Start of a new era

[Koolau]

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

Okay, I found a couple of Dimon YouTubes. The first is from early May. Sounds like Dimon is more confident than he is today (a day or two ago in the second YT)

As someone pointed out, Dimon is self-serving. Well, he DOES work for JPMorgan. That's clear, and if not, he makes it clear. I don't mind a bias as long as it's expressed.

You can agree or disagree with Dimon but I suggest he covers most of the issues facing the economy and the nation and Europe. His take: Job 1 of any gummint is natl. security and he believes we have forgotten that. He also suggests that we (USA) is it's own worst enemy (policies against energy production and making ourselves dependent on adversaries because they (may) supply essentials at a cheaper cost.)

I think, in just one month, he has gone from cautiously optimistic to pessimistic on the economy. Decide for yourself if you are interested. I question a few of his positions, but in total, he seems credible to me - but as always, YMMV.

By the way, I stated before that I'm not a "fan" and in fact, the sum of these two videos is way MORE than I've ever seen from Dimon. IOW, I've seen him a couple of times in the past but only vaguely knew who he was. He has hit the Financial Porn channels of late and has found his way into these pages. Since he has, I present the following NOT as a Dimon apologist but as a reference to those have seen the "excitement" and wonder what all the excitement is about. Again, YMMV.

 

[Koolau]

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.

Okay, I agree that rich people have always been doing what rich people do - trying to make more money. But everyone knows that. The rich can buy politicians and do whatever it takes to get more money. But blaming THEM is like blaming the tiger in the zoo who bites off the kids arm - when it was the parents (in this case, the bought politicians) who let the kid stick his arm in the cage.

No matter how much money someone gives to politicians, WE elect politicians to do work for us (the 90% you mention.) When they do NOT, it's not even the rich peoples' fault. Its OUR fault for electing them. We KNOW the rich people are buying their politician and yet we vote for them. Don't say we don't have a choice because "every body does it - bribe politicians, that is." It might take a while, but if we forget parties and vote against the money politicians, things will start to change. It's messy and requires US to do our homework but I reject blaming the money people - they follow their instincts. Politicians are supposed to rise above their instincts and vote their best nature. We keep electing those with the most money and that's on US IMHO. Obviously, this is a subject in which YMMV.

 

[corn18]

Watch this video of Milton Friedman's Free to Choose series from 1980. S1E9 if you have Amazon prime. Free YT video link below. It freaked me out how relevant it is to this era.

 

[MichaelB]

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.

i agree with that conclusion. Income inequality on a global level, which has generated serious imbalances, which in turn were the root cause of all the excess lending in the early to mid aughts, which ended with the great financial crisis.

Global imbalances are back. A decade ago they led to excess lending in housing. This time they have led to excess investing and speculating in high risk ventures and assets. So, more like ‘00 than ‘08 - so far.

Income inequality does not fix itself. It is self sustaining until it collapses. The fiscal actions around the world over the last 2 years represent the greatest effort to channel income to the bottom 50% we have seen in decades, and Fed actions to remove liquidity and increase rates, threaten to deflate the wealth bubble shown in Helen’s chart. Could thst be why Jamie Dimon et. al. are crying out so loudly?

 

[MichaelB]

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

The two quarters of negative growth does not a recession make. From the NBER (here)

The NBER's traditional definition of a recession is that it is a significant decline in economic activity that is spread across the economy and that lasts more than a few months.

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.

I agree.

 

[Mr._Graybeard]

One of my favorite analyses of the 2008 mortgage bubble collapse is Planet Money's "The Giant Pool of Money." In short -- the bubble of 2008 came from the same source that produced our current predicament -- excessively low interest rates. Savers, including large quasi-governmental institutions in China, had large sums that couldn't produce a reasonable return in debt markets. So they turned to what was then a relatively safe sector: the mortgage market.

The problem was, the mortgage market wasn't big enough to accommodate this huge influx of cash. The answer was to take on riskier loans. There was so much money available, the loans became absurdly risky, even fraudulent. From a 2008 FBI report: " Subprime mortgage issues remain a key factor in influencing mortgage fraud directly and indirectly. The subprime share of outstanding loans has more than a doubled since 2003 putting a greater share of loans at higher risk of failure.

"Additionally, during 2007 there were more than 2.2 million foreclosure filings reported on approximately 1.29 million properties nationally, up 75 percent from 2006. The declining housing market affects many in the mortgage industry who are paid by commission. During declining markets, mortgage fraud perpetrators may take advantage of industry personnel attempting to generate loans to maintain current standards of living."

I remember storefront mortgage brokerages popping up all over the place. The brokers there got paid when they sold mortgages to the secondary market. Once they got paid, it didn't matter to them what happened to the paper. You all remember what happened after that.

 

[aja8888]

One of my favorite analyses of the 2008 mortgage bubble collapse is Planet Money's "The Giant Pool of Money." In short -- the bubble of 2008 came from the same source that produced our current predicament -- excessively low interest rates. Savers, including large quasi-governmental institutions in China, had large sums that couldn't produce a reasonable return in debt markets. So they turned to what was then a relatively safe sector: the mortgage market.

The problem was, the mortgage market wasn't big enough to accommodate this huge influx of cash. The answer was to take on riskier loans. There was so much money available, the loans became absurdly risky, even fraudulent. From a 2008 FBI report: " Subprime mortgage issues remain a key factor in influencing mortgage fraud directly and indirectly. The subprime share of outstanding loans has more than a doubled since 2003 putting a greater share of loans at higher risk of failure.

"Additionally, during 2007 there were more than 2.2 million foreclosure filings reported on approximately 1.29 million properties nationally, up 75 percent from 2006. The declining housing market affects many in the mortgage industry who are paid by commission. During declining markets, mortgage fraud perpetrators may take advantage of industry personnel attempting to generate loans to maintain current standards of living."

I remember storefront mortgage brokerages popping up all over the place. The brokers there got paid when they sold mortgages to the secondary market. Once they got paid, it didn't matter to them what happened to the paper. You all remember what happened after that.

Yes, the subprime mortgage debacle was the trigger for the GFC. I recall banks packaging up the bad mortgages to sell as an investment and the rating agencies rating them A or better.

When the banks and other financial institutions started to fail, the FED jumped in and recapitalized them. What a mess.

So you all know, the FED's main charge is to keep the banking system intact and that's really it. Everything is done to protect the bankers! Messing with the economy is an extension of their original duties. But, then again, whomever controls the Gold, makes the rules.

 

[copyright1997reloaded]

The two quarters of negative growth does not a recession make. From the NBER (here)

My definition: A recession is when your neighbor loses their job, a depression is when you lose your job.

So NBER can (after the fact) declare us in a recession even with a positive 2Q print. The current 2Q GPDNow estimate as of 6/1 is 1.3% (and falling).

Source: https://www.atlantafed.org/-/media/documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf. If it stands as is, we will have had negative GDP growth for the first half of the year.

The truth of it is that we will know in retrospect, as the numbers get modified/adjusted, and NBER declarations are after the fact.

My prediction: It will become quite apparent that we are in recession even to those in the room sipping coffee w/fire all around (h/t to the 'This is fine" meme). In the meantime, people can and will talk about how it really isn't deteriorating, that employment will remain robust, that corporate are great and growing, and so on. All I can say is that I distinctly remembering such talk working in the financial district in 2007.

 

[Mulligan]

My definition: A recession is when your neighbor loses their job, a depression is when you lose your job.



So NBER can (after the fact) declare us in a recession even with a positive 2Q print. The current 2Q GPDNow estimate as of 6/1 is 1.3% (and falling).



Source: https://www.atlantafed.org/-/media/documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf. If it stands as is, we will have had negative GDP growth for the first half of the year.



The truth of it is that we will know in retrospect, as the numbers get modified/adjusted, and NBER declarations are after the fact.



My prediction: It will become quite apparent that we are in recession even to those in the room sipping coffee w/fire all around (h/t to the 'This is fine" meme). In the meantime, people can and will talk about how it really isn't deteriorating, that employment will remain robust, that corporate are great and growing, and so on. All I can say is that I distinctly remembering such talk working in the financial district in 2007.

I remember that definition of a recession and depression. I think I first heard that from Ronald Reagan when he was first running for president. So how does us retired folk ever encounter a recession/ depression again then under that definition I wonder?

 

[SecondCor521]

I remember that definition of a recession and depression. I think I first heard that from Ronald Reagan when he was first running for president. So how does us retired folk ever encounter a recession/ depression again then under that definition I wonder?

A recession is when your FIRE friend goes back to work. A depression is when you go back to work.

 

[Dtail]

A recession is when your FIRE friend goes back to work. A depression is when you go back to work.

Very good.

 

[Mulligan]

A recession is when your FIRE friend goes back to work. A depression is when you go back to work.

Ok, I think that would be very applicable to a retiree. And would meet my personal definition also!

 

[NW-Bound]

I dunno about going back to work.

Just check on Google Flights for airfare to France in August. Last week, Google Flights sent me a notification that a premium economy seat for my tentative trip went from $2414 to $2626.

I just went to Google Flights to look for pricing in September. I can get seats for $1580.

Perhaps I can go later. People will already be back to work.

 

[Helen]

One of my favorite analyses of the 2008 mortgage bubble collapse is Planet Money's "The Giant Pool of Money." In short -- the bubble of 2008 came from the same source that produced our current predicament -- excessively low interest rates. Savers, including large quasi-governmental institutions in China, had large sums that couldn't produce a reasonable return in debt markets. So they turned to what was then a relatively safe sector: the mortgage market.

The problem was, the mortgage market wasn't big enough to accommodate this huge influx of cash. The answer was to take on riskier loans. There was so much money available, the loans became absurdly risky, even fraudulent. From a 2008 FBI report: " Subprime mortgage issues remain a key factor in influencing mortgage fraud directly and indirectly. The subprime share of outstanding loans has more than a doubled since 2003 putting a greater share of loans at higher risk of failure.

"Additionally, during 2007 there were more than 2.2 million foreclosure filings reported on approximately 1.29 million properties nationally, up 75 percent from 2006. The declining housing market affects many in the mortgage industry who are paid by commission. During declining markets, mortgage fraud perpetrators may take advantage of industry personnel attempting to generate loans to maintain current standards of living."

I remember storefront mortgage brokerages popping up all over the place. The brokers there got paid when they sold mortgages to the secondary market. Once they got paid, it didn't matter to them what happened to the paper. You all remember what happened after that.

Here is a link to the audio and transcript, The Giant Pool of Money:

https://www.thisamericanlife.org/355/transcript

A movie based on the 2008 melt down, Margin Call:

https://smile.amazon.com/Margin-Cal...stant-video&sprefix=,instant-video,389&sr=1-1

A documentary on the 2008 melt down, The Flaw:

https://smile.amazon.com/Flaw-David...deo&sprefix=the+flaw,instant-video,261&sr=1-1

 

[copyright1997reloaded]

A recession is when your FIRE friend goes back to work. A depression is when you go back to work.

Excellent!

 

[NW-Bound]

...

I also saw Jamie Dimon quoted on the Web as saying a hurricane was coming. However, I did not know the full context of his quote.

Here's a bit more details, as narrated on a Web page that I just saw:

JPMorgan CEO Jamie Dimon was sounding the alarm last week. He said, going all the way back to 2010, the major buyers of U.S. Treasuries have been central banks, foreign exchange managers, and banks who had to own a certain percentage of treasuries for regulatory reasons. And all of these buyers are topped up, as Dimon puts it. Their plates are full. And that's a massive change in the flow of funds around the world. Diamond says his bank is preparing for a hurricane of volatility. That's not the kind of tune we're used to hearing from Jamie Dimon.

Behind that hurricane is a massive wave of global debt, about $305 trillion worth as of the first quarter of 2022. That's an unfathomable number, I know, but let's understand what that means. Global debt covers everything from borrowing by governments, businesses, and households. All the debt that's out there on the record. It was but a mere $226 trillion in 2020. But then COVID-19 hit and the spending was set free. It was the second largest percentage increase in federal spending since World War II. But with rates rising, inflation persistently high, and interest on a lot of that debt coming due, belts are going to tighten and the risk of default rises. The poorer you are, whether you're a country, a company, or a person, the harder it gets to pay those loans. To meet those debt payments, at least 100 countries will have to reduce spending on health, education, and social protection, according to the International Monetary Fund...

For the full article, see: https://www.investopedia.com/the-ex...te-yahoo&utm_source=yahoo&utm_medium=referral

 

[dheb]

If memory serves, during the 2008 crash Home Depot and Lowes did very well because so many people had little choice but to stay where they were and make the best of their current house.

But I'm an index guy so this is academic to me.

If going from $65/share in Dec '99 to $18 a share in May '09 is "very well," then, yeah, Home Depot did great. Stock charts are easy to look up.

 

[RobLJ]

So, why exactly have we needed a program/policy like "quantitative easing" for 10+ years?

The short answer is that the 2007 Housing Crash could have been the Great Depression, and in response the Fed pulled out all stops (probably appropriately).

Once quantitative easing was started, it was almost impossible for the Fed to reverse, given the impact on the Market and the economy. Just like Volker crashed the Carter (and the first two years of the Reagan) economy, this will probably crash the "Biden" economy; the Fed is far more important than the President, no matter what Party. Same for energy prices. Inflation has caused the reversal; remember due to demographics and imports/China we have been in disinflation for more than 20 years.

This will not go well for housing prices (If you own one and are wanting to cash out) or employment, but then we are at full employment. The other knock-on effects will be interesting, whatever they are. This assumes the Fed does not reverse in a year, which is a big assumption. I'm sure someone on the blawg or on the Wall Street Journal knows a lot more than me, but they all seem to be just winging it, like me, although undoubtedly at least some are more informed than me.

 

[razztazz]

The short answer is that the 2007 Housing Crash could have been the Great Depression, and in response the Fed pulled out all stops (probably appropriately).

Once quantitative easing was started, it was almost impossible for the Fed to reverse, given the impact on the Market and the economy. Just like Volker crashed the Carter (and the first two years of the Reagan) economy, this will probably crash the "Biden" economy; the Fed is far more important than the President, no matter what Party. Same for energy prices. Inflation has caused the reversal; remember due to demographics and imports/China we have been in disinflation for more than 20 years.

This will not go well for housing prices (If you own one and are wanting to cash out) or employment, but then we are at full employment. The other knock-on effects will be interesting, whatever they are. This assumes the Fed does not reverse in a year, which is a big assumption. I'm sure someone on the blawg or on the Wall Street Journal knows a lot more than me, but they all seem to be just winging it, like me, although undoubtedly at least some are more informed than me.

Thanks for the extended exegesis. So, you think this inflation thing will essentially come a cropper due to the efforts we can expect to curtail it and this will lead to a semi-depression and unemployment will go up (if not actually soar) and house prices will go down or at least stagnate for some significant period of time? That's how I'm reading the first sentence of your last paragraph.


PS: I was just being glib with my question. I know why. The economy was whacked beyond repair and couldn't be fixed. We've been running next to the car with an air pump keeping the tire inflated for 12 years

 

[RobLJ]

Thanks for the extended exegesis. So, you think this inflation thing will essentially come a cropper due to the efforts we can expect to curtail it and this will lead to a semi-depression and unemployment will go up (if not actually soar) and house prices will go down or at least stagnate for some significant period of time? That's how I'm reading the first sentence of your last paragraph.


PS: I was just being glib with my question. I know why. The economy was whacked beyond repair and couldn't be fixed. We've been running next to the car with an air pump keeping the tire inflated for 12 years

Ha, more like a retarded exegesis, rather than extended. I suspect inflation will be a 1-2 year event, with then a resumption of disinflation, and house prices will stagnate or reverse, until interest rates reverse. Unemployment has no where to go but up, but I think the labor shortage with the boomers like me retiring (either in employment or literally) will continue, so I don't expect high unemployment (edit--extended high unemployment).

A debt crisis, however, would put all of the above questionable, but I don't see a debt event like 2007 since I don't see a Volker increasing rates to 16%, as when I first bought a house. Hee! The good thing about being an old fart is being able to remember when things were worse.
Another edit: house disinflation will lead the taming of inflation, then taming of wage increases. An "interesting" question is when the Fed will reverse interest rate raises; I have no clue.

 

[Koolau]

Thanks for the extended exegesis. So, you think this inflation thing will essentially come a cropper due to the efforts we can expect to curtail it and this will lead to a semi-depression and unemployment will go up (if not actually soar) and house prices will go down or at least stagnate for some significant period of time? That's how I'm reading the first sentence of your last paragraph.


PS: I was just being glib with my question. I know why. The economy was whacked beyond repair and couldn't be fixed. We've been running next to the car with an air pump keeping the tire inflated for 12 years

I'm no economist and I haven't been in an econ class since 1969. But I have been through several FED interventions so I think I can see what's coming. Interest rates are being increased and that will make monthly payments for house purchases go higher, so, yes, I believe housing prices will go down. Every other recession I've seen (when caused by the FED to lower inflation) have caused unemployment to go up. Probably not a semi depression - just a recession.

Again, no expert on this subject and certainly no exegesis. Just seen it all before. YMMV

 

[daylatedollarshort]

I'm no economist and I haven't been in an econ class since 1969. But I have been through several FED interventions so I think I can see what's coming. Interest rates are being increased and that will make monthly payments for house purchases go higher, so, yes, I believe housing prices will go down. Every other recession I've seen (when caused by the FED to lower inflation) have caused unemployment to go up. Probably not a semi depression - just a recession.

Again, no expert on this subject and certainly no exegesis. Just seen it all before. YMMV

It is starting - Lumber prices fall to their lowest level in 2022 as the highest mortgage rates in 13 years dent housing demand
https://finance.yahoo.com/news/lumber-prices-fall-lowest-level-182027441.html

 

[corn18]

This inflation is not being caused by supply and demand. It is being caused by too much money. There is a difference. The only way to make it go away is to remove liquidity. That means the Fed has to raise rates, a lot, and the government needs to stop printing money.

My guess is they don't have the constitution to do what needs to be done, so we are at the start of an early 70's decade. Reducing demand will not lower inflation.

 

[Koolau]

This inflation is not being caused by supply and demand. It is being caused by too much money. There is a difference. The only way to make it go away is to remove liquidity. That means the Fed has to raise rates, a lot, and the government needs to stop printing money.

My guess is they don't have the constitution to do what needs to be done, so we are at the start of an early 70's decade. Reducing demand will not lower inflation.

In my best Willie Nelson voice: "The Party's Over."

 

[WWDog]