Is The Bottom Almost Here?

[scorpioncapital]

3 minutes ago, Spekulatius said:

Just a reminder that an interest rate of less than 2% has never caused a recession by itself. Even a raise buy 2-4% onkly causes a recession ~35% of the time.

 

So i think the Fed can raise a bit from here and likely won't cause a recession. Now that does not mean that a recession does not occur for other reasons. technically we could be in one - because the 1 st quarter inflation adjusted GDP was down already - but that was because Q1+Q2 2021 were monster quarters with >6% GDP growth. So I guess it's a tough comps recession that most people won't really notice.

 

If raising 2-4% causes recession 35% of the time,

and we have raised now 1.75% total (from 0%),

and we are in recession (seems likely 2 negative GDP quarters or close)

then we can conclude we are in that 35% of the time.

Even more scary it is below the 2-4% raise traditional range - probably due to massive global debt.

This suggests to me we will get less and less raises, and catastrophic financial disasters at lower and lower rates.

negative rates seem they are coming with cbdc? )

[wabuffo]

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

Edited July 1, 2022 by wabuffo

[modiva]

3 minutes ago, Spekulatius said:

Just a reminder that an interest rate of less than 2% has never caused a recession by itself. Even a raise buy 2-4% onkly causes a recession ~35% of the time.

Good point @SpekulatiusEven 4% is historically low. Low enough to spur growth. However, the perception is different. It feels like everything is falling apart...creating fear cycle. Because it is all relative. People have been used to very low rates so it will take time for them to get used to higher but still low rates. 

[Spooky]

4 hours ago, crs223 said:

When this downturn is added to that chart, what will the Reason end up being:

 

A) Everything Bubble Popped

B) Fed hiked to 1.75%

C) WWIII

D) Inflation Returns

E) Everything is fine, not sure why you dumbasses are all freaked out

F) [your idea here]

 

I added (E) for @Gregmal

 

To me the last year and a half has been such an interesting lesson in market psychology, momentum and reflexivity - Mr. Market has shown the full range of his manic depressive tendencies. When the market was going up people were pouring more capital into the fire leading to an obvious speculative frenzy. All it took was for a shift in investor psychology and prices to start declining and all the rats jumped off the sinking ship leading to huge swing in downwards momentum. Now people have been talking about a recession so much it is almost being willed into existence. I think the reasons are less important than the psychology at play.

 

 

[Parsad]

5 hours ago, crs223 said:

When this downturn is added to that chart, what will the Reason end up being:

 

A) Everything Bubble Popped

B) Fed hiked to 1.75%

C) WWIII

D) Inflation Returns

E) Everything is fine, not sure why you dumbasses are all freaked out

F) [your idea here]

 

I added (E) for @Gregmal

 

F)  The Great Unwind (not just government assets but all assets)

[Parsad]

50 minutes ago, Spekulatius said:

Just a reminder that an interest rate of less than 2% has never caused a recession by itself. Even a raise buy 2-4% onkly causes a recession ~35% of the time.

 

So i think the Fed can raise a bit from here and likely won't cause a recession. Now that does not mean that a recession does not occur for other reasons. technically we could be in one - because the 1 st quarter inflation adjusted GDP was down already - but that was because Q1+Q2 2021 were monster quarters with >6% GDP growth. So I guess it's a tough comps recession that most people won't really notice.

 

I like the word "onkly" you've created...a combination of "only" and "frankly"?!    Cheers!

[SharperDingaan]

1 hour ago, scorpioncapital said:

 

If raising 2-4% causes recession 35% of the time,

and we have raised now 1.75% total (from 0%),

and we are in recession (seems likely 2 negative GDP quarters or close)

then we can conclude we are in that 35% of the time.

Even more scary it is below the 2-4% raise traditional range - probably due to massive global debt.

This suggests to me we will get less and less raises, and catastrophic financial disasters at lower and lower rates.

negative rates seem they are coming with cbdc? )

 

Part of the charm to a CBDC, is ability to pay daily interest on the CBDC in your wallet .....

Whatever this rate is, if a commercial bank is to entice the user to keep their short term funds at the bank, they must either match this rate or pay higher; the CB gets control over the deposit rate.

 

However, it also means the rate CANNOT be negative; 'cause if it were - you would either just stuff cash in your mattress (avoid paying interest/fees all together), or always pay from a linked LOC with a permanent negative balance in it 

 

CBDC is coming, but it's not a straight-forward simple roll out.

 

SD

Edited July 1, 2022 by SharperDingaan

[Spekulatius]

31 minutes ago, Parsad said:

 

I like the word "onkly" you've created...a combination of "only" and "frankly"?!    Cheers!

Yes. probably switched my thought mid word while typing. Now that you point it out, I onkly like it.

[Spekulatius]

1 hour ago, modiva said:

Good point @SpekulatiusEven 4% is historically low. Low enough to spur growth. However, the perception is different. It feels like everything is falling apart...creating fear cycle. Because it is all relative. People have been used to very low rates so it will take time for them to get used to higher but still low rates. 

What exactly do you see falling apart? Stonks and crypto?, So if Real estate would go down to 2019 levels, would that warrant a "falling apart" call or can we call it normalization?

 

I don't think many people thought that real estate was cheap in 2019. Maybe COVID-19 just screwed up everything and we go back to where things were before COVID-19 or thereabouts. Or take baseline appreciation rates from 2019 levels. That's a simplified mental model that I think warrants some merit.

Edited July 1, 2022 by Spekulatius

[Gregmal]

9 minutes ago, Spekulatius said:

What exactly do you see falling apart? Stonks and crypto?, So if Real estate would go down to 2019 levels, would that warrant a "falling apart" call or can we call it normalization?

LOL I don’t know why but this really makes me laugh because it resonates. Hits the nail on the head with a sledgehammer. 
 

As a rule of thumb the last year, assuming I’m not buying something with a negative value angle to it, IE office REITs or some shit, or conversely a major positive fundamental shift, the approach I’ve been using is to look to 2019 numbers. Went through it with Brunswick for example. What’s wrong with shit normalizing? Or PCYO…ok so if homes revert back, 30-40% decline in sales prices, they trade roughly at 2018 prices, when shares were 25% higher….big whoop. But no, the bear crowd needs to use “plummet”, crash, falling apart! It’s so hilarious because it’s all about psychology as was just mentioned. It’s about creating a rush and a panic. Fuck those people. If you, like with AIV, underwrite to 2019 cap rates and rents….it works. But we are significantly higher than that on both front and will still be even in we see things “fall apart” lol. This is the kinda shit people need to tune out. Is it the end of the world if Google again trades at prices it did a few years ago? Maybe to some…not to me

Edited July 1, 2022 by Gregmal

[Sinbius]

I would be surprised if  this coming earnings season is not a complete disaster...and the next worse...

[Ulti]

[modiva]

32 minutes ago, Spekulatius said:

What exactly do you see falling apart? Stonks and crypto?, So if Real estate would go down to 2019 levels, would that warrant a "falling apart" call or can we call it normalization?

I don't see things falling apart...but I see a lot of people feeling that things are falling apart, leading to fear and caution. 

[Sinbius]

I agree ...things are not falling apart yet...only -20% from the SnP 500 e -30% Nasdaq...still 29 Shiller PE and recession coming....let's start the real party shall we?

[Gregmal]

I mean if we really want a “reason” for all this, here goes. The governments interfered with the world in response to COVID. They shut shit, made doing normal stuff illegal, and paid people to do nothing. The stock market became a gambling house during this period. The vaccine reminded the world Zoom and Peloton are not $100b companies and Amazon is great but 60x ain’t acceptable. Last year the shit popped but the value crowd took the bag to hold on big tech because they felt dumb missing it the last decade. When the easy returns stopped, people decided it wasn’t good to own a stupid ticker symbol they know nothing about. All of the ones who got that wrong also likely ignored the discussion on rates and inflation, ALL of last year. Now this year, they need a reason why they were wrong and of course it’s because of inflation because obviously car prices and 2x4s are never going to come down in price. But then they do so we need to rinse and repeat the same exercise with anything temporarily effected by the Russian situation. Of course, the market will never adjust. In response, we need to Fed to take drastic actions to curb things those actions will not really address. We need to beg and plead for sanity by taking measures that encourage a recession. Then we need to scream about the perils of “OMG RECESSION!”….all creating self fulfilling feedback loops. No matter how much the overpriced “index” comes down, we need to keep yelling, “JUST GETTING STARTED!”. 
 

 

[Sinbius]

8 minutes ago, Gregmal said:

... No matter how much the overpriced “index” comes down, .... 
 

 

I don't know for other people...for me it matters...or better I look stock by stock...

 

The index is still overvalued...isn't it?

Edited July 1, 2022 by Sinbius

[changegonnacome]

1 hour ago, Gregmal said:

the approach I’ve been using is to look to 2019 numbers.

 

Samesies

[Gregmal]

3 minutes ago, Sinbius said:

I don't know for other people...for me it matters...or better I look stock by stock...

 

The index is still overvalued...isn't it?

Investing isn’t really that hard. Whats hard is processing all the noise. If you are comfortable buying individual stocks, just look for shit you’d have no problem making a private investment in. If you are reacting to day to day prices swings or macro whatever you wanna call it, you’re doing it wrong. This isn’t even my advice, it’s the crux of what Buffett has been doing and saying forever. He openly admits to not giving a shit about the index or macro or whatever, just look for good businesses or assets and if you are comfortable, go for it. 
 

You own a home right? Can you imagine the stupidity of trying to monitor the day to day market of it? LOL hang your head it probably went down 3% today. Or woohoo happy hours on me today the indicators say my home is up 6% this month! Dumb, pointless, and energy consuming. 
 

I generally don’t even look at the indexes except to hedge, but imo they’re probably still overvalued because they are so heavily weighted in the high multiple tech stocks. You know how many product managers have to turn in their performance reports soon? I’d gander we get a bit more, perhaps another wave of widespread index associated selling. But again, is that something to really fret? Basically everything that occurred over the last 12 months or so should equivocate to nothing more than a general run of the mill 15-20% correction. Except we had the whole COVID boost which inflated the peak so you probably wanna wipe that 10-15% off certain general areas of the market as well. So I’m basically in Sanjeevs camp that 30-40% is the new 20%.

[Spooky]

Agree, just ignore the noise, buy great individual companies with a margin of safety if they become available and hold for 2-3 years.

[Sinbius]

I don't understand why you look only at Buffett for insight on how to invest...there are way better investors out there and way more willing to teach something...

 

And you know right that he looks at macro? Don't you? like when there was covid (I mean it is still here...I mean at the start)...he got totally paralyzed by fear...while others were greedy buying left and right...

 

he looks and finds for metrics about macro....his GDP/market cap...Ted talk in latest podcast when they sit and talk about inflation and how it will end...

 

Charli Munger too is also sometimes a macro guy...Alibaba is mainly a macro call...even my mum can see it is undervalued based on fundamentals...it is just about to judge the macro risks and tailwinds....

Edited July 1, 2022 by Sinbius

[Gregmal]

19 minutes ago, Sinbius said:

I don't understand why you look only at Buffett for insight on how to invest...there are way better investors out there and way more willing to teach something...

 

And you know right that he looks at macro? Don't you? like when there was covid (I mean it is still here...I mean at the start)...he got totally paralyzed by fear...while others were greedy buying left and right...

 

he looks and finds for metrics about macro....his GDP/market cap...Ted talk in latest podcast when they sit and talk about inflation and how it will end...

 

Charli Munger too is also sometimes a macro guy...Alibaba is mainly a macro call...even my mum can see it is undervalued based on fundamentals...it is just about to judge the macro risks and tailwinds....

Just a quick search, but he says it all the time

 

 

https://www.cnbc.com/video/2014/10/02/we-dont-look-at-macro-factors-buffett.html

 

trying to invest while fretting the next 10-20% direction is probably one of the worst things an investor can do.

[Gregmal]

I mean if you can do the high level macro shit that’s one thing, but I’m largely just speaking generally about the average investor. 95% of people I’ve seen(just look at the topics and their timing on places like this) just look the flavor of the month news theme and think that’s macro when really their just chasing theirs tails and falling victim to the psychology. I mean look at the “inventory, wages and rates” stuff? Huh? You don’t say? Where were you on the macro 6 months ago? What good is knowing that stuff now?

[Sinbius]

23 minutes ago, Gregmal said:

Just a quick search, but he says it all the time

 

 

https://www.cnbc.com/video/2014/10/02/we-dont-look-at-macro-factors-buffett.html

 

trying to invest while fretting the next 10-20% direction is probably one of the worst things an investor can do.

Isn't the motto "Don't bet against America" a macro call?

he looks at macro...he doesn't try to predict the next half year macro event like he does not try to predict the short term market movement...but he looks at macro...he say it...like when he looks at all the companies he has....if their cost are going up...if inflation is advancing...etc...

When covid started he went full macro...in protection mode....

 

 

Edited July 1, 2022 by Sinbius

[hasilp89]

4 hours ago, 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

want to see if I'm following this, if you can humor me.

treasury/US gvt. is bringing in more than its making. Tax revenue is up big due to economic prosperity while gvt. spending is stable. As a result the gvt. does not need to issue as much debt - reducing the supply of money? Results could include - Stronger USD, lower gold, lower treasury rates, deflation and cooling economy - will reverse / stablize as government spending increases to counteract and tax revenues decline? 

 

[Sinbius]

Here it is I Am Home podcast: Lunch With Warren Buffett, Working for Berkshire Hathaway, and the Future of Investments With Ted Weschler on Apple Podcasts

 

at 45:30....Ted explicitly say that they (we) looked at the russian/ukraine situation and acted on what is a macro call (based on past history on how these things played out in the past)...

 

I remember also other stuff where it is clear that they look at macro...not going to find all of them...

 

Edited July 1, 2022 by Sinbius