Is The Bottom Almost Here?

[Gregmal]

Right like tomorrows CPI. Imagine it’s bad. Imagine how any people will feel compelled to increase their conviction because they “knew” the market was going down(a 50/50 thing day to day)…but don’t dare ask them what the CPI print was in December of 2014 or it’s relevance to Apples share price since then.

Edited January 10, 2023 by Gregmal

[Luke]

13 minutes ago, Gregmal said:

Right like tomorrows CPI. Imagine it’s bad. Imagine how any people will feel compelled to increase their conviction because they “knew” the market was going down(a 50/50 thing day to day)…but don’t dare ask them what the CPI print was in December of 2014 or it’s relevance to Apples share price since then.

Isnt CPI on 12th of January? So Wednesday and not tomorrow? The rest, well said.

[Gregmal]

1 minute ago, Luca said:

Isnt CPI on 12th of January? So Wednesday and not tomorrow? The rest, well said.

Lol yea whenever it is. 

[mattee2264]

The BULL case does seem to be that a combination of inflation falling and economic weakness will mean lower interest rates as if interest rates are the ONLY thing that matter. 

 

The BEAR case is that earnings will increasingly start to matter and are heading lower and central banks are going to be cautious about pivoting too soon.

 

That there are such divergent opinions and no real consensus probably explains why we are stuck in a trading range between 3600 and 4000 and probably haven't bottomed yet. 

[gfp]

1 minute ago, mattee2264 said:

The BULL case does seem to be that a combination of inflation falling and economic weakness will mean lower interest rates as if interest rates are the ONLY thing that matter. 

 

The BEAR case is that earnings will increasingly start to matter and are heading lower and central banks are going to be cautious about pivoting too soon.

 

That there are such divergent opinions and no real consensus probably explains why we are stuck in a trading range between 3600 and 4000 and probably haven't bottomed yet. 

 

I think the bull case is that inflation is falling and the economy is very strong.

[Gregmal]

37 minutes ago, gfp said:

 

I think the bull case is that inflation is falling and the economy is very strong.

Yea idk but I’d say it’s probably a pretty big stretch to say that the majority of the market isn’t expecting and fully comfortable with rates 50-75 bps in either direction of here. If the bear case is another 100 bps is needed to temporarily get a 10-15% index drawdown and payoff that’s not really a wager worth making imo, especially since new leadership has already very clearly emerged. 

[rkbabang]

6 hours ago, Paarslaars said:

But it takes balls... not easy to do.

Have been personally more successful using that sentiment to 'sell high' rather than 'buy low', for some psychological reason, selling just feels safer.

 

No one ever went broke taking profits.   I too always sell way too early.  I'm holding Jan 2024 puts on Tesla and Rivian right now and have been thinking about selling them because they are in the green over 100%.  I haven't yet, but I know the moment I do sell those stocks are going to take a nosedive and I will be kicking myself yet again.

[Gregmal]

One of the rules of life is to never be the first guy to get to the party or the last guy to leave. At this point the inflation bear thesis keg is running on empty and it’s never really advisable to overstay your welcome because there might be a stale 6 pack in the basement somewhere.

[TwoCitiesCapital]

5 hours ago, Spooky said:

 

I agree with most of this - but my point is that almost everyone in the mainstream is seemingly only focused on the risk of further declines from here and consensus is for a recession / further pain which is potentially under weighting the probability to the upside.  

 

One thing that you are overlooking in your analysis are psychological factors such as optimism and pessimism that affect prices in the short term. It is not necessarily the fundamental data that moves things in the short term but people's perception of these factors. For instance, we saw a total 180 from euphoria to despondency with sentiment reaching lows not seen since the financial crisis (when the financial system was on the verge of collapse). This extreme pessimism was not warranted based on the facts available at that time - that is they key: is to figure out when sentiment / markets have diverged significantly from the underlying facts. Now, you have seen some things recover to a more reasonable posture - it looks to me that what is being priced in is a mild recession which does not seem that out of line.

 

I'm also not blindly advocating buying the market overall - need to pick your spots. It was clear for a while that a segment of the market was in a bubble (talked about by Grantham and Dalio).

 

 

This is my view as well - I am trying to find the handful of wonderful companies out there, buy them at a reasonable price and then sit on my ass and do nothing. In the presentation from Swensen he talks about how from 1925 until the time of the speech if you held small cap stocks you would have made 12,000% returns. However, during that timeframe your holdings would have declined by 90% at one point so you have to be able to hold on through those periods.

 

 

 

 

Yes. Sentiment matters in the short term which is why we've seen many bear market rallies so far ranging between 10-20% - each making a lower high and preceding a lower low. Eventually that pattern will break, but definitely think it's a little early to be calling for the bottom. 

 

Particularly with the weakness in leading indicators that is already present and a Fed that remains consistent in being willing to hike into weakness until unemployment rises to AT LEAST 4% (the latter part is important because they'll likely continue to hike, or remain steady, even after unemployment rises from the current level of 3.5%). 

 

The Fed is all but saying they're intentionally engineering a recession and I think we should be listening. 

 

I understand at times the market has been oversold and that every one seems to agree that a recession is inevitable which does concern me some that it's the consensus trade. 

 

But then I see the orderliness of the sell-off which defies any panic, we keep getting rallies of 10-20% suggesting buyers haven't exhausted themselves, there has still been a ton of excess in the market (like Rivian still being @ 20x sales in October despite a 75% drop preceding that), put premiums remain cheap and VIX isn't elevated, and we're still at very elevated levels of valuation even after the 20% decline. 

 

So yes, everyone SAYS there's a recession coming but nobody is behaving like they have conviction in that call.  That gives me confidence that it's still the call and markets go lower before they go higher  when talking about a bottom and a sustainable recovery. 

 

In the meantime I've been modestly adding on the 10-15% dips and then taking those profits on the 10-20% rips while remaining cautiously positiones between cash/bonds/equities. 

 

Edited January 10, 2023 by TwoCitiesCapital

[StevieV]

26 minutes ago, Gregmal said:

One of the rules of life is to never be the first guy to get to the party or the last guy to leave. At this point the inflation bear thesis keg is running on empty and it’s never really advisable to overstay your welcome because there might be a stale 6 pack in the basement somewhere.

 

I would think the current bear case is that we haven't yet seen the full effects of the rise in interest rates and the rate increases will hit everything - housing, auto sales, company profitability.  Then you get some knock-on effects with employment.

 

Bull is that inflation is locked into coming down.  Employment is good.  Fed will pause.  No hard landing (or no soft landing).

[changegonnacome]

5 hours ago, mattee2264 said:

The BEAR case is that earnings will increasingly start to matter and are heading lower and central banks are going to be cautious about pivoting too soon.

 

5 hours ago, gfp said:

I think the bull case is that inflation is falling and the economy is very strong.

 

Mixed bull & bear which I think is reality- is that inflation is indeed falling but its the easy COVID/supply chain/energy stuff underneath peeling off now giving a false sense of linear progress .....in the main historical inflationary bouts have never come down in such a beautifully straight line.

 

This false sense on the momentum & progress on inflation is holding up index prices right now as the thinking goes that given the progress to date rate cuts/pivots are just around the corner & we are heading back towards ZIRP soon........this is a lazy wishful thinking extrapolation of the progress to date on the inflation curve & I think a mis-understanding on how dis-inflationary forces which dominated the last 40 years have switched to inflationary forces (but thats a longer term & harder debate)

 

However IMO we are about to hit the much more sticky 'wage-price-productivity' inflation that has been embedded inside the much higher core number for the last couple of years of which I've talked about alot..................think of it like digging through soft dirt (supply chain/energy inflation) and then getting to bedrock, that bedrock is monetary inflation & it requires stronger resolve & heavier machinery to make progress on it. Progress on this type of inflation.........the monetary kind........ will be much more non-linear & frustrating.

 

My guess is we will see a flair up or at least a sticky plateau in domestic services inflation in H1 2023 which will smash the linear inflation progress thesis to pieces................pushing out the pivot timeline by alot with likely pre-requisite fall in index prices.

 

Why? Because CPI++ wage increases negotiated in late-22 in a strong full employment economy are getting incorporated into 2023 wages then prices........given there has been no meaningful increase in the productive capacity of the USA to absorb such income/spending increases & no meaningful decrease in aggregate demand at the same time. The question becomes where does additional nominal income/spending go in an economy at already at FULL FULL employment - the answer is it goes into prices....the amount of goods and services can NOT be materially increased.

 

So I anticipate that incrementally (as result of pay rises) too much money will continue to chase too few goods/services in early-2023 as this wave of lets call it on average 6% nominal pay increases hits an economy that likely only grew its productive capacity 2% real in 2022 (probably worse).......the delta between those numbers = 4% inflation.......inflation failing & a very strong economy/labor market is kind of an oxymoron....the mistake folks are making is that the fall from 9% to 5% was indeed done in a strong economy, the problem is that this inflation truly was exogenous & one-time - COVID supply-chain/energy/ukraine.

 

Underneath is the 5% to 2% inflation journey, bedrock monetary type inflation...........pernicious, persistent & obstreperous .......hence while I remain open to a goldilocks landing, I'll be shocked if we get one.

Edited January 10, 2023 by changegonnacome

[StevieV]

4 minutes ago, TwoCitiesCapital said:

 

Yes. Sentiment matters in the short term which is why we've seen many bear market rallies so far ranging between 10-20% - each making a lower high and preceding a lower low. Eventually that pattern will break, but definitely think it's a little early to be calling for the bottom. 

 

Particularly with the weakness in leading indicators that is already present and a Fed that remains consistent in being willing to hike into weakness until unemployment rises to AT LEAST 4% (the latter part is important because they'll likely continue to hike, or remain steady, even after unemployment rises from the current level of 3.5%). 

 

The Fed is all but saying they're intentionally engineering a recession and I think we should be listening. 

 

I understand at times the market has been oversold and that every one seems to agree that a recession is inevitable which does concern me some that it's the consensus trade. 

 

But then I see the orderliness of the sell-off which defies any panic, we keep getting rallies of 10-20% suggesting buyers haven't exhausted themselves, there has still been a ton of excess in the market (like Rivian still being @ 20x sales in October despite a 75% drop preceding that), put premiums remain cheap and VIX isn't elevated, and we're still at very elevated levels of valuation even after the 20% decline. 

 

So yes, everyone SAYS there's a recession coming but nobody is behaving like they have conviction in that call.  That gives me confidence that it's still the call and markets go lower before they go higher  when talking about a bottom and a sustainable recovery. 

 

In the meantime I've been modestly adding on the 10-15% dips and then taking those profits on the 10-20% rips while remaining cautiously positiones between cash/bonds/equities. 

 

 

It does seem like the Fed may fight any rally.  Sort of an opposite of how they've been seen in the recent past.

[Gregmal]

13 minutes ago, StevieV said:

I would think the current bear case is that we haven't yet seen the full effects of the rise in interest rates and the rate increases will hit everything - housing, auto sales, company profitability.  Then you get some knock-on effects with employment.

Yes, but then also completely ignoring that much of the market already went down 30-50%, pushing the idea that the "overall" index multiples should be in the teens at the trough when historically theyre significantly higher, and that everything flatlines and doesnt recover for a really long time.

 

Last year was a nice and well orchestrated scheme, but the data will no longer allow it to continue. The only way things get much worse than whats priced in now occurs if the Fed just goes completely rogue and despite a total lack of real inflation basically just says we're going to wreck peoples lives and take down the economy just cuz....a path that IMO just isnt worth betting on. 

 

You can see it clearly with a lot of the bear rhetoric. They got their rate hikes but the economy held up as inflation collapses so now they need to throw fits and root for an economic collapse. In fact for many, they push the economic collapse as a necessary thing LOL. Greed meets gaslighting I guess.

 

All along it made sense to attribute the inflation duration to the length of the monthly stimulus payments, give or take a few months. Thats totally playing out. Its not about 2014s money printing thesis or ill conceived notions about QE...its plain and simple that covid distorted pretty much everything, and good ole time and return to normalcy would solve it. 

Edited January 10, 2023 by Gregmal

[Spooky]

13 minutes ago, TwoCitiesCapital said:

 

Yes. Sentiment matters in the short term which is why we've seen many bear market rallies so far ranging between 10-20% - each making a lower high and preceding a lower low. Eventually that pattern will break, but definitely think it's a little early to be calling for the bottom. 

 

Particularly with the weakness in leading indicators that is already present and a Fed that remains consistent in being willing to hike into weakness until unemployment rises to AT LEAST 4% (the latter part is important because they'll likely continue to hike, or remain steady, even after unemployment rises from the current level of 3.5%). 

 

The Fed is all but saying they're intentionally engineering a recession and I think we should be listening. 

 

I understand at times the market has been oversold and that every one seems to agree that a recession is inevitable which does concern me some that it's the consensus trade. 

 

But then I see the orderliness of the sell-off which defies any panic, we keep getting rallies of 10-20% suggesting buyers haven't exhausted themselves, there has still been a ton of excess in the market (like Rivian still being @ 20x sales in October despite a 75% drop preceding that), put premiums remain cheap and VIX isn't elevated, and we're still at very elevated levels of valuation even after the 20% decline. 

 

So yes, everyone SAYS there's a recession coming but nobody is behaving like they have conviction in that call.  That gives me confidence that it's still the call and markets go lower before they go higher  when talking about a bottom and a sustainable recovery. 

 

In the meantime I've been modestly adding on the 10-15% dips and then taking those profits on the 10-20% rips while remaining cautiously positiones between cash/bonds/equities. 

 

 

Definitely a reasonable case for things to go lower in the short term. I hope that they do so that I can deploy more funds at attractive prices. Agree that the Fed is not yet done and they will come out and talk a big game at the next meeting to put a damper on positive sentiment. At a minimum they are going to keep rates / posture more restrictive than most people expect for longer than expected. There were a few pockets of panic / forced selling earlier in the bear market - when Druckenmiller was doing his latest rounds of interviews a lot of commentary was that the sky is falling and when the UK pension funds became forced sellers due to their liability driven investment products - those are the times to jump in and buy.

 

 

 

 

[StevieV]

8 minutes ago, Gregmal said:

Yes, but then also completely ignoring that much of the market already went down 30-50%, pushing the idea that the "overall" index multiples should be in the teens at the trough when historically theyre significantly higher, and that everything flatlines and doesnt recover for a really long time.

 

Last year was a nice and well orchestrated scheme, but the data will no longer allow it to continue. The only way things get much worse than whats priced in now occurs if the Fed just goes completely rogue and despite a total lack of real inflation basically just says we're going to wreck peoples lives and take down the economy just cuz....a path that IMO just isnt worth betting on. 

 

You can see it clearly with a lot of the bear rhetoric. They got their rate hikes but the economy held up as inflation collapses so now they need to throw fits and root for an economic collapse. In fact for many, they push the economic collapse as a necessary thing LOL. Greed meets gaslighting I guess.

 

All along it made sense to attribute the inflation duration to the length of the monthly stimulus payments, give or take a few months. Thats totally playing out. Its not about 2014s money printing thesis or ill conceived notions about QE...its plain and simple that covid distorted pretty much everything, and good ole time and return to normalcy would solve it. 

 

Well, I'm fully invested and prefer it when the economy is doing well.  So, I hope you've got it right Greg.

[dealraker]

So as far as holding stocks for longer term I sort of watched a guy in my area who is now 62 take over his family insurance agency from his father while still in his 20's.  He's in four towns now and has 70-some people working for him.  He routinely makes $200k type donations to things like greenways/trails/parks/amphitheater's and I've been known to be his partner in these.

 

But in any event he no longer works day-to-day, his sons run the businesses.  So he and I are both avid cyclists and we hang out often, vacation together a couple times a year and such.  But during the day-to-day life I consider myself and he in the same business, my donations of course are mostly personal and his via both his business and Erie's joining him, but still it feels the same.  We are both riding around during the day messing with things or networking here or there to do this or that, but in our heads we are in the same business and think the same.

 

So anyway what I am getting to is that he probably has compounded his net worth via that insurance agency/brokerage by somewhere over 15% annually for years and years.  And yes he gets calls as he says "every week" from one buyer or another wanting him to sell out.  He refuses of course and he's leanerd a tad from Charlie (dealraker) in that a merger made me far better off than would have a sell.  He thinks, probably accurately, that I have more money than he does.

 

So basically each time the market, in his case the buyers offers, come along that they are likely 20 times plus earnings to my friend?  He isn't selling.

 

And so why should I as a stockholder of something like a bunch of successful insurance brokers?  You (I in the case) have a good business, partial ownership, and every day someone is offering to buy you (me) out....right?

 

As I wrote to the change/Greg debate, a delighful debate by the way, as to interest rates/recession/inflation (and I was being independent but basically agreeing with Greg)....to hell with all that talk about macro stuff.....just tell me when I'm supposed to sell my business if it is a good one.  

 

My view is simply never.  The chance of getting it right...meaning cashing out, paying taxes, finding something else or waiting till the big downturn, is so remote at least for me that I'll never attempt it.  

 

That given, I'd have probably sold Microsoft if I owned it recently...and I would have surely sold Tesla last year...and I'd dump any SAAS stock I owned today.  But things like Lowe's (15 pe) and the insurance brokers....or ICE or CME?  I just don't see the sell panic at all.  Hell take a nap, another cycle will already be in process.  

 

Rambling.

Edited January 10, 2023 by dealraker

[Gregmal]

6 minutes ago, dealraker said:

just tell me when I'm supposed to sell my business if it is a good one.  

I think the argument is that you should sell, short, stay in cash til the “index” hits 3000 or whatever widely used mathematical fair value it arrives at, then, cover and go long, and then sell at the next mathematically derived fair value. 
 

Of course this involves getting a lot of hard to predict values and inputs consistently correct; something nobody I’m aware of has been successfully able to do…nevertheless, almost everyone thinks they can.

 

In the meantime I’ve just been catching Pokémon and saving Princess Peach on the Nintendo Switch with my kids this week. Might miss the fluctuations. But I’ll live.

[changegonnacome]

Just curious for pushback on my thesis that the US economy ( based a few assumptions which I'd be happy for people to quibble with) is:

 

(1) about to absorb nominal pay increases across a multitude of industries that are reflective of past-CPI in 2022 (i.e. ~9%)....white collar workers straw poll in my circle are getting 9-10%.....NYC nurses on strike were offered 19%..railworkers 20%+ etc.

(2) these nominal pay increases perhaps averaged out across the aggregate economy are maybe working out around 6-7%

(3) the calendar matters here - wages do in the main reset around Jan 1...such that a "surge" in pay increases should be seen in Q1 BLS data?. I haven't come across much data on the intervals for wage resets perhaps I'm wrong here - new year, new salary sounds right to me. LMK? Folks applauding the slowing in wage growth coming into the end of the year in 22 seem to be completely ignoring the timing aspect. You negotiate pay increases in Nov/Dec....get them in Jan/Q1. No? Correct me if I'm wrong

(3) these nominal on average 6-7% pay increases are being injected into an economy with a historically low 3.5% unemployment rate with absolutely nobody on the side lines left to call in......which is to say that the aggregate domestic goods and services produced in 2022 in the US represent an economy operating at full tilt, at a high watermark of production......and as such then the increase in aggregate goods and services that can be expected to be produced in 2023 can only be 2022's production level + plus whatever productivity gains were achieved through PP&E investments and innovation in the year.

(4) This productivity gain number is likely to be disappointingly sub-2% again. Anybody seen any contravening evidence that suggests productivity growth accelerated last year or that one should expect materially better than 2% in 2023?

 

As I've talked about before an economy can only consume what it produces......nominal pay increases do not increase the actual amount of goods and services available to be consumed........but nominal pay increases or the quantity of money chasing those services and goods can certainly result in the quoted PRICE of those services and goods changing.

 

Given the above ballpark numbers then one would expect 2023 to be marked by services inflation (80% of US GDP) remaining stubbornly high around 4% as nominal pay increases, incorporate into higher overall spending against an increase in aggregate supply of those services that is at best a 2% increase..........with goods (20% US GDP) inflation being perhaps lower given its exposed more to global competitive forces & substitution and where strong dollar & lower input costs (energy/commodities) might mitigate full pass through of inflationary forces (too much money chasing too few goods in this case).

 

The only way the above DOESNT play out of course would be a situation where aggregate increases in income were not translating into the same increases in spending......which is to say that people were beginning to display thrifty/recessionary behavior.........increasing savings rate for example such that nominal pay increases were being kept on the sidelines as opposed to being spent...........but this should be showing up here https://www.bea.gov/data/income-saving/personal-saving-rate.......December numbers dont come out to Jan 27th...but no sign of any increased savings rate....folks are getting pay increases and they are substantially spending every penny of those increases.

 

The other source of income/spending in any economy is credit creation - I'm seeing interest rates that have a REAL yield attached to them now being offered to consumers which is clearly effecting credit demand/creation.......seen in autos etc. so we are seeing drop of in demand which is credit fueled but the biggest source of spending, income, has shown very little moderation.......unemployment hasn't risen, savings rates haven't increased.......credit creation has slowed but I'm not sure by enough. Need to look at some data here to see.

 

So short version not sure how the hell you get inflation down to 2%......if the status quo continues..........there's a clear contradiction with the goldilocks view of the broad market in 2023 i think...........something has to give..........either the real economy goes such that equilibrium is restored and inflation comes down (bad for earnings/bad for indexes) or (2) the Fed stupidly pivots and you get a sucker rally which will be dashed once another tightening cycle has to be implemented again later for higher and for longer (short term good for the indexes but terrible later on). Overall bad for equities.

 

The Fed is killing itself right now trying to warn people it wont be doing No.2.......that its going to hold firm in the face of a deteriorating economy. Why wouldn't it of course? It knows that a deteriorating economy is how monetary domestic inflationary issues are cured. To do anything else would be like going for haircut and stopping the guy half way through and telling him your going to pivot out of this haircut thing  and walking out with half your head shaved!

[Dinar]

@changegonnacomeWith all due respect, where do you see railroad workers getting 20% annual wage increases?  I saw 20% over four or five years, which is 4-5% per annum, not 20% per annum.  Would you mind sharing where your data is coming from?

 

Similarly, I have not seen nurses in NYC offered 19% annual wage increases.  Would you mind showing the source of information?  19% over 5 years is not the same as 19% per annum.

 

I am very glad for your circle of friends, but I do not see these 9-10% pay increases anywhere, here are a few datapoints:

 

a) My friend has a nanny that he employs - he gave her a 4% wage increase and she was happy - this is in NYC 

b) A brother in law is a very highly skilled computer programmer - when he tried to leave a few years ago, he was begged to stay, promoted and his pay increased 25%.  He is getting a 3% wage increase in 2023 (works for a ratings agency in NYC)

c) Private nursery school that my daughter is attending announced zero tuition increase in Manhattan for 2023-2024 year and we were told by friends at a private school that my son used to attend that there will not be a tuition increase, after a 4% increase in 2022-2023 year.  Staff at these places is not getting double digit wage increases.

d) Wall Street - based on what I read/heard, comp is down 50% at the top level, also banks are firing people.

e) Technology - given the lay-offs, hard to expect much/any compensation increases

f) NY City employees based on conversations with three that work for NYC are not getting anything above 3-4%.  

 

[Gregmal]

The flaw IMO, as we ve talked about is that essentially all of this hinges on the idea that wage growth = supply and demand imbalances, which just isnt really all that obvious or true to me. Targets got a lotta stuff still, so does Macys, so does Walmart....if one gets a raise and feels inclined to splurge. So what? It aint moving the inflation metrics. They've got tons of goods for ya.

 

The reason so much of the cyclically driven inflation bursts occurred is because the covid cycle effectively shut down certain segments of the world, country, supply chain, etc. So you had a lot of artificial shortages that were because more couldn't be produced in a real sense, its just that the pipelines were jammed up. This phenomena one by one hit pretty much everything in waves. To make this worse, all the demand, because of stupid government, was often harnessed and directed right at these areas of congestion. Remember masks and toilet paper? That was the first one. Why? Total nonsense. Then the scattered reopenings. Everyone gets stimulus checks and pointed at cars/houses(anything you can lease/rent with an elevated monthly payment) and restaurants and told to go get em. Theres no way people getting pay raises, which we are told are needed just to maintain the status quo, then go out and go ballistic on the entire spectrum of goods and services enough to cause a widespread inflation spike. Maybe if it was a specific area, say WS guys and Ferraris....youd see the imbalance, but widespread like we just saw during covid? No chance. I mean my buddy is looking to do a fishing trip with me in FL in a few weeks. Looked up flights...from EWR to FLL round trip is like $125....These were double/triple a year or two ago. The game is over. 

 

I think the best angle if you still had a boner on the inflation thesis and a desire to stalk it would be energy prices. Thats where it'll come from, if anything, on the back half of the year, IMO. But even there, no one has answered for me why we didnt have an inflation crisis earlier in the decade when oil was in the $100s several times. So we could theoretically even get high energy prices that dont translate to higher inflation. 

 

[changegonnacome]

3 minutes ago, Dinar said:

ith all due respect, where do you see railroad workers getting 20% annual wage increases?  I saw 20% over four or five years, which is 4-5% per annum, not 20% per annum.  Would you mind sharing where your data is coming from?

yes yes should be clearer on some of this they are cumulative increases.....but some are actually retroactive to 2020 like the rail union one so a very big uplift in 2023 relative to 2022...so a bulk of the total pay increases is getting dumped into 2023......lets call them catch-up type inflation payments - https://www.usnews.com/news/politics/articles/2022-09-15/rail-workers-win-key-concessions-in-deal-to-prevent-strike . Nurses it seems the  19.1% over three years.....but again the offers would be front loaded into this year from what I read somewhere. These type of 'public service'-esque negotiations seem to have a front loading/backdating aspect to them. private sector obviously less where its year to year

 

12 minutes ago, Dinar said:

I am very glad for your circle of friends, but I do not see these 9-10% pay increases anywhere, here are a few datapoints:

 

a) My friend has a nanny that he employs - he gave her a 4% wage increase and she was happy - this is in NYC 

b) A brother in law is a very highly skilled computer programmer - when he tried to leave a few years ago, he was begged to stay, promoted and his pay increased 25%.  He is getting a 3% wage increase in 2023 (works for a ratings agency in NYC)

c) Private nursery school that my daughter is attending announced zero tuition increase in Manhattan for 2023-2024 year and we were told by friends at a private school that my son used to attend that there will not be a tuition increase, after a 4% increase in 2022-2023 year.  Staff at these places is not getting double digit wage increases.

d) Wall Street - based on what I read/heard, comp is down 50% at the top level, also banks are firing people.

e) Technology - given the lay-offs, hard to expect much/any compensation increases

f) NY City employees based on conversations with three that work for NYC are not getting anything above 3-4%.

 

Interesting exactly what I was seeking out, guess some folks I know did a good job in 2022.......BLS data in Q1 will tell the aggregate picture.......anecdotes will have to do for now.

 

[thepupil]

29 minutes ago, Dinar said:

@changegonnacomeWith all due respect, where do you see railroad workers getting 20% annual wage increases?  I saw 20% over four or five years, which is 4-5% per annum, not 20% per annum.  Would you mind sharing where your data is coming from?

 

Similarly, I have not seen nurses in NYC offered 19% annual wage increases.  Would you mind showing the source of information?  19% over 5 years is not the same as 19% per annum.

 

I am very glad for your circle of friends, but I do not see these 9-10% pay increases anywhere, here are a few datapoints:

 

a) My friend has a nanny that he employs - he gave her a 4% wage increase and she was happy - this is in NYC 

b) A brother in law is a very highly skilled computer programmer - when he tried to leave a few years ago, he was begged to stay, promoted and his pay increased 25%.  He is getting a 3% wage increase in 2023 (works for a ratings agency in NYC)

c) Private nursery school that my daughter is attending announced zero tuition increase in Manhattan for 2023-2024 year and we were told by friends at a private school that my son used to attend that there will not be a tuition increase, after a 4% increase in 2022-2023 year.  Staff at these places is not getting double digit wage increases.

d) Wall Street - based on what I read/heard, comp is down 50% at the top level, also banks are firing people.

e) Technology - given the lay-offs, hard to expect much/any compensation increases

f) NY City employees based on conversations with three that work for NYC are not getting anything above 3-4%.  

 

agreed. lots of very similar data points. 2023's raise is you get to keep your job.

 

[changegonnacome]

35 minutes ago, Gregmal said:

The flaw IMO, as we ve talked about is that essentially all of this hinges on the idea that wage growth = supply and demand imbalances, which just isnt really all that obvious or true to me. Targets got a lotta stuff still, so does Macys, so does Walmart....if one gets a raise and feels inclined to splurge. So what? It aint moving the inflation metrics. They've got tons of goods for ya.

 

yep accept that but Made in China crap is not where the inflation I'm talking about might remain resilient/persistent - as I've mentioned the inflation to worry about isnt this stuff.......and you've seen the Fed acknowledge that its the core core as JP calls it - services inflation.........we've all seen the chart out there of eduction/health care/ prices versus the price of a flat screen tv/cell phone over decades........well this is what we are talking about again........one gets on a cargo ship and its price is set by globalization & exchange rates its had dis-inflationary forces..........the other is a domestic good, its supply is much more constrained by demographics, labor force participation etc.........you could of course "import" hospital services.......just let in a million Philippino nurses........but as we've talked about the one sure fire way to level off services inflation, immigration, is a hot button issue for left and right and nobody will touch it.

 

Pulled out this diagram - everything in blue right now is deflating..........Jay Powell and the Fed is extremely worried about everything in RED......as this is where domestic monetary inflation shows up......the Fed pivots when YoY/MoM numbers for the stuff in red moderates significantly

 

Edited January 11, 2023 by changegonnacome

[changegonnacome]

9 minutes ago, thepupil said:

agreed. lots of very similar data points. 2023's raise is you get to keep your job.

 

Interesting seems like the high profile Big tech job losses were enough to soften the cough of lots of employees this year - and thats exactly how inflation gets fixed.............a round of wage setting negotiations across an economy are informed by restraint because the macro backdrop has weakened.

 

Maybe the Fed has engineered a soft landing..........my thesis was that although they moved quickly last year.......it wasn't quick enough to inform 2023 wage negotiations enough to see the transmission of 2022 CPI into 2023.......perhaps they've broken the chain......BLS data coming up will be key then.

Edited January 11, 2023 by changegonnacome

[Gregmal]

So pay bumps in January will result in the purchase of more medical services and textbooks/college courses? Childcare doesnt happen overnight. 

 

In fact, I'd say the hysteria of the past 12-18 months largely emerged because all the housing and below line items went bananas. Not the top red.