Spekulatius Posted July 27, 2022 Posted July 27, 2022 1 hour ago, LC said: Employment seems to be holding up well which I think is why most people are not expecting too much of an earnings decline: https://www.bls.gov/news.release/pdf/empsit.pdf A strong labor market is bearish for stocks, because it means that the Fed can raise more without causing trouble with employment. The weak consumer sentiment on the other side is very very bullish. In the past, weak consumer sentiment has been correlated with very strong subsequent stock performance. I am guess this is because that weak consumer sentiment is correlated with weak investor sentiment. Got to be greedy when others are fearful.
Gregmal Posted July 27, 2022 Posted July 27, 2022 20 minutes ago, changegonnacome said: You know my position - a technical recession does not get us back to 'normal'....unless you consider normal inflation running at ~4%+ & 60% of workers in your economy loosing purchasing power in real terms. The FED as I say does not consider the above normal and thats what matters. I guess it comes down to whether or not you think a good jobs market is the reason commodity based stuff that has never been an issue producing stays elevated. I think the bulk is supply chain related and irrelevant to the jobs market. I can afford literally millions of plastic spoons. I can buy as many of them as I want. If I get a pay raise, it shouldn’t have any bearing though because they’re easy to produce. That’s the case with literally 90% of the inflation argument. Earlier we had claims that cars and houses weren’t largely commodity derived or supply chain problems! As always, only time will tell.
Gregmal Posted July 27, 2022 Posted July 27, 2022 I mean literally everything has fallen off a cliff except housing and even there you’re starting to see some relief in the form of supply. If we wanna say kill the jobs market just cuz, that’s fine. But at this point it’s got nothing to do with inflation. I think it’s significant more plausible that easy to produce shit getting disturbed by events we can see with our own eyes, like COVID restrictions, lockdowns, port jam ups, etc, caused prices to rise, and now they’re regressing back to normal. Absolutely nothing to do with jobs.
Gregmal Posted July 27, 2022 Posted July 27, 2022 This thread or maybe the other inflation one, look at the progression of argument. It’s basically been a whack a mole of knee jerk solutions that basically get summed up as…quick! find anything that’s gone up or doing well and destroy it just cuz lol. Regardless of whether it’s real inflation that’s detrimental to the economy or the country.
changegonnacome Posted July 27, 2022 Posted July 27, 2022 4 minutes ago, Gregmal said: If we wanna say kill the jobs market just cuz, that’s fine. But at this point it’s got nothing to do with inflation. Dont think anyone, including me, can close the case on this one yet. The truth will only be revealed when "supply chain problems" drop out of the lexicon & earnings call transcripts. I hold the possibility that you are 100% correct on inflations root causes & I'm completely wrong. Not sure, you should be so sure
Gregmal Posted July 27, 2022 Posted July 27, 2022 4 minutes ago, changegonnacome said: Dont think anyone, including me, can close the case on this one yet. The truth will only be revealed when "supply chain problems" drop out of the lexicon & earnings call transcripts. I hold the possibility that you are 100% correct on inflations root causes & I'm completely wrong. Not sure, you should be so sure But check this by asking the following question….what is currently going up right now? Absolutely nothing. It’s all just an eerie timing coincidence or proof that it’s predominantly supply chain and simply a time will fix it issue. Even the energy end of things which I expect to be strong longer term has taken a crap. The people really getting fucked right now are renters. Those 12 month leases are sticky
changegonnacome Posted July 27, 2022 Posted July 27, 2022 31 minutes ago, Gregmal said: But check this by asking the following question….what is currently going up right now? Absolutely nothing. Absolutely nothing....................except wages & the price of money
mattee2264 Posted July 27, 2022 Posted July 27, 2022 Well S&P 500 above 4000 again presumably based on belief that a soft landing is very much on the cards and the Fed will slow down the pace of rate hikes.
Gregmal Posted July 27, 2022 Posted July 27, 2022 (edited) 4 hours ago, changegonnacome said: Absolutely nothing....................except wages & the price of money Ok so then how do we have inflation right now? Inflation doesn’t mean “wage growth”. The crazier part about all this is people running around shouting off snippets and catch phrases made popular on tv like “inflation coming in hot” and rampant inflation as they literally watch everything around them DEFLATE! And then what do they do? Point to some dumb backwards looking metric comparing last month to last year. COVID made people do all sorts of crazy shit and this whole manufactured inflation crisis seems to be a fitting end. Today basically seemed to confirm we get one more in September, maybe, and then most likely, it’s right into elections. It must be easy taking on jobs where the outcome is independent of your actions but you get credit anyway. But that’s politics. They need to solve problems and the easiest way to do that is to create the problem. Edited July 27, 2022 by Gregmal
mattee2264 Posted July 28, 2022 Posted July 28, 2022 Grantham has some really good metaphors to try to navigate the end of this cycle. The confidence termite thesis played out as expected with the more speculative stuff getting killed in 2021 and now this year most of the majors seeing 30%+ declines. The other metaphor he uses is the two legs. First leg interest rates/multiples. Second leg earnings. First leg I think has now played out. Fed is signalling the end of the rate hiking cycle. Probably by the end of this year once we see a weakening of the jobs market. And the rally over the last month or so is probably because the market thought the Fed would be a lot more aggressive. Second leg earnings we've had a few profit warnings and a few earnings disappointments but S&P 500 earnings estimates are still around $230. Difficult to really see where a deep earnings recession is coming from. But I think 2021 earnings were juiced by monetary and fiscal stimulus and pent-up demand and companies bringing forward tech related spending to navigate the pandemic and consumers spending a lot more on e-commerce and consumer goods instead of services and the S&P 500 obviously is pretty tech heavy. One narrative is that inflation causes a recession. But I do not really buy this. We've had $100 oil before for multiple years and the economy continued growing. Core inflation is only in the single digits and as it is accompanied by some wages growth consumers are handling it and companies are passing on most of it. Similarly interest rates causing a recession....well we look as though we will stop around 3%. There is a lot of debt in the economy but a lot of it is fixed and locked in at very low interest rates. Somewhat higher financing costs will have a modestly negative impact on profits and probably a much greater impact on the housing market. But people have plenty of equity in their homes and really we would probably end up unwinding the speculative gains made during the pandemic. In fact pretty much everything that has happened so far can be understood as unwinding of the pandemic distortions. We were at 3300 or so before the pandemic. That was a few years ago and there has been some increase in earnings power especially from some of the societal changes that will remain after the pandemic (increased reliance on technology etc and consolidation of market power and also of course inflation). So I think adding around 10-20% for these factors and perhaps subtracting a little to reflect that interest rates will settle somewhat higher than they were pre-pandemic and it is difficult to see markets going much lower than they were earlier this year.
Parsad Posted July 28, 2022 Author Posted July 28, 2022 11 hours ago, mattee2264 said: Grantham has some really good metaphors to try to navigate the end of this cycle. The confidence termite thesis played out as expected with the more speculative stuff getting killed in 2021 and now this year most of the majors seeing 30%+ declines. The other metaphor he uses is the two legs. First leg interest rates/multiples. Second leg earnings. First leg I think has now played out. Fed is signalling the end of the rate hiking cycle. Probably by the end of this year once we see a weakening of the jobs market. And the rally over the last month or so is probably because the market thought the Fed would be a lot more aggressive. Second leg earnings we've had a few profit warnings and a few earnings disappointments but S&P 500 earnings estimates are still around $230. Difficult to really see where a deep earnings recession is coming from. But I think 2021 earnings were juiced by monetary and fiscal stimulus and pent-up demand and companies bringing forward tech related spending to navigate the pandemic and consumers spending a lot more on e-commerce and consumer goods instead of services and the S&P 500 obviously is pretty tech heavy. One narrative is that inflation causes a recession. But I do not really buy this. We've had $100 oil before for multiple years and the economy continued growing. Core inflation is only in the single digits and as it is accompanied by some wages growth consumers are handling it and companies are passing on most of it. Similarly interest rates causing a recession....well we look as though we will stop around 3%. There is a lot of debt in the economy but a lot of it is fixed and locked in at very low interest rates. Somewhat higher financing costs will have a modestly negative impact on profits and probably a much greater impact on the housing market. But people have plenty of equity in their homes and really we would probably end up unwinding the speculative gains made during the pandemic. In fact pretty much everything that has happened so far can be understood as unwinding of the pandemic distortions. We were at 3300 or so before the pandemic. That was a few years ago and there has been some increase in earnings power especially from some of the societal changes that will remain after the pandemic (increased reliance on technology etc and consolidation of market power and also of course inflation). So I think adding around 10-20% for these factors and perhaps subtracting a little to reflect that interest rates will settle somewhat higher than they were pre-pandemic and it is difficult to see markets going much lower than they were earlier this year. All the macro guys have gotten it wrong since the GFC. They got 2000 and 2008 right, but from 2014-2020 they were wrong. Rosenberg, Grantham, etc have been perma-bears for a decade. Ignore them! Ignore the noise. Buy cheap, sell dear! Cheers!
Gregmal Posted July 28, 2022 Posted July 28, 2022 1 hour ago, Parsad said: All the macro guys have gotten it wrong since the GFC. They got 2000 and 2008 right, but from 2014-2020 they were wrong. Rosenberg, Grantham, etc have been perma-bears for a decade. Ignore them! Ignore the noise. Buy cheap, sell dear! Cheers! I have an older friend who a few months ago mentioned he met Grantham while at Goldman in the early 80s. Said he followed him because the dude was interesting and unique but he’s literally never been right about anything. Anyhow, totally agree. Folks continue to find 101 reasons not to invest when they’re all mostly irrelevant. It’s not hard finding something you like that will take care of the money you put into it. You just gotta stop finding excuses to avoid looking.
Gregmal Posted July 28, 2022 Posted July 28, 2022 Like what a laugher the last 12 months have been. Economy needs help cuz of COVID, OMG! Oh no, new variants!!! Ah we need to kill the economy because it’s tooo strong. Inflations stealing from us! Ah! We re trying to kill the economy and now the economic outlook is bad! Stocks need to go down another 40%! WTF are we doing? Always something I suppose.
backtothebeach Posted July 29, 2022 Posted July 29, 2022 (edited) 13 hours ago, Gregmal said: Like what a laugher the last 12 months have been. And to top it off the economy is not in recession (the technical definition of recession over decades be damned), the economy is "transitioning". Ignorance is strength. https://seekingalpha.com/news/3862969-biden-and-yellen-say-us-economy-is-in-state-of-transition-not-recession Edited July 29, 2022 by backtothebeach
Gregmal Posted July 29, 2022 Posted July 29, 2022 2 hours ago, backtothebeach said: And to top it off the economy is not in recession (the technical definition of recession over decades be damned), the economy is "transitioning". Ignorance is strength. https://seekingalpha.com/news/3862969-biden-and-yellen-say-us-economy-is-in-state-of-transition-not-recession Well, is it really that surprising given all the other words they've redefined?
LC Posted July 29, 2022 Posted July 29, 2022 What’s funny is how politicized the economy has become, and also how futile politicking the economy is.
tede02 Posted July 29, 2022 Posted July 29, 2022 16 hours ago, Gregmal said: I have an older friend who a few months ago mentioned he met Grantham while at Goldman in the early 80s. Said he followed him because the dude was interesting and unique but he’s literally never been right about anything. Anyhow, totally agree. Folks continue to find 101 reasons not to invest when they’re all mostly irrelevant. It’s not hard finding something you like that will take care of the money you put into it. You just gotta stop finding excuses to avoid looking. This reminds me of the people that participated in "the big short." They all raised tons of money following that home run but, to my knowledge, no one has done anything remarkable in the last 14 years.
mattee2264 Posted July 30, 2022 Posted July 30, 2022 Read some interesting data that suggest that the time to bottom depends very much on the depth of the bear market (which makes sense). If this is going to be a run of the mill 20-25% bear market then 1/2 a year is pretty typical and furthermore a swift recovery by the year end to all time highs is also the base case and bottom is already in. If it is going to be a deeper 30-40% bear market then bottom unlikely to be reached until 2023.
ACooke Posted July 31, 2022 Posted July 31, 2022 (edited) 7 hours ago, mattee2264 said: Read some interesting data that suggest that the time to bottom depends very much on the depth of the bear market (which makes sense). If this is going to be a run of the mill 20-25% bear market then 1/2 a year is pretty typical and furthermore a swift recovery by the year end to all time highs is also the base case and bottom is already in. I find it difficult to get my head around the market being at ATH's again by year-end. If margins continue to compress like they have been for many industries (without considering total sales) - input costs, supply chain issues, energy, labour, interest etc. - then assuming actual stock price/market cap is what's referred to, that'd involve some pretty meaningful multiple expansion; all the whilst we'll almost certainly still be dealing with inflated input costs and so forth. Keeping in mind valuations were very high pre this draw down. Seems like a big ask to me, I tend to think we probably go lower and almost certainly go longer, but then again - I have minimal faith in my ability to predict 'Mr. Market'. Edited July 31, 2022 by ACooke Wrote 'post this drawn down', meant 'pre this draw down'.
nafregnum Posted July 31, 2022 Posted July 31, 2022 2 minutes ago, ACooke said: I find it difficult to get my head around the market being at ATH's again by year-end. I think all time highs won't be back so soon either. 1) Interest rates are higher and we won't be back to ZIRP this year. 2) Ukraine war and European energy's spooky disharmonious conflict hell ride coming up this winter. 3) Oil, which won't get cheap unless national recessions kill demand because supply is constrained by green dogmas. Almost a year ago, in the thread "THE TOP is coming" there was the idea from an interview with Jeremy Grantham that referenced 'confidence termites' which would cause the risky stuff to start trending downward while money moved into safer places, until even the safest places would be sliding downward as well. Now I find myself wondering what sectors will bounce back first as confidence starts to build...
changegonnacome Posted July 31, 2022 Posted July 31, 2022 The market rally in the last couple of weeks & SPY off only 14% from its ATH means the Fed has more work to do to introduce what it is even starting to refer to as the 'slack required to bring price stability".....there is no slack in the United States domestic economy right now (forget supply chains/China/plastic spoons/semiconductors/oil this is a sideshow to the main show which is a domestically overheating economy & monetary inflation).............financial conditions are not tight in the US (I can borrow five year fixed rate money at 2.95% with inflation running at 9%, thats accommodative by a-lot) so conditions are not tight enough to reduce aggregate demand to bring it into equilibrium but in truth moderating inflation requires a period where aggregate demand dips below supply......this is just not happening as seen in the job seekers/openings data & wage increase data recently published and certainly not by enough to reduce domestic inflation problem.......lots of other economy's around the globe have variable interest rate mortgage markets......the transmission of tighter financial conditions through rates rises flows through almost immediately to households in those countries via higher mortgage payments.....in the United States the central bank has a more difficult and circuitous route it needs to take to reduce aggregate demand and thats via messaging & asset prices i.e. ADP 401k/Vanguard/Schwaeb/Fidelity account balances......everybody loved it on the way up and it worked beautifully to stimulate demand and pulled the US out from under the mess of the GFC and a global pandemic (while making it the best performing market globally for the last decade) but don't be surprised when the transmission mechanism of asset prices are used by the exact same institution in the opposite direction when it needs to do the opposite. Your kind of unconnected from reality and a fish who doesn't realize it's in water if your not seeing that. So maybe a few percentage points on the Fed funds rate & SPY 14% off its ATH's will be enough but it doesn't fell like enough to me. My bet is Jay Powell is kicking himself for the neutral rate comment he made (I think by accident) and bemoaning the markets interpretation with all this Powell pivot nonsense floating around which rallied SPY, QQQ AND the god damn 10yr......his loose comments effectively loosened financial conditions FFS and I don't think that was/is/should be the plan right now to get inflation under control.
mattee2264 Posted July 31, 2022 Posted July 31, 2022 I don't think there is any serious intention to engineer negative wealth effects by sinking stock markets. Powell is very careful with the open mouth communications to provide enough breadcrumbs to sustain hope and encourage markets to look through the rate hiking cycle. Next phase will be to focus on the trajectory rather than the level i.e. inflation is moderating and falling so I am gonna wait and see. Then it will be well we have an average inflation targeting regime now so a few years of 3-4% inflation isn't really a big deal. I think the only real way we can get a really serious bear market is if we have a proper financial crisis. Because recessions are good news because they mean lower rates (good for the long duration stocks that dominate the indices) and booms are good news because they mean higher earnings (which are then capitalized at high multiples) and cash continues to be trash.
Spekulatius Posted July 31, 2022 Posted July 31, 2022 I don’t think the Fed looks that much at the stock market these days. It’s largely irrelevant at the levels we are (far from crisis level). The bond market and exchange rate movements are probably are more in the focus. Even the latter have not shown any issues. Neither of the above or the Labor market prevents the Fed from rising rates further. What might give the Fed pause is risk spreads blowing out or unemployment going up significantly. We have not seen much of an issue with either one.
SharperDingaan Posted July 31, 2022 Posted July 31, 2022 1 hour ago, mattee2264 said: I don't think there is any serious intention to engineer negative wealth effects by sinking stock markets. Powell is very careful with the open mouth communications to provide enough breadcrumbs to sustain hope and encourage markets to look through the rate hiking cycle. Next phase will be to focus on the trajectory rather than the level i.e. inflation is moderating and falling so I am gonna wait and see. Then it will be well we have an average inflation targeting regime now so a few years of 3-4% inflation isn't really a big deal. I think the only real way we can get a really serious bear market is if we have a proper financial crisis. Because recessions are good news because they mean lower rates (good for the long duration stocks that dominate the indices) and booms are good news because they mean higher earnings (which are then capitalized at high multiples) and cash continues to be trash. Keep in mind that Europe has both the gas shortage/winter coming up, and rising interest rates. There will not be a need to raise US rates as rapidly or as high as would otherwise have been necessary. There are 3 more federal reserve settings through 2022 calendar year-end, and a market expectation of a 200bp raise across the 3 settings, or 75+75+50 ?. What do you think happens if the expectation changes to 50+50+50 ? And it happens at the next rate setting ?? SD
Spekulatius Posted July 31, 2022 Posted July 31, 2022 59 minutes ago, SharperDingaan said: Keep in mind that Europe has both the gas shortage/winter coming up, and rising interest rates. There will not be a need to raise US rates as rapidly or as high as would otherwise have been necessary. There are 3 more federal reserve settings through 2022 calendar year-end, and a market expectation of a 200bp raise across the 3 settings, or 75+75+50 ?. What do you think happens if the expectation changes to 50+50+50 ? And it happens at the next rate setting ?? SD How do you know what the market expectation for interest rate rises is at this point? Is this embedded in some future curve or the interest rate difference between several durations? I don’t think the prospect of a total 1.5% raise in the next three meetings is all that bullish.
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