Start of a new era

[davismills]

The Feds policy reminds me of the old Air Force saying. "Measure it with a micrometer, mark it with a pencil and cut it with an ax"

 

[aja8888]

Concerning your higher mortgage rate thoughts. I just rolled into a 2.75% 15 yr. with no intentions of leaving. But I wonder in say 5-10 years (if mortgages stay at this level or higher) when people want to “move up” or “on” will these people with the same low mortgages get “trapped” in their present house?
Unwilling to give up a sub 3% note for a 5.5% or 6%? It sure would make me think twice.

I'm sure that will happen. A lot of folks either bought a house or refinanced it for some really low rate. A friend of mine is a mortgage broker and during the height of all this madness told me he had 80 refi applications pending at once.

I suspect those with low interest loans will stay put as long as they can when rates go up. Heck, they are 5+% already and the real fireworks have not started yet!

Couple the low rates with a big loss in home value that will be coming and some of these folks with mortgages may become underwater with their loan.

 

[MichaelB]

If hedge funds have been buying up residential real estate then perhaps they will have to unload it. This might be a good thing.

You’re right that it would be a good thing. I fear it will not happen, or at least they will dump other assets first, because residential real estate generates cash flow, and they first will be exiting investments that generate no cash.

 

[copyright1997reloaded]

You’re right that it would be a good thing. I fear it will not happen, or at least they will dump other assets first, because residential real estate generates cash flow, and they first will be exiting investments that generate no cash.

Funny thing about when assets are dumped: When things are going bad, good assets get dumped...because they can be (i.e. they provide liquidity in exiting). But I would agree, it usually is delayed, thus "Eventually the generals get shot".

 

[Koolau]

Here's another issue I have with the Dimon quote: What does he mean by "hurricane"? It's a term that could mean any sort of moderately bad thing...is it really high inflation? Job layoffs? GDP contraction? Bitcoin failing? More supply chain issues? It could be any of those or any number of other things, of any moderately bad degree for any duration of time sometime in the near future.

Let's face it - Dimon nor anyone else knows exactly what's gonna happen. He just believes its gonna be "bad." How bad? He doesn't know - just like you don't know how bad a hurricane is gonna be. You just know it's gonna be worse than "business as usual." He could have used any number of other more or less nebulous terms: Train wreck. S/// show. Cluster Flop. Etc.

I just watched Dimon explain what HE meant by a hurricane. It's like when a hurricane's coming and you don't know it. The weather might be bright and sunny, you go to the beach, you don't know to take cover and then the hurricane hits. It takes you by surprise. So jobs are good. The economy is still reasonably strong. People have savings. But what's it gonna be like in 6 months. Don't know, but I'm betting its gonna be worse. Dimon think it's gonna be "bad." How else should he say it than hurricane? He doesn't know what the inflation rate will be. He (nor anyone else) knows what unemployment will be. He (nor anyone else) knows what the stock market is going to be doing.

SO, yeah, "hurricane" isn't precise - but then again, there's no way to predict a hurricane and that's what he's suggesting about the economy.

Do you have a better term that covers the concept of "now it's good but soon it won't be" in terms of the economy. I don't know a financial term that one would use that describes the uncertainty of the outcome but the near certainty (in Dimon's mind) that it's coming. YMMV

 

[Linney]

Let's face it - Dimon nor anyone else knows exactly what's gonna happen. He just believes its gonna be "bad." How bad? He doesn't know .......

I was reading portions of this news article about Jamie Dimon to my husband and then laughed out loud when I saw this headline in the next article:

"Elon Musk has 'super bad feeling' about economy...." Um.... Super Bad? !!

Of course, then next headline read something to the effect of "Bear Market Bottom reached, markets heading back up"

 

[Koolau]

I was reading portions of this news article about Jamie Dimon to my husband and then laughed out loud when I saw this headline in the next article:

"Elon Musk has 'super bad feeling' about economy...." Um.... Super Bad? !!

Of course, then next headline read something to the effect of "Bear Market Bottom reached, markets heading back up"

Yes, Elon Musk is feeling "Super Bad" enough to shed 10% of his work force. I think that counts as "super bad"

 

[Markola]

Agree Dimon can’t know for sure, so his “hurricane” is a Rorschach test for us to paint our fears on. What we know includes:

Tech has been dragging the rest of the S&P up for years but now tech has nosedived.

Inflation is hitting even G20 economies hard while real interest rates are still nearly essentially negative.

However, though Central bank tightening is underway rate hikes can only be modest and symbolic, compared to inflation, without causing a recession, since the economy is addicted to easy money.

Oil, wheat, nickel and more commodities are threatened by the shooting war in Europe.

Parts of the world’s manufacturing center, China, has been locked down.

Covid is not done with us.

The most terrifying of all is that Jim Cramer tweeted yesterday that we won’t have a recession. Twitter reacted that his statement means one is guaranteed, LOL.

https://twitter.com/x/status/1532816862182092800

 

[GenXguy]

Yes, Elon Musk is feeling "Super Bad" enough to shed 10% of his work force. I think that counts as "super bad"

I thought it was just 10% of the "salaried" work force, but some sources haven't mentioned that.

 

[MRG]

I thought it was just 10% of the "salaried" work force, but some sources haven't mentioned that.

The tweet I read said salaried only. Explicitly mentioned was the people on production weren't being cut.

 

[Koolau]

The most terrifying of all is that Jim Cramer tweeted yesterday that we won’t have a recession. Twitter reacted that his statement means one is guaranteed, LOL.

https://twitter.com/x/status/1532816862182092800

I love it!

Years ago, I'd occasionally turn on Cramer 'cause he could be entertaining. Now of days, I can't stand the sound of his voice. Add to that his track record and he fits in pretty well where he is. YMMV

 

[MichaelB]

Tech has been dragging the rest of the S&P up for years but now tech has nosedived.

This affects the equities market. a how does it affect the goods and services producing economy? Real businesses that generate profit and cash are not threatened by an increase in rates.

However, though Central bank tightening is underway rate hikes can only be modest and symbolic, compared to inflation, without causing a recession, since the economy is addicted to easy money.

Is the US economy addicted to easy money? Does this easy money benefit the producers of goods and services, or does it benefit the investment community?

Oil, wheat, nickel and more commodities are threatened by the shooting war in Europe.

The US is a net exporter of petroleum products, wheat and most other agricultural commodities. Russian commode export disruptions jeopardize other parts of the world, but much less so the U.S.

Parts of the world’s manufacturing center, China, has been locked down.

But not a manufacturer of high value capital goods, exceptions being perhaps to solar products.

Covid is not done with us.

But it is much less dangerous for vaccinated people.

The most terrifying of all is that Jim Cramer tweeted yesterday that we won’t have a recession. Twitter reacted that his statement means one is guaranteed, LOL.

https://twitter.com/x/status/1532816862182092800

Can’t argue against that …

Aside from Cramer, a long list of things that will impact the US economy, but there’s no reason to think it will lead to a recession. They will, however, cause some inflated risk assets to lose value. How is that bad for us?

 

[SecondCor521]

Let's face it - Dimon nor anyone else knows exactly what's gonna happen. He just believes its gonna be "bad." How bad? He doesn't know - just like you don't know how bad a hurricane is gonna be. You just know it's gonna be worse than "business as usual." He could have used any number of other more or less nebulous terms: Train wreck. S/// show. Cluster Flop. Etc.

I just watched Dimon explain what HE meant by a hurricane. It's like when a hurricane's coming and you don't know it. The weather might be bright and sunny, you go to the beach, you don't know to take cover and then the hurricane hits. It takes you by surprise. So jobs are good. The economy is still reasonably strong. People have savings. But what's it gonna be like in 6 months. Don't know, but I'm betting its gonna be worse. Dimon think it's gonna be "bad." How else should he say it than hurricane? He doesn't know what the inflation rate will be. He (nor anyone else) knows what unemployment will be. He (nor anyone else) knows what the stock market is going to be doing.

SO, yeah, "hurricane" isn't precise - but then again, there's no way to predict a hurricane and that's what he's suggesting about the economy.

Do you have a better term that covers the concept of "now it's good but soon it won't be" in terms of the economy. I don't know a financial term that one would use that describes the uncertainty of the outcome but the near certainty (in Dimon's mind) that it's coming. YMMV

If you're actually asking, I think if he is sincere about making predictions, then he should make literal, specific predictions that are testable and actionable. Some random examples:

1. "I think unemployment is going to hit double digits in the fall" might affect someone's job search or job activities
2. "I think the S&P will be under 3500 at year end" might affect someone's investment decisions
3. "I think mortgage rates will be 7% for 30 year fixed products by September" might affect someone's mortgage-related decisions

I'll be blunt: I doubt that his predictions are altruistic; I think they are self-serving somehow. I also doubt (as it seems you do) that his predictions are going to be accurate or useful. I think he is being intentionally vague so that either (a) he has a better chance of being able to claim he was right when some bad thing happens sometime, or (b) he can reasonably assert a defense for anyone who might choose to rely on his "prediction" (or both).

Hurricanes rarely take anyone by surprise anymore, so if that's part of his metaphor it's pretty lousy. Also I would be shocked if any of the regulars on this board would be surprised by something bad happening soon in the US economy.

 

[daylatedollarshort]

Inflation is *reportedly* 8+%. So far they have raised the FFR 0.75% in the last year and are looking at a couple of 0.5% raises in the following months. Yes, they are doing something and I am sure it will be painful going forward, like a slow roasting on a spit.

Wait until mortgage interest rates go much higher and see the screaming that will happen when the inflated house prices start dropping like apples off a tree. That's what these politicians are scared of.......a quick drop in asset prices that will surely come with higher interest rates.

I don't think the politicians care about the stock and bond markets (they probably already went to cash - re. two FED governors quietly resigned over their insider trading last few months).

I read the federal funds rate is now .75 - 1%, last CPI numbers were 6.3%. It will be interesting to see if the last lower CPI numbers were the start of a trend or just a blip. At least one fed member said 2.5% by the end of year would be "prudent". The rate changes so far have already cause a pretty big increase in mortgage rates and a drop in home sales.

 

[aja8888]

I read the federal funds rate is now .75 - 1%, last CPI numbers were 6.3%. It will be interesting to see if the last lower CPI numbers were the start of a trend or just a blip. At least one fed member said 2.5% by the end of year would be "prudent". The rate changes so far have already cause a pretty big increase in mortgage rates and a drop in home sales.

Yes, I also believe the housing bubble will be deflated, but house prices are "sticky" and it will take some time for the price reductions to occur. It took about two years after 2008 - 2009 to get them really down, and that was a much different situation (too many subprime mortgages).

 

[copyright1997reloaded]

Real businesses that generate profit and cash are not threatened by an increase in rates.
...
Is the US economy addicted to easy money? Does this easy money benefit the producers of goods and services, or does it benefit the investment community?

Aside from Cramer, a long list of things that will impact the US economy, but there’s no reason to think it will lead to a recession. They will, however, cause some inflated risk assets to lose value. How is that bad for us?

No time to answer all of your post, but here are a few items:

Every business assesses investments based on criteria such as NPV. The cost of capital (i.e. rates) are a fundamental input to that calculation.

Easy money is detrimental to an economy because it incentives investment in projects with a poor outlook. One example of this has been the SPAC craze over the last couple/few years. Hayek wrote about how easy money (credit driven expansion) would lead to unintended consequences, particularly in overestimating returns on long term projects, something he called malinvestments.

Finally, Q1 GDP was a surprise negative print. If the Q2 GDP growth is negative, we will officially be in a recession.

 

[corn18]

snip

Finally, Q1 GDP was a surprise negative print. If the Q2 GDP growth is negative, we will officially be in a recession.

Yup. We'll have to wait a month to find out if we're in a recession. July should be an interesting month for data. Watch unemployment rate and GDP.

 

[Helen]

I just finished watching a documentary (free with Prime) called The Flaw about the housing market crash.

One of the messages I came away with was that the real root cause was income inequality. If this was a big factor then I think we are still in trouble.

One source I looked up recently claims currently in the US the bottom 90% of families own less than one-quarter of all wealth.

I've attached a screenshot from the documentary showing income distribution in the US from 1920 to 2007.

 

[corn18]

I just finished watching a documentary (free with Prime) called The Flaw about the housing market crash.

One of the messages I came away with was that the real root cause was income inequality. If this was a big factor then I think we are still in trouble.

One source I looked up recently claims currently in the US the bottom 90% of families own less than one-quarter of all wealth.

I've attached a screenshot from the documentary showing income distribution in the US from 1920 to 2007.

That seems like a stretch to blame the housing crash during the great recession on income inequality. It was banks doing stupid things.

Income inequality will fix itself. Always does. Sometimes it requires a revolution, sometimes just a depression. France went with a revolution. We went with a depression.

Redistributing wealth via legislation is socialist/communist which is fine if that's what we want our economy to be based on.

 

[Koolau]

If you're actually asking, I think if he is sincere about making predictions, then he should make literal, specific predictions that are testable and actionable. Some random examples:

1. "I think unemployment is going to hit double digits in the fall" might affect someone's job search or job activities
2. "I think the S&P will be under 3500 at year end" might affect someone's investment decisions
3. "I think mortgage rates will be 7% for 30 year fixed products by September" might affect someone's mortgage-related decisions

I'll be blunt: I doubt that his predictions are altruistic; I think they are self-serving somehow. I also doubt (as it seems you do) that his predictions are going to be accurate or useful. I think he is being intentionally vague so that either (a) he has a better chance of being able to claim he was right when some bad thing happens sometime, or (b) he can reasonably assert a defense for anyone who might choose to rely on his "prediction" (or both).

Hurricanes rarely take anyone by surprise anymore, so if that's part of his metaphor it's pretty lousy. Also I would be shocked if any of the regulars on this board would be surprised by something bad happening soon in the US economy.

Actually, in the piece I saw, he did make some predictions, but I don't recall any numbers.

I agree that his predictions are not totally altruistic. Just like political folks predictions and pronouncements are not totally altruistic. We all have our biases and vested interests. That doesn't make him wrong AND he has (apparently) come to be accepted as a go-to person on the economy. Many folks here treat Buffett like a god. Do you think HE is unbiased?

I agree Dimon is hedging his bets by using a term we understand (hurricane) but find difficult to quantify - especially since damage can range from slight to catastrophic. It is however descriptive enough to suggest it's relatively rare, unpredictable, able to sneak up on you (in the old days - not now, of course.)

Heh, heh, covering your posterior as you suggest he is doing is normal and a good idea if you have any liability.

Funny, it sounds like you think I am a "fan" of Dimon. I am not. I never really knew much about him. I just thought he was an impressive talking head on a subject that impacts my retirement. He stated things in a way that while "vague" was evocative.

If Dimon is a god like Buffett, I'm not aware of it. I don't hang on his every word like some folks here do Buffett. Dimon has, however, been all over the financial news in the past couple of days. Believe him or call him a SOB, he's getting press. We often discuss financial opinions here. YMMV

 

[Helen]

That seems like a stretch to blame the housing crash during the great recession on income inequality. It was banks doing stupid things.

Income inequality will fix itself. Always does. Sometimes it requires a revolution, sometimes just a depression. France went with a revolution. We went with a depression.

Redistributing wealth via legislation is socialist/communist which is fine if that's what we want our economy to be based on.

From the chart I posted, I'm not seeing how income inequality fixes itself.

 

[Koolau]

That seems like a stretch to blame the housing crash during the great recession on income inequality. It was banks doing stupid things.

I submit it was regulators (at the behest of politicians) relaxing reasonable restriction of banks offering loans. Anyone recall no-doc loans and bundling of toxic debt as A rated bonds? What could possibly go wrong?

 

[razztazz]

That seems like a stretch to blame the housing crash during the great recession on income inequality. It was banks doing stupid things.

Income inequality will fix itself. Always does. Sometimes it requires a revolution, sometimes just a depression. France went with a revolution. We went with a depression.

Redistributing wealth via legislation is socialist/communist which is fine if that's what we want our economy to be based on.

The inequality is already caused by Government legislation at the behest of those who already have the most. What are the rules and who do they work for? That is the question. It's socialism/communism for The Rich.

Banks doing stupid things? Why? If the distribution was equitable/workable/efficient/ productive, whatever you'd like to call it, people would be able to buy houses without the fake money, the special programs that exist to back-fill inefficiencies in the economic system in the first place, and banks wouldn't have to do anything but banking. But people can't just buy a house without all the torquing and back-filling because the wealth distribution system isn't working.

 

[razztazz]

I submit it was regulators (at the behest of politicians) relaxing reasonable restriction of banks offering loans. Anyone recall no-doc loans and bundling of toxic debt as A rated bonds? What could possibly go wrong?

It was regulators at the behest of The Money Interests. That's banks, that's big business, that yes, "The Rich" because they own all that. Politicians are just the go-between. Why? because money rules elective government in this country. Why? Because of faulty wealth distribution and a rather rococo or whimsical idea of what constitutes "freedom" among those who get to invent definitions. The marketplace and economy are owned and operated by people. And it ain't 90% of The People. Politicians don't pull this out of a hat. Why would they have to? And anything they actually do that appears to help "the people" is just a fig leaf to cover for other economic failures that others are benefiting from. Let's face it. If the system worked we wouldn't never discuss these things.

 

[Markola]

Aside from Cramer, a long list of things that will impact the US economy, but there’s no reason to think it will lead to a recession. They will, however, cause some inflated risk assets to lose value. How is that bad for us?

I agree there’s a pretty strong case that, in addition to helping workers and businesses, much of the bipartisan helicopter money and Fed rate cuts starting March 2020 went straight into asset prices. How else can we explain booming stock and home prices during a shut down economy? Hopefully, we’re seeing the air come out of inflated P/Es and not from the real economy.