Recession… What Recession?

[marko]

To my eye it appears to still be coming.

Consumer spending fell sharply. It will take a big hit when student loan repayments begin in the next couple of months. 3rd straight quarter of earnings declines underway. So economic slowdown is here. And further goosing of government spending seems to not be in the cards.

+1. I read that student loans represent about $1.5 BILLION per month. Once people start repayments, going by the youngsters I know, that is money no longer spent on golf, eating out, movies, travel etc. That's a lot of money being taken out of the discretionary economy.

 

[FREE866]

+1. I read that student loans represent about $1.5 BILLION per month. Once people start repayments, going by the youngsters I know, that is money no longer spent on golf, eating out, movies, travel etc. That's a lot of money being taken out of the discretionary economy.

If that 1.5 billion a month Is accurate and consumer spending and GDP were growing fine before the moratorium then why do you think it will have a significant impact now?

 

[marko]

IIRC the moratorium started in March 2020.

What I think happened is that that "extra" $1.5B floating around created a false economy of discretionary spending that will soon disappear. .That's got to have an impact.

Having said all that I believe that it's fruitless to try and compare pre Covid with today. There's just so much different in the economy. Higher interest rates, a lot of people not returning to the workforce, work from home, high inflation and consumer prices, to name just a few.

Montecfo raised the student loan question and he's much more into the details of such things so perhaps he can weigh in at some point.

 

[Route246]

By definition GDP = Consumption + Investment + Government Spending + Net Exports.

Government spending does not include transfer payments.

It's amazing what $5 Trillion dollars of free money dropped on the US economy will do along with out of control government spending. Much of the GDP number is made up of government spending!

Gotta love it. If we can get another trillion or so put into the economy, we will be even better off! What can go wrong here?

 

[Route246]

Is this requiring price oscillation to be successful? Not sure how far out you are but you may be forced to vacate your position if your cover goes straight up or straight down like TLSA has been doing over the past few cycles which will trigger a possibly undesirable taxable event that would negate any advantage to deferring the taxable gain. In addition to capping your gain (for covered call) are you putting your deferred taxable gain at risk?

I have some individual stocks that have very large taxable gain if I am forced to vacate and I prefer to just hold them and avoid the capital gains (significant as I live in California). My friends tell me I should "collect free money" by using this technique but I really don't feel like taking these gains now because of my tax situation.

I cannot figure this out. Economists are also scratching their head. The Federal Reserve too.

I keep the same investment style nevertheless.

Things that go up, I write OTM covered calls, or close out OTM covered puts on them.

Things that go down, I write OTM covered puts, or close out OTM covered calls.

Ka ching, ka ching... $112K in option premium YTD, on top of regular stock gains. I did not trade during my recent long European trip, else would make more.

 

[NW-Bound]

Is this requiring price oscillation to be successful? Not sure how far out you are but you may be forced to vacate your position if your cover goes straight up or straight down like TLSA has been doing over the past few cycles which will trigger a possibly undesirable taxable event that would negate any advantage to deferring the taxable gain. In addition to capping your gain (for covered call) are you putting your deferred taxable gain at risk?

I have some individual stocks that have very large taxable gain if I am forced to vacate and I prefer to just hold them and avoid the capital gains (significant as I live in California). My friends tell me I should "collect free money" by using this technique but I really don't feel like taking these gains now because of my tax situation.

I already talked about this elsewhere in the past, and will be brief here because it's off the thread topic.

First, I sell options in tax-deferred accounts. Secondly, yes, there's a risk of losing the "good" stocks with covered calls, and having to buy the "bad stocks" with covered puts. I don't always win, but make money so far in the long run by selecting the strike prices far enough to minimize assignments.

And I couple this with market timing and playing sector rotation.

 

[marko]

Does anyone really believe this is a significant statistic?

I don't find it significant, but I find it hard to believe that the Dow hasn't had more than 13 straight gains in 120+ years.

 

[FREE866]

IIRC the moratorium started in March 2020.

What I think happened is that that "extra" $1.5B floating around created a false economy of discretionary spending that will soon disappear. .That's got to have an impact.

Ehh..does it though?


We have a 23 Trillion dollar economy
A 20 billion dollar decrease in spending is gonna have a measurable impact?
I would say no.

 

[Montecfo]

Peel back the curtain and you’ll see the median student loan is like 20K, less than a car loan. The people that owe big 6 figure balances are mostly high income earners that can support that.

In terms of earnings that’s the past and markets look ahead. In terms of consumer spending down that isn’t new news. Again, markets tend to look

Ahead. So basically I disagree with everything you said lol

That’s okay. Off to the pool. Scorching hot out!

Well, disagreeing is fine. But it is a big nut for discretionary spending especially among young adults. $350-400 per month per affected borrower. $6-18Billion per month.

https://fortune.com/2023/04/19/incoming-student-loan-cliff-18-billion/

As far as the earnings recession it is right now. We are in the 3rd quarter of it. So markets look past that and see what, a rate cut? I hope so.

The Fed just announced higher capital requirements for large banks, further tightening credit.

I hope stocks can continue to rally but higher interest rates tighter credit and lower spending figure to matter.

 

[MC Rider]

If you're FI and retired, why worry about these fluctuations?
I used to worry because it affected my w*rk load, and income.
Now higher interest rates mean a few more bucks for me. No w*rk.



I'm singing Don't worry, be happy.

 

[Montecfo]

By the way, this thread killed the market!

 

[FREE866]

Well, disagreeing is fine. But it is a big nut for discretionary spending especially among young adults. $350-400 per month per affected borrower. $6-18Billion per month.

https://fortune.com/2023/04/19/incoming-student-loan-cliff-18-billion/

As far as the earnings recession it is right now. We are in the 3rd quarter of it. So markets look past that and see what, a rate cut? I hope so.

The Fed just announced higher capital requirements for large banks, further tightening credit.

I hope stocks can continue to rally but higher interest rates tighter credit and lower spending figure to matter.

I couldn't read the article you posted as I'm not a subscriber , but that "18 billion a month spending cliff" sounds so hyperbolic to me. Thats what the media does. It's tiresome.
Before the emergency moratorium on payments, the average student loan payment was less than a car payment, $265. In the aggregate that isn't going to knock the economy off the rails.


Besides, the student loan issue isnt new news.



interest rates...I think it was you I had this battle with about a year ago no?


Since the Fed started raising rates in March of 2022, the market is up like 10-15%.....people like to think there's this automatic correlation with stocks and rates and there simply isnt. We have decades of history that show that. And actually interest rates are still historically low. Regardless, its not an "if this then that" situation.

 

[Taco]

Does anyone really believe this is a significant statistic?

Maybe that stat (since 1897) was a typo.

This says 1987
https://amp.cnn.com/cnn/2023/07/27/investing/dow-stock-market-news-today/index.html

 

[Montecfo]

I couldn't read the article you posted as I'm not a subscriber , but that "18 billion a month spending cliff" sounds so hyperbolic to me. Thats what the media does. It's tiresome.
Before the emergency moratorium on payments, the average student loan payment was less than a car payment, $265. In the aggregate that isn't going to knock the economy off the rails.


Besides, the student loan issue isnt new news.



interest rates...I think it was you I had this battle with about a year ago no?


Since the Fed started raising rates in March of 2022, the market is up like 10-15%.....people like to think there's this automatic correlation with stocks and rates and there simply isnt. We have decades of history that show that. And actually interest rates are still historically low. Regardless, its not an "if this then that" situation.

I am not a subscriber either but it is readable. And Fortune did not just make up the numbers. They were computed by the investment firm Jefferies and Co and they are good at this.

But there are many sources for this info and estimates vary but all are material.

That the moratorium is over IS new. Came in with the debt ceiling deal. Saying something happening in the future is not new does not change its impact.

Stocks are down since the Fed's posture changed. Of course that is neither here nor there.

 

[FREE866]

I am not a subscriber either but it is readable. And Fortune did not just make up the numbers. They were computed by the investment firm Jefferies and Co and they are good at this.

But there are many sources for this info and estimates vary but all are material.

That the moratorium is over IS new. Came in with the debt ceiling deal. Saying something happening in the future is not new does not change its impact.

Stocks are down since the Fed's posture changed. Of course that is neither here nor there.

You keep barking out what are now old headlines that when you look at the numbers have minimal economic impact. A 23 trillion dollar economy is not going to be derailed by a possible and I think doubtful 100 billion dollar spending freeze because people have to pay their school loan payments.

And besides, The market discounts all this. If there was substance we wouldn’t be approaching all time highs. It’s not actionable. And for me , as a long term investor, it’s classic “ noise” that is best left ignored. You might have a different approach.

 

[USGrant1962]

By definition GDP = Consumption + Investment + Government Spending + Net Exports.

Government spending does not include transfer payments.

Ah, that probably explains the discrepancies I find when looking for US government spending as percent of GDP. Many sources say ~38%, but the "official" BEA report and others say ~17.5%. If BEA is leaving out transfer payments they are ignoring $3T/year of government spending! I guess transfer payments aren't productive...?

https://fred.stlouisfed.org/series/B087RC1Q027SBEA

 

[MissMolly]

Maybe that stat (since 1897) was a typo.

This says 1987
https://amp.cnn.com/cnn/2023/07/27/investing/dow-stock-market-news-today/index.html

Actually, if you read the article you see that the 13 day streak (yesterday) matched the one set in 1987. If we had made it to a 14 day streak (today) it would have matched the record set in 1897 and surpassed the 1987 streak. Had the markets still been up on Friday, it would have beat the 1897 streak.

 

[Montecfo]

You keep barking out what are now old headlines that when you look at the numbers have minimal economic impact. A 23 trillion dollar economy is not going to be derailed by a possible and I think doubtful 100 billion dollar spending freeze because people have to pay their school loan payments.

And besides, The market discounts all this. If there was substance we wouldn’t be approaching all time highs. It’s not actionable. And for me , as a long term investor, it’s classic “ noise” that is best left ignored. You might have a different approach.

We view the market differently. The market is inefficient and has not reacted to this news as far as I can tell.

Consumer spending has been in decline for the past three months. This is the bulk of the economy. Loan paybacks will not help but it is not any one thing it is the cumulative effect of numerous factors going the wrong way. All categories of spending have fallen except travel.

These are just things to keep in mind. The slowdown has been underway for several months now.

 

[latexman]

The slowdown has been underway for several months now.

Yes. At our 2Q business review today, sales are down 18% and our customers have capacity to destock about another quarter. It’s going to get worse before it gets better.

 

[madatrub]

Theres a lot of signs pointing towards economy slowing. Transport stocks have taken it on the chin this quarter. You can see cracks in rail and truck shipping, and manufacturing is starting to drag. Home improvement/plumbing (Ferguson, Home Depot, Lowes) are all off 5%, oh and BTW energy has bottomed, so commodities are going to be little help to inflation.

Automakers are also not looking so great. Imagine being invested in F and having the same exact share price as 35 years ago. Too many loses in EVs, which should shock absolutely noone.

Throw in student loan repayment, and add a heaping of highest credit card balances ever which is just about to coincide with 40 year highs in credit card interest rate.

The only thing holding this all together is the job market. You can thank the people on this board for that. Early retirements since covid have made filling jobs pretty much near impossible. If jobs keep it together I feel as though some minor pain/slowing/recession/soft landing, whatever you want to call it, is possible. But if the job market cracks (and its usually last in the pool), then it'll be a bit harder landing. IMO.

 

[Timeisprecious]

Those of us with 100% equities (or at least a high stock allocation) are loving it - if you couldn’t tell from my excitement [emoji1]

OH MY GOSH! 100% EQUITIES?? Okay, maybe you get some big gains, but how do you weather big dips? Ugh! You must've HATED that prolonged down period not too long ago. I guess you have the stomach for this - some people have more risk tolerance than others. I would HATE this setup!

I'm far more cautious, as you may've guessed. That's paid off for me, and with two military pensions (one due to disability) I'd say we're doing alright - living off the pensions and almost never touching the egg. We're seeing some gains and reinvesting as needed.

And - I'm happy along with you for the market rally, no doubt about it!

 

[RetiredHappy]

OH MY GOSH! 100% EQUITIES?? Okay, maybe you get some big gains, but how do you weather big dips? Ugh! You must've HATED that prolonged down period not too long ago. I guess you have the stomach for this - some people have more risk tolerance than others. I would HATE this setup!

I'm far more cautious, as you may've guessed. That's paid off for me, and with two military pensions (one due to disability) I'd say we're doing alright - living off the pensions and almost never touching the egg. We're seeing some gains and reinvesting as needed.

And - I'm happy along with you for the market rally, no doubt about it!

When our portfolio was managed by ML, they were 65-35 and we hated it. We took the accounts back and since then, my accounts are 98% equities, save for some legacy bond funds that were bought by ML. Since I only draw on dividends from my brokerage account, I don't care how the market rides since I don't need to sell anything. On the other hand, since my husband has to draw on RMD, and needs more dividends/interest, he is something like 80-20. With his 80% equities, he does have a bit more value etfs to generate higher dividends. All in all, I am loving 98% equities.

 

[RetiredAt49]

OH MY GOSH! 100% EQUITIES?? Okay, maybe you get some big gains, but how do you weather big dips? Ugh! You must've HATED that prolonged down period not too long ago. I guess you have the stomach for this - some people have more risk tolerance than others. I would HATE this setup!



I'm far more cautious, as you may've guessed. That's paid off for me, and with two military pensions (one due to disability) I'd say we're doing alright - living off the pensions and almost never touching the egg. We're seeing some gains and reinvesting as needed.



And - I'm happy along with you for the market rally, no doubt about it!

Having a 100% equity portfolio doesn’t bother me at all. We have no debt, no mortgage, no loans, and if needed we could live on 1% of our total portfolio

Again, we have nearly 200 years of historical stock market data and the WORST 30 year rolling period returned 7.8% annually..

 

[captain3d]

Since the Fed started raising rates in March of 2022, the market is up like 10-15%.....people like to think there's this automatic correlation with stocks and rates and there simply isnt. We have decades of history that show that. And actually interest rates are still historically low. Regardless, its not an "if this then that" situation.

I think history shows that markets crash when they start cutting. As that is usually an attempt to fix a problem.

I have been wrong all year so no need to listen to me.

 

[audreyh1]

I think history shows that markets crash when they start cutting. As that is usually an attempt to fix a problem.

I have been wrong all year so no need to listen to me.

Maybe they started cutting because the markets crashed. Actually they would both (Fed and equity markets) be reacting to an economic downturn in that scenario.