How does this decline compare to previous recessionary ones?

[GravitySucks]

I consider all the growth from 2020 to 2022 as artificially manufactured by the Fed and Government policies. And I'm glad they did it, rioting and bankruptcy was kept to a minimum.

Looking at the S&P from January 2020 to now and it's about even considering inflation. Hoping the raising rates stunts inflation growth and ends the "War on Savers"

 

[Freedom56]

You guys are too pessimistic. The situation today is nothing like 2008/2009. What we have is a supper bubble caused by stimulus to the tune of $4 trillion in 2020 and another $2 trillion in 2021. The reality that there is no further stimulus coming to support the bubble is one of the primary reasons why the market is falling hard. Short sellers are focused on four stocks now that are overweight the S&P 500 and NASDAQ - Apple, Microsoft, Amazon, and Tesla. Easy money has caused massive bubbles in these four stocks. They are no means bad companies, but they are massively overpriced. You will know when the market has bottomed when those four stocks trade at normalized valuations and near bankrupt companies like GameStop, AMC, and Bed Bath and Beyond stop leading market rallies.
These are times you should be putting your emotions aside and getting your shopping list ready for tax loss selling season that will start in about 30 days. Well managed companies will survive and prosper, the bad ones in the end will burn investors as they always have. The "war on savers" is no on pause for the moment.

 

[acronymous]

Nah, Cramer is full of crap as usual.

If you follow his "logic" then all the net worth you have accumulated has been given to you by the Fed and, if so, your net worth has been unjustly "earned." Do you believe that?

Nobody knows nuthin, however ...

ZIRP (negative in Europe), QE and various fiscal policies (TJCA, pandemic stimulus) flooded markets with cheap money, some of which was used for stock buybacks. This inflated a massive asset bubble.

Now, that is all unwinding due to inflation fighting policy.

I don't know to what degree asset price appreciation can be attributed to the above (as opposed to fundamental growth) but it seems significant IMO.

 

[DJRR]

You guys are too pessimistic. The situation today is nothing like 2008/2009. Well managed companies will survive and prosper, the bad ones in the end will burn investors as they always have.

People seem to forget that corporate profits are at an all time high. Raising the discount rate and causing a recession will cause price adjustments, but it is nothing like 2008 or 2000 when people were investing based on "burn rate". My guess is the most pain will be felt in crypto, art, collectibles, real estate and other assets that have no cash flow or appreciated far above historical cash yields.

 

[Car-Guy]

I was talking to Jerome Powell. He doesn't want everyone's net worth. Just yours. Sorry to be the bearer of bad news.

Yeah - just the rich folks NW (and guess who that is?)

I know you guys are joking (I hope) but I'm afraid you may not be to far off target. Good thing about being as old as I am, I won't have to deal with it that long.

 

[milford]

You guys are too pessimistic. The situation today is nothing like 2008/2009. What we have is a supper bubble caused by stimulus to the tune of $4 trillion in 2020 and another $2 trillion in 2021. The reality that there is no further stimulus coming to support the bubble is one of the primary reasons why the market is falling hard. Short sellers are focused on four stocks now that are overweight the S&P 500 and NASDAQ - Apple, Microsoft, Amazon, and Tesla. Easy money has caused massive bubbles in these four stocks. They are no means bad companies, but they are massively overpriced. You will know when the market has bottomed when those four stocks trade at normalized valuations and near bankrupt companies like GameStop, AMC, and Bed Bath and Beyond stop leading market rallies.
These are times you should be putting your emotions aside and getting your shopping list ready for tax loss selling season that will start in about 30 days. Well managed companies will survive and prosper, the bad ones in the end will burn investors as they always have. The "war on savers" is no on pause for the moment.

The "super bubble" isn't caused by only the stimulus, there are many other factors such as supply chain disruption, energy crisis, war in Europe, sticky inflation, that are still on-going without a clear resolution and keep in mind we were already in a bubble in 2020 because of a decade plus of loose monetary policy.

Its nothing like 2008-09 because this is just the beginning nothing has been "broken" per se yet. Nobody knows exactly what will collapse, but things are brewing in the background. The only saving grace right now is US is the best of the worst among other countries.

 

[daylatedollarshort]

The "super bubble" isn't caused by only the stimulus, there are many other factors such as supply chain disruption, energy crisis, war in Europe, sticky inflation, that are still on-going without a clear resolution and keep in mind we were already in a bubble in 2020 because of a decade plus of loose monetary policy.

Its nothing like 2008-09 because this is just the beginning nothing has been "broken" per se yet. Nobody knows exactly what will collapse, but things are brewing in the background. The only saving grace right now is US is the best of the worst among other countries.

+1. I don't see how the stimulus in the U.S. would cause inflation in other countries. The current inflation issue is world wide. Interest rates are being increased in many countries to combat it.

To add to your list, a lot of people world wide died from Covid. Many more have long term symptoms and are unable to work, or are caregivers to those with long term symptoms. Others retired early to avoid Covid. That has to impact the labor supply and costs world wide.

The Fed is just trying to curb inflation. Raising rates is the tried and true way of doing that. So unless they suddenly come up with some other novel approach all the Nobel economists over the last century haven't thought of before, we're going to see interest rates go above the inflation rate or inflation at 2%, whichever comes first.

 

[audreyh1]

Nah, Cramer is full of crap as usual.

If you follow his "logic" then all the net worth you have accumulated has been given to you by the Fed and, if so, your net worth has been unjustly "earned." Do you believe that?

Exactly! Assets inflated a great deal over the past two years. Ultra low interest rates had a lot to do with it.

People cry about the Fed “taking away the punch bowl”. But doesn’t that indicate that the Fed brought out the punch bowl in the first place?

 

[Koolau]

Exactly! Assets inflated a great deal over the past two years. Ultra low interest rates had a lot to do with it.

People cry about the Fed “taking away the punch bowl”. But doesn’t that indicate that the Fed brought out the punch bowl in the first place?

Certainly the FED paid a role, but they didn't vote $4Tril in stimulus. YMMV

 

[Freedom56]

I have been watching the market close and earnings reports after the close (about 10 PM local time here) on CNBC. All CEOs are reporting the same issue, excess inventory and the need to discount to clear it. This puts pressure on margins and future earnings and has been causing overpriced stocks to tank. When companies have to discount to sell products and services, it is deflationary. Listen to the conference call from Nike and Carnival and hear for yourselves. Inflation is yesterdays news. The market is forward looking and is discounting the loss of pricing power, higher rates, and higher labor costs of major corporations. Corporations were gouging consumers in 2021 and 2022 and created their own demand destruction. The 6 trillion dollar punchbowl is empty and demand is starting to revert back to pre-pandemic trends with the backdrop of massive amounts of inventory.

Sept 30 (Reuters) - Shares of Nike Inc (NKE.N) hit 2-1/2 year lows on Friday and rattled those of other athletic gear makers, after the company's warning of a margin squeeze from widespread markdowns sparked worries of sector-wide contagion of ballooning inventory.

The world's largest sportswear maker on Thursday became the latest in a line of consumer brands and retailers to underscore the pressure on margins from ramped up discounts, as companies rush to get rid of excess inventory amid slowing demand.

https://www.reuters.com/business/re...-excess-inventory-stronger-dollar-2022-09-30/

If you really believe that the need to discount inventory due to a lack of demand is inflationary, then you need some remedial courses in economics.

The bond market has priced the Fed funds rate at 4.25% from the 3.25% today and traders are betting that the Fed will pause after that. If they are really serious about fighting inflation, they should hold it at 4.25% for an extended period of time which would be great for savers.

 

[milford]

I have been watching the market close and earnings reports after the close (about 10 PM local time here) on CNBC. All CEOs are reporting the same issue, excess inventory and the need to discount to clear it. This puts pressure on margins and future earnings and has been causing overpriced stocks to tank. When companies have to discount to sell products and services, it is deflationary. Listen to the conference call from Nike and Carnival and hear for yourselves. Inflation is yesterdays news. The market is forward looking and is discounting the loss of pricing power, higher rates, and higher labor costs of major corporations. Corporations were gouging consumers in 2021 and 2022 and created their own demand destruction. The 6 trillion dollar punchbowl is empty and demand is starting to revert back to pre-pandemic trends with the backdrop of massive amounts of inventory.

Sept 30 (Reuters) - Shares of Nike Inc (NKE.N) hit 2-1/2 year lows on Friday and rattled those of other athletic gear makers, after the company's warning of a margin squeeze from widespread markdowns sparked worries of sector-wide contagion of ballooning inventory.

The world's largest sportswear maker on Thursday became the latest in a line of consumer brands and retailers to underscore the pressure on margins from ramped up discounts, as companies rush to get rid of excess inventory amid slowing demand.

https://www.reuters.com/business/re...-excess-inventory-stronger-dollar-2022-09-30/

If you really believe that the need to discount inventory due to a lack of demand is inflationary, then you need some remedial courses in economics.

The bond market has priced the Fed funds rate at 4.25% from the 3.25% today and traders are betting that the Fed will pause after that. If they are really serious about fighting inflation, they should hold it at 4.25% for an extended period of time which would be great for savers.

What you are describing is only a quarter of the picture... yes elastic high demand pandemic goods such as casual sportswear, electronics, home furnishing, etc... has already started to collapse due to oversupply vs. waning demand, but services (airfare, hotels, insurance, healthcare, energy, etc...) is still going strong and going up in price as we speak.

The bond market isn't betting inflation is going away anytime soon, they are betting that with a couple more hike rates it will break something in the economy which will force the fed's to reverse course. However I think they are underestimating the fed this time as I don't believe they will reverse course unless something catastrophic happens in the economy. Powell has been throwing more hints that that he isn't going to make the same mistake like the 1970s where they reversed course before inflation was held in control that led to a decade of high inflation and ended up having to raise rates to close to 20%.

 

[Freedom56]

What you are describing is only a quarter of the picture... yes elastic high demand pandemic goods such as casual sportswear, electronics, home furnishing, etc... has already started to collapse due to oversupply vs. waning demand, but services (airfare, hotels, insurance, healthcare, energy, etc...) is still going strong and going up in price as we speak.

The bond market isn't betting inflation is going away anytime soon, they are betting that with a couple more hike rates it will break something in the economy which will force the fed's to reverse course. However I think they are underestimating the fed this time as I don't believe they will reverse course unless something catastrophic happens in the economy. Powell has been throwing more hints that that he isn't going to make the same mistake like the 1970s where they reversed course before inflation was held in control that led to a decade of high inflation and ended up having to raise rates to close to 20%.

Add lumber and building supplies and other commodities to the mix of plunging prices. In case you haven't noticed, the USD is getting stronger and stronger and is now worth more than the Euro. We import more goods than export and this will put more deflationary pressure. Travel abroad has never been this good for a long time. Hotel prices are below where they are pre-pandemic and so are airfares. This is why airline stocks are crashing. I'm in Europe now and the crowds have thinned out and hotel prices are falling fast. Restaurants are empty.

Health insurance, prescription drug costs have been rising for the last decade well above the so called 2% inflation numbers. Did the Fed care? Some generic prescription drugs are sold in the U.S. for 11 times the price in Canada. Is that due to supply chain issues? It's pure corporate greed.

The oil price bubble is also collapsing. What happened to the $160 dollar a barrel oil? Every time oil rises above $100 barrel, it causes demand destruction followed by a collapse in oil prices. This time will be no different. In fact we have Russia still selling oil at steep discounts to evade sanctions. Buyers of Russian oil were customers of middle east oil. Why would they pay 40% more for oil. Europe is already starting to ration energy and are starting to take extreme measures this time. No Christmas lights are allowed this year in places such as Switzerland and thermostats are to be set 2 degrees centigrade lower.

Inflation caused margins to expand dramatically and resulted in a stock market bubble. Corporations raise prices because they could. Now the whiplash effect is occurring due to demand destruction and they are forced to drop prices. As I have stated before, all this talk about inflation will soon shift to deflation by the end of the year. Price inflation is good for stocks as margins expand. However the markets discount the future and the market sees falling prices and shrinking margins.

 

[copyright1997reloaded]

Inflation caused margins to expand dramatically and resulted in a stock market bubble. Corporations raise prices because they could. Now the whiplash effect is occurring due to demand destruction and they are forced to drop prices. As I have stated before, all this talk about inflation will soon shift to deflation by the end of the year. Price inflation is good for stocks as margins expand. However the markets discount the future and the market sees falling prices and shrinking margins.

So net net:
Good for high quality bonds
Huge jump in spread between high quality and junk
Bad for stocks
We should see defaults as earnings fall and zombie companies can't finance.

So I agree, we will see inflation (i.e. upward adjustment in prices) reduced - first on goods and then w/a delay on services.

My thesis remains: The FED will pivot because there will be calls for their "heads on pikes" as the economy falters, and the government(s) will try to stimmy their way back to glory days. WE ARE ALREADY SEEING THIS - I have already heard several "always stay invested in stocks" pendants complaining about the Fed "over tightening" and the BOE (Bank of England) already calling uncle and doing QE.

So, what is your thought longer term (not just six months) in terms of inflation and bond yields?

 

[Freedom56]

So net net:
Good for high quality bonds
Huge jump in spread between high quality and junk
Bad for stocks
We should see defaults as earnings fall and zombie companies can't finance.

So I agree, we will see inflation (i.e. upward adjustment in prices) reduced - first on goods and then w/a delay on services.

My thesis remains: The FED will pivot because there will be calls for their "heads on pikes" as the economy falters, and the government(s) will try to stimmy their way back to glory days. WE ARE ALREADY SEEING THIS - I have already heard several "always stay invested in stocks" pendants complaining about the Fed "over tightening" and the BOE (Bank of England) already calling uncle and doing QE.

So, what is your thought longer term (not just six months) in terms of inflation and bond yields?

Of course the Fed will pivot. We have $30 trillion in national debt and climbing. Financing this debt with elevated treasury rates will be problematic. Also pensions and bond funds are holding a lot of low coupon debt and are in danger of losing 50% or higher of their investment as many exit these losing funds. You can't expect people to invest in funds that pay less than cash in a money market account and offer no capital protection.

My thoughts longer term:

The Fed will raise the Fed funds rate over 4% as communicated and as discounted by the 2 year and hold it there for an extended period of time.

This will be good for savers and investors who buy CDs, treasuries, individual bonds (investment grade and BB- and higher high yield bonds). This is the golden period for fixed income investing. A year ago, a 5 year high grade corporate notes were being issued with coupons of 0.6%. Today the very same corporations are issuing notes of the same duration for 5.25% and higher. CD and treasury yields are much more attractive today and good for savers.

The stock market bubble will take a few years to pop just like it did in 2000-2003 (many of us have seen this movie before). The stock market is still in a casino mode and many stocks are grossly overvalued relative to current and future earnings. There will be many bear market rallies like during the 2000-2003 period but the trend will be down. Of course Wall Street cheerleaders want people to stay invested in funds. They want to collect their management fees.

The crypto bubble is in the early stages of collapsing and like other scams of the past, will leave their gullible investors fried.

 

[Lsbcal]

Because we have hit new lows here is the latest chart:

I would not be surprised to see a strong rally soon.

 

[jurgs01]

Because we have hit new lows here is the latest chart:

I would not be surprised to see a strong rally soon.

Every bear market has rallies as things become oversold and pessimism goes too high. This up down cycle will continue along the long term bear market downtrend until something breaks, and then we fall and capitulation happens.

When there is max fear and everyone is saying don't touch stocks with a ten foot pole, start buying a list of stocks you want for long term value.

You can also trade the swings, but don't get too overweight as timing is difficult.

 

[Northforker]

of course the fed will pivot. We have $30 trillion in national debt and climbing. Financing this debt with elevated treasury rates will be problematic. Also pensions and bond funds are holding a lot of low coupon debt and are in danger of losing 50% or higher of their investment as many exit these losing funds. You can't expect people to invest in funds that pay less than cash in a money market account and offer no capital protection.

My thoughts longer term:

The fed will raise the fed funds rate over 4% as communicated and as discounted by the 2 year and hold it there for an extended period of time.

This will be good for savers and investors who buy cds, treasuries, individual bonds (investment grade and bb- and higher high yield bonds). This is the golden period for fixed income investing. A year ago, a 5 year high grade corporate notes were being issued with coupons of 0.6%. Today the very same corporations are issuing notes of the same duration for 5.25% and higher. Cd and treasury yields are much more attractive today and good for savers.

The stock market bubble will take a few years to pop just like it did in 2000-2003 (many of us have seen this movie before). The stock market is still in a casino mode and many stocks are grossly overvalued relative to current and future earnings. There will be many bear market rallies like during the 2000-2003 period but the trend will be down. Of course wall street cheerleaders want people to stay invested in funds. They want to collect their management fees.

The crypto bubble is in the early stages of collapsing and like other scams of the past, will leave their gullible investors fried.

this 100%

 

[aja8888]

CarMax stock tanked this week when they announced lower margins and not much sales action. I guess the cars they bought at high prices at auctions aren't selling at even higher prices. Expect Carvana to crater soon too.

Ford stock tanked when they revised revenue and earnings for the balance of 2022.

Local RAM truck dealer is now advertising $10 K off MSRP for their oversupply of trucks. Apparently, RAM had no "chip" problems screwing up production during this pandemic.

 

[copyright1997reloaded]

CarMax stock tanked this week when they announced lower margins and not much sales action. I guess the cars they bought at high prices at auctions aren't selling at even higher prices. Expect Carvana to crater soon too.

Ford stock tanked when they revised revenue and earnings for the balance of 2022.

Local RAM truck dealer is now advertising $10 K off MSRP for their oversupply of trucks. Apparently, RAM had no "chip" problems screwing up production during this pandemic.

Either that, or its because its a RAM?

 

[MichaelB]

Another chart comparing past economic situations with the present, this looks at how quickly the Fed increased interest rates (here)

 

[big-papa]

Another chart comparing past economic situations with the present, this looks at how quickly the Fed increased interest rates (here)

I wonder why they didn't show the early 80's, which would seem to me to be a very important comparison given the actual inflation rate going into those hikes.

Cheers.
Big-Papa

 

[big-papa]

Either that, or its because its a RAM?

As an EE I should be embarassed that I actually get this pun! But I'm not.

 

[Lsbcal]

I wonder why they didn't show the early 80's, which would seem to me to be a very important comparison given the actual inflation rate going into those hikes.

Cheers.
Big-Papa

Here is a long term chart:

For the data to compare slopes go to https://fred.stlouisfed.org/series/DGS10?cid=115 and click the small font in upper right "( + more)" and select VIEW ALL.

The markets are probably worried about how "Volker" the Fed will be. Also there is the quantitative tightening to be concerned about which did not exist in the 80's.

 

[jldavid47]

I was talking to Jerome Powell. He doesn't want everyone's net worth. Just yours. Sorry to be the bearer of bad news.

Powell doesn't want anyone's net worth.

It's easy to protect your net worth. Almost nobody wants to give up even a dime of possible upside to do it.

There's an old trader's maxim: Don't make decisions based on how much you could make. Base them on how much you could lose. It applies equally to investing.

 

[jldavid47]

Another chart comparing past economic situations with the present, this looks at how quickly the Fed increased interest rates (here)

Awfully convenient to only use data since 1988. Try starting in 1974 and you get a different result.