly IWM Oct/Nov puts and some TSLA short. Either way by year end I think much of this circus is behind us, and should be get the Q2 earnings rout I will be looking to close out the remaining short stuff and go completely long into. All of this stuff, IE destruction, economic weakening, declines across the board, feed into what the Fed has said its looking for. So at some point they wash their hands, and go back to sitting on the couch with their feet up. 

[Blugolds]

7 minutes ago, changegonnacome said:

so two points:

 

(1) when your purchasing power is already negligible and your at the margins of poverty……1,2,3% hurts…..it hurts like a MF!!!! And as I’ve mentioned before we are in the part or just passing the part of the inflationary cycle where you get 3% raises without asking/negotiating. Now as we’re about to find out with Q2 earnings, profits & margins are about to get whacked. You think HQ doesn’t tell store clerk Betsy, this December hey sorry you got a raise last year & the company isn’t doing that great so you know tough times Betsey….but inflation is still 5%…you do the math.

 

(2) as we’ve talked about before what you believe and what I believe doesn’t matter….it doesn’t even matter if your right and I’m wrong….when I read the Fed minutes and I listen Jay Powell…..I happen to hear my point of view and my believe….but my belief doesn’t matter….. ultimately knowing what Powell believes reveals what he’ll do next and that is key to positioning for this market cycle…..nobody is immune to beta and like it or not the Fed is driving the Beta Bus 

 

Also many employers froze wage increases for 2 years due to the pandemic...only recently reinstating raises to retain employees due to the current labor market to stay competitive and retain workers...so workers missed a couple years worth of raises and now maybe get 3-5%...but over the past 2-3 years they might net 5% total wage increase all coming recently rather than 3,3,3...they got 0,0,3-5...but if they had maintained that 3% each year...they would have been further ahead. 

 

 

 

[Spekulatius]

11 minutes ago, Blugolds11 said:

 

Also many employers froze wage increases for 2 years due to the pandemic...only recently reinstating raises to retain employees due to the current labor market to stay competitive and retain workers...so workers missed a couple years worth of raises and now maybe get 3-5%...but over the past 2-3 years they might net 5% total wage increase all coming recently rather than 3,3,3...they got 0,0,3-5...but if they had maintained that 3% each year...they would have been further ahead. 

 

 

 

Yep, current wage of wage increases is 5.5-6% overall, which trails inflation of 9% YoY. That's a 3-3.5% loss in purchasing power on average. Stimi checks (which did not count towards wages too) are gone as well . So the vast majority of people probably has 3.5-6% less income (counting the stimi checks last year towards income). With the consumer spending being 70% of the  economy, how can we avoid a recession here? I don't see it.

 

 

Now the consumer is flush and has some excess cash which is going to be spent (we know what it is because the savings rate is pretty much at a record low) but that only last that long and is probably gone for the lower 50% at that point.

 

[changegonnacome]

58 minutes ago, Spekulatius said:

Now the consumer is flush and has some excess cash which is going to be spent (we know what it is because the savings rate is pretty much at a record low)

Exactly I watch the savings rate fall, soon if not already average checking accounts balances falling, then credit card balances rising + interest rate on those CC …..you can see what’s happening out there on Main St. to Joe Sixpack….he’ll be Joe FourPack before he realizes and that’s called a recession . Hope it’s a mild one that’s sufficient to bring inflation down to 2-handle and we build out from there.

Edited July 14, 2022 by changegonnacome

[Cigarbutt]

On 7/14/2022 at 12:07 PM, Spekulatius said:

Yep, current wage of wage increases is 5.5-6% overall, which trails inflation of 9% YoY. That's a 3-3.5% loss in purchasing power on average. Stimi checks (which did not count towards wages too) are gone as well . So the vast majority of people probably has 3.5-6% less income (counting the stimi checks last year towards income). With the consumer spending being 70% of the  economy, how can we avoid a recession here? I don't see it.

 

 

Now the consumer is flush and has some excess cash which is going to be spent (we know what it is because the savings rate is pretty much at a record low) but that only last that long and is probably gone for the lower 50% at that point.

 

Interesting.

For perspective about what's going on for real concerning wages:

The consumer flush with cash is proving to be mostly a mirage when looking at developing patterns (data below up to May, credit card spending by groups and housing price change according to sub-groups):

The question about "bottom" will depend on how the bipartisan-debt-driven secular trickle down will be met by growing percolating up of bottom discomfort (and sentiment).

The Friedman helicopter money experiment has now been tried in a way and numbers show that people have more money but, on a net basis, real people are finding out that they have less purchasing power.

[Guest]

On 7/1/2022 at 9:30 AM, wabuffo said:

IMHO, the Fed is and has been largely irrelevant in this cycle.  They've raised to 158% bps on IOER & really haven't done any QT yet.  That's pretty small beer, IMHO.

 

The real macro force is that since late February/early March, the US Treasury has slipped into surplus (and not deficit).  This is the most powerful deflationary force one can see.  And its not over yet.   Gold tells you that as it is the most sensitive monetary commodity & offers a real-time price indicator on the USD's increasing "scarcity".

 

I think this will force a contraction of economic growth (maybe recession, maybe not) until the compression reduces tax receipts due to unemployment & greater spending due to countercyclical Federal programs that kick in until we are back to a normal sized deficit.

 

That might not be until early 2023....  So please stow your tray tables and return your seats to their upright positions.

 

FWIW,

Bill

 

What's the most recent update on the surplus/deficit, Bill?

[Gregmal]

11 minutes ago, stahleyp said:

 

What's the most recent update on the surplus/deficit, Bill?

Who cares about that. The Fed controls the stock market and they are.....JUST. GETTING. STARTED. 

Edited July 22, 2022 by Gregmal

[Guest]

3 hours ago, Gregmal said:

Who cares about that. The Fed controls the stock market and they are.....JUST. GETTING. STARTED. 

 

I wouldn't have a problem at all with much higher interest rates. 

[Gregmal]

The Fed is just scheming to enrich the wealthy via more interest. 

[valuehawk91]

Who controls the real estate market?

[Gregmal]

4 minutes ago, valuehawk91 said:

Who controls the real estate market?

The real elites. 

[changegonnacome]

https://www.marketwatch.com/story/u-s-july-flash-pmi-data-show-worrying-deterioration-in-economy-11658498760

 

Cant ignore PMI + the canary in the coal mine that is ad budgets.....very interesting to see if FED makes the standard policy error here which is beloved by spineless central bankers everywhere.........which is to back off hikes at the first sign of trouble such that inflation remains persistently high but just enough hikes to put the economy into stagnation.......good old stagflation.

 

I dunno I get the sense from Jay Powell that he's aware of this folly....and might avoid it. Let's see.

[Gregmal]

One day they’ll look back on this whole episode and wonder what in the heck everyone was thinking. Government fucked it all up with ridiculous COVID handling, lockdowns, and stimulus money and then blamed supply chain issues and $15 a week higher grocery bills for killing the economy and pricing normal people out of housing. Pretty hilarious actually. And of course it’s the pee ons that will get hurt most, but that ain’t me and I didn’t vote for this so I don’t care.

Edited July 22, 2022 by Gregmal

[no_free_lunch]

16 hours ago, Gregmal said:

One day they’ll look back on this whole episode and wonder what in the heck everyone was thinking. Government fucked it all up with ridiculous COVID handling, lockdowns, and stimulus money and then blamed supply chain issues and $15 a week higher grocery bills for killing the economy and pricing normal people out of housing. Pretty hilarious actually. And of course it’s the pee ons that will get hurt most, but that ain’t me and I didn’t vote for this so I don’t care.

 

This is spot on.  It's fascinating to watch as it's a giant experiment in economics.  It seems that wherever, however the government intervenes the funds generally end up benefitting a random set of the upper class, e.g. big tech as the big winner from lockdowns.  Whatever funds are distributing to the masses, it ultimately gets captured by the wealthy.  However, with the accountability issues of free money we are probably all a little worse off.

 

With inflation, it feels to me that it was one-time due to lockdown and that if government can continue to keep it's paws off it should dissipate.  Certainly on the commodity sides, many of the companies are sitting on record margins and could take large priced drops while staying in the green.

 

Perhaps there really is a goldilocks opportunity, in the US, to slow the rate increases down and settle near these levels for the time being.

Edited July 23, 2022 by no_free_lunch

[changegonnacome]

Walmart results showing classic signs of what I've talked about here -

 

Margins - input costs rising (wages/goods) into a weakening inflation squeezed consumer.........Walmart pushing price to restore margins without tanking volume, which worked in 2021, isnt working now and isn't going to magically start working  now or later this year. Profits get whacked.

 

Then if you take Walmart workers as some type of bellwether for low paid/unskilled workers........what are the odds with unemployment rising later this year (or not) and Walmarts corporate margins getting squeezed.....that the average Walmart worker who in 2021/22 got unasked for pay rises......gets one handed to them for fiscal 2023 such that it compensates for inflation running at 5%. Answer ZERO. Workers may agitate but Walmart will cry pain.

 

Walmart is worse off. Joe Sixpack is worse off. Inflation steals from us all but those on fixed incomes/low paid/unskilled the most.

 

What I've just described is why Jay Powell should and I think will be aggressive into a weakening economy......nobody wins with inflation, nobody wins with stagflation......stagflation is what happens when Central Bank's chicken out.........you have to purge inflation from the system, short term pain for long term gain. Let's see if Powell has the balls to the right thing.

Edited July 25, 2022 by changegonnacome

[Gregmal]

Is this any different than what Target said a while back? This stuff just takes time to work through, and if it’s commodity based and supply chain related it’s already peaked. If I have an itch on my right hand, kicking a wall with my left foot is pretty useless. As is continuing to mess with interest rates over things related to government stupidity and time related supply issues. I’d love to see all these folks who voted for stimulus checks now lose their jobs after a few more rounds of rate hikes, but I have a hard time seeing how that’s better for them than paying 5-10% more for another few quarters. This whole thing has become a ridiculous shit show.

[changegonnacome]

55 minutes ago, Gregmal said:

This stuff just takes time to work through, and if it’s commodity based and supply chain related it’s already peaked.

 

Its not just the above Greg.....this is not Europe............its monetary inflation in the US, the Fed realizes this hence Powell's resolve/messaging...........inflation in Europe is supply chain/commodity/energy driven, the European economy is by lots of measures operating below its long run potential......Europe has in economic terms 'slack'. 

 

Do you think the USA has any 'slack' or is it operating at or above its theoretical capacity?

 

Just look at the facts > for every person seeking employment there are two job openings. Is that an economy with slack? or one operating above and beyond its productive capacity because too much money is chasing too few goods and services? This is not an economy with slack just suffering from some temporary external supply issues (yes it has that too).......but the reality is massive monetary stimulus was added to the economy, at the same time that vast swathes of labour withdrew from the economy (great resignation, baby boomers throwing in the towel, immigrants flee'ing Trump-land / immigrants deciding not to move to the USA). There is a very strong argument, that while Larry Fink from Blackrock argues correctly that aggregate demand in the USA is only at 2019 levels..........the productive capacity of the US is not back at 2019 levels for all the reasons I just listed.

Edited July 25, 2022 by changegonnacome

[Gregmal]

19 minutes ago, changegonnacome said:

 

Its not just the above Greg.....this is not Europe............its monetary inflation in the US, the Fed realizes this hence Powell's resolve/messaging...........inflation in Europe is supply chain/commodity/energy driven, the European economy is by lots of measures operating below its long run potential......Europe has in economic terms 'slack'. 

 

Do you think the USA has any 'slack' or is it operating at or above its theoretical capacity?

 

Just look at the facts > for every person seeking employment there are two job openings. Is that an economy with slack? or one operating above and beyond its productive capacity because too much money is chasing too few goods and services? This is not an economy with slack just suffering from some temporary external supply issues (yes it has that too).......but the reality is massive monetary stimulus was added to the economy, at the same time that vast swathes of labour withdrew from the economy (great resignation, baby boomers throwing in the towel, immigrants flee'ing Trump-land / immigrants deciding not to move to the USA). There is a very strong argument, that while Larry Fink from Blackrock argues correctly that aggregate demand in the USA is only at 2019 levels..........the productive capacity of the US is not back at 2019 levels for all the reasons I just listed.

But this doesn’t work on many levels. It’s insane to me how having a great job market for lower and middle class workers is a bad thing. that’s how the job situation is being spun. The alternative being people losing jobs and unemployment increasing which is bullshit. 
 

This is totally different than the supply and demand issue for goods like cars and paper towels which is supply chain related. Nothing to do with rates. Commodities effect 90% of this and again it’s just time before spot prices factor into the market for end product. 

 

and the last point, on the “squeeze” occurring, Walmart being the example…once again, you can’t have a robust labor market like we have, while at the same time claiming employers can simply say “tough times” like was insinuated above. Again, total bullshit. If there’s 2 jobs for every one opening the employee can ask Walmart for a raise and if Walmart balks they say peace out. The ONLY scenario in which what you describe, occurs, is when the Fed, or government, does something asinine, and kills the economy, and removes the workers job opportunity. In which case, like you said, they go to big corporate powerhouse Walmart, ask for a raise, and yea, Walmart says “tough times”, and now thanks to the raise rates and destroy the economy crowd, that worker is fucked.

[changegonnacome]

30 minutes ago, Gregmal said:

It’s insane to me how having a great job market for lower and middle class workers is a bad thing. that’s how the job situation is being spun.

 

The great jobs market is a symptom of too much money chasing too few goods and services = inflation. Early inflation cycles work out fine - Walmart hikes prices & hikes wages.....everybody wins.....the problem is that wages never keep up with monetary inflation.....inflation happens every day in tiny little ways across the economy, wages reset much less often ,yearly or if someone leaves a job for another (attrition levels of less than 15% even in shitty jobs is quite common).........so prices are rising at a higher interval rate & faster than wages can keep up with.......... therefore purchasing power is decreasing in the consumer across time in the low/middle income groups i.e. most Americans!...........corporates try to push price again to preserve THEIR margin but they cant (the consumer is weakening in the face of a loss of purchasing power).....etc etc

 

30 minutes ago, Gregmal said:

The alternative being people losing jobs and unemployment increasing which is bullshit. 

 

I think what Powell would say is that the number of job openings should be brought broadly in line with the number of people seeking employment such that we have stable prices across the economy.

 

If you think about what your advocating for as an alternative Greg....which is a bunch of low/middle income workers to get your industriousness and really get out there and hustle their employer for pay increases or hyperactively change jobs every 12 weeks for a higher salary the next shop over.....................your really advocating for a wage-price spiral in disguise.

Edited July 26, 2022 by changegonnacome

[Gregmal]

Maybe, but I also think there’s a likely environment where you can have wage growth and all the stupid shit like cars, toilet paper, and French fries ones desires. The biggest amalgamation of differentiating variables here IMO is claiming that wage growth and jobs is the reason for supply and demand imbalance. It’s not. Those dumb COVID restrictions are. As recently as January and February you still had certain states pushing that shit. I said then 2-3 quarters straightens it out, regardless of rates. That already seems to be occurring. What happens if prices of easily producible stuff wrinkled by supply chain get sorted out and jobs market remain solid? I fail to see how that’s a problem. It would be a devastating mistake to kill the economy because folks mistook a solid jobs market for product imbalances rather than the real cause; government imposed COVID restrictions 

[Gregmal]

This whole bs inflation story has been one ever changing series of goal posts. First cars where forever gonna be appreciating assets. Then that stops. Then it’s lumber and steel, then that flops. Then it’s wheat. Then that flops. Then it’s oil and gas and that flops too. Now it’s backward looking CPI and “job market is too good”. All as the excuse to raise rates which is pretty immaterial to the root cause of it but pretty destructive if unchecked. Like I said, a shitshow