Donald Trump said "I love debt", The Fed has only one true mandate, preserve Alan Greenspan's 'wealth effect' to keep the people borrowing and spending. They will tolerate 10%+ inflation before they will accept the loss of the stock market, housing bubble and loss of 401k wealth. This would end the wealth effect. If it goes away, it all comes apart.
1
I must be wired differently from a lot of people. Stock market declines get me excited.
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Dead cat bounce.
Those of us who were trying to buy our first house in the early 1980's were faced with 18% mortgage interest rates. Business loans exceeded 21%. You could earn 5% on a savings account and 7% on a CD but who could save in that economic environment?
My point? Things can be a lot worse than a 5% mortgage. Many of us have lived through much worse and survived.
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One big reason for wall street's swoon is that their big time sugar daddy is turning off the government corpoate welfare that has been propping them up. The low interest rate is an important part but more important is the trillions of dollars that the federal reserve has "created" and used to buy corporate debt and mortgages.
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Let’s see what happens when the Federal Reserve stops buying bonds from the Treasury while letting its current hoard expire. Fun.
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The market does require, as usual, stability and safety in their transactions. And yet, 'what goes up goes down too', especially when the rise is too fast for comfort, independent of the profit' orgy the corporate world may claim to have...in perpetuity this time. Of course, no such dream is viable nor possible, in an economy that depends not only on consumers (of goods and services) but the willingness of providers to play it safe, make a reasonable return of their investments...while serving honestly those in need of their products. For that to occur we must remain observant, prevent ethics from flying out the window...so to allow greed and selfishness to enter through the door!
3
The market has been 20-30 percent overpriced for some time. This was a much needed correction.
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@Steve Hunter I agree. Should have sold in February but ignored my little voice shouting "SELL!"
Hurts now but the pendulum always swings back. I'm holding for now.
1
So tired of greedy men, Wall Street, the Federal Reserve, corporations and industries, and the cruel sociopaths that control everything. There are better ways to conduct societies.
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The stock market is still sliding and will continue to do so until there is a real correction. This is likely going to be pretty rough.
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@Sanvista. All US indices were down today.
Just WHY did my broker make all these mistakes? Why did he make all these very bad decisions, and Thank God I did not listen to a single one of them. These analysts and financial advisors are a huge part of the problem, giving bad advice, making bad trades, but all the while still making lots of money and a nice bonus. I got rid of mine, fired him and took away all his access to my accounts. And in fact moved to a different brokerage. I am self directed now, and making money. And more money than when I was with my broker.
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I did the same, and like you, I’m making more money than I did with a financial adviser.
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@Jane I've been self-directed since the crash of 2008. And I've done much better than even I expected.
I don't trust anyone with my hard-earned life savings but me.
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@PerAxel Me too!
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No one talks about Biden's BBB2 any more. What a disaster that would have been to add more $ fuel to the inflationary fire. Bezos rightly said Manchin saved Dems (and rest of the country) from themselves.
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@Observer Jeff Bezos is a skilled observer of our economy and clearly has the best interest of the middle class at heart. His support of unions in his Warehouses is proof of that
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@Observer As I recall the orange marvel indicated that reducing the national debt would actually be quite easy. One of his brilliant solutions was to impose trade tariffs (which only served to increase prices to end users which is inflationary here in rational land). The other was that fabulous $2.7 trillion tax cut to corporations and the wealthy at a time when the economy didn't need any tax cuts. Of course, this time around trickle down theory would finally be proved correct with increased economic activity and a subsequent decrease in the national debt. (Um, nope.)
Federal debt before Orange took office: ~$20 trillion. After he left: ~$27 trillion. Hmmm, an increase in the debt of $7 trillion is actually a decrease in Orangeville. Fortunately, the election saved the country from more of Orange's economic genius. No Manchin required.
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@Observer Weren't the funds under BBB2 set to be spent over a ten-year period? How would that worsen inflation in the short term?
In any case, the US has a lot of work to do to reduce the carbon intensity of its economy and the victor in 2024 will need to pick up where Biden failed with BBB2.
1
We're pretty spoiled. The fed rate is currently 0.83%. If the rate goes to 2%, as the article suggests, that will still be way below the 50-year average. As recently as 2007, the Fed rate was above 5%. In the late 70's, it was over 18%. If we can get to 2-2.5% for the long term we're in pretty sweet territory. It will take some time, but inflation should continue to moderate as supply-chain issues subside. If the Russian assault on Ukraine can find an end, watch out for some serious growth. (I know that last one is a big if.)
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@JD The problem is that the Fed did not just slash the Funds rate to near zero for years, it also massively inflated its balance sheet with unprecedented Quantitative Easing (both in amount and types of debt). Prior to the financial crash of 2008, the balance sheet was just $0.8 trillion. By 2019, just before the pandemic, it was around $4 trillion. Today, it's ~$9 trillion.
The Fed is finally reversing this monetary policy profligacy and so far has done precious little (3/4% added to the Funds rate; Quantitative Tightening starts in June). There is little doubt that we'll get to at least ~2% on the Funds rate by year-end. But what will the effect of QT be across the entire rate curve? By year-end, assuming the Fed sticks to its tightening guns (not a guarantee by any measure), they'll reduce their balance sheet by just ~$0.5 trillion.
Wall Street is simply presuming that an eventual unwrinkling of supply chains and demand destruction courtesy of higher rates will cause inflation to quickly subside in the coming months. What if that thesis proves to be as wrong as last year's notion that inflation would be "transitory?" It's rather curious that everyone is eagerly anticipating the end of policy tightening that has barely even begun. A long-term ~2% Funds rate? Neutral? I doubt it.
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It is "buy the dip" mentality. Eventually dip buyers will end up holding the empty bag.
6
If you buy good stable companies, you will make money in the long run. However, most people want to get rich quick, and buy the latest trendy sector.
The S&P 500 is very heavily weighted towards just a handful of high-priced tech stocks. About 30% of the value is in just six tech stocks, so the S&P is very sensitive to interest rates. So as interest rates rise, further declines in the S&P are likely.
6
Sometimes i wonder if i'm not being ruled by the investor class
and not my elected govt.
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@cbarber - The investor class is the top 10%, those with over $800K in assets. Who runs the government? Pretty much the same group of people.
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Who do you want running the government? Many people with that much in assets were the managers, engineers, and aides who do the grunt work. In 2022 that simply is not that much money
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@cbarber The people who owned the investor class also own Congress especially the Senate.
1
whatever is sustaining demand is imho purely the momentum of the retirement savings and pension funds that must by mandate continue buying because of automatic inflows. It would be really interesting to hear from those fund managers whether they are buying because they must or whether they would rather be in cash at the moment??
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"The stock market’s staggering run of losses came to an end last week, with the S&P 500 " -- how about staggering run of irrational pandemic-time gains, that had little to do with reality...
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Who can trust the markets anymore with things like the Plunge Protection Team, huge Wall St banks, unregulated, trading against customers accounts, making bad loans and bets, knowing full well bad decisions get socialized on Taxpayers if it gets ugly? There is too much money sloshing around in the market, and when it goes sour, the poor will suffer, not the investor class.
14
I've been invested in the market for thirty years. I have doubled and doubled and redoubled my net worth. I finally found an amazing broker in a national firm about twenty years ago. I trust the broker and the firm with my life. We talk once or twice a year at my choice. I don't second guess anything. I have a mix of ladder bonds and stock (many dividend earning). I'm 72 now and have to take RMD even though I still work. I keep enough cash in the portfolio that the down market does not affect the distributions. I plan to live another 30 years so I will stay the course. The market goes up, and the market goes down, but it's still the only way to accummulate long-term wealth unless you buy buildings. Everyone I know who abruptly sold their holdings regret that decision. And to those of you smug ones who are outsmarting us with your crypto buys -- Good luck because you will need it and no comment.
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@Me
I'm 83 and I agree with you. I have a honest competent broker who really does his homework. Right now, I'm moving towards a portfolio almost free of fossil fuels.
I dumped all the Exxon I inherited years ago. Had I not done that, I'd be one rich lady but now I can live with my conscience.
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@Me
I concur with most of your comments. However, I invested without a broker and used some low-cost mutual funds.
My costs were extremely low, and I always stayed the course. As a result, I’ve done better than most.
2
If people could accurately [or even quasi-accurately] predict the ups and down in the market then they would be the richest people in the world.
The fact that they want to peddle that "advice" to us should illustrate that they have no clue...
...because clearly they are not the richest people in the world.
8
I hope I'm wrong but it seems to me that the stock market of the last 10 years is the biggest bubble ever, as is the current ridiculous housing market. I would not be surprised if global chaos, climate change, wars, and uncertainty bring about another depression-not just a recession. I've read numerous books on past crashes and the current economy. They agree that things can be pretty ugly beneath the surface, in spite of appearances, and that unpredictable triggers and events of all kinds can change everything overnight.
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@CJ The Depression was a peacetime event.
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@CJ
You might be right. However, I recognize that this time could be different (oft-uttered, famous last words). Today's world perhaps seems more recession-proof, because consumers seem to have no limits. When gas is $4.50 or $5 per gallon, no problem. Shove a credit card in the gas pump, and it will still fill up the tank. Airfare is up? No problem; my stepson, the jet-setter, is still flying to Ireland for a friend's wedding. (Everyone attending the wedding, including bride, groom, and family, is American.) I see younger people spending money without even knowing how much they spent, because they can do it with a tap on their smartphone or a tap of the credit card (and paperless, too, so they don't even see the total on a piece of paper). Perhaps that sort of spending behavior will come to a cataclysmic end, but I don't think we're there yet. I said this time is different, and I'm certain I'm right. I just don't know how that difference will manifest itself!
Meanwhile, I'm taking the Warren Buffet approach to investing - seeking value wherever I find it.
6
The market is not our economy . A GPS will tell you a road is there but reality and your eyes tell you otherwise.
2
@mrprytania Given the gargantuan levels of both fiscal and monetary policy intervention in the economy particularly since the pandemic, the market has in many ways become quite expressive of the economy. Rocketing home prices, courtesy in part to the Fed's massive purchases of agency mortgage backed securities and suppression of interest rates (helping to keep mortgage rates at historically low levels for years) are now part of the average homeowner's calculus of their personal wealth (if your house doubled in price over the last few years, you're feeling pretty wealthy and that undoubtedly affects your spending behavior in the Main Street economy). Until recently, 401Ks bloated by hefty returns helped in large part by the firehose of added market liquidity have also made many people feel much wealthier. Those markets are now repricing given the long overdue normalization of monetary policy (which has barely started). You can absolutely count on consequences for the general economy as these markets eventually succumb to the gravitational effect from the (albeit glacially-paced) reversal of absurdly loose monetary policy. As for GPS, Google Maps pretty much always knows where the road is (something for which I'm quite grateful given my terrible sense of direction).
5
We are probably just at the beginning of a major correction - given that inflation is still record high, supply chains are highly disrupted, and interest rate rise is only starting.
4
The ending of losing streak in wall street is highly exaggerated. No one can predict what is next. Markets are down today and so what happened last week is not the best indicator of short-term or long-term uncertainty. Those managing investment portfolio have to smartly diversify to survive bear market. The test of the investments in retirement and not profit foundations and organizations is not when the stock market rises during a bull market but when investments remains stable in a bear market.
After the 2008 recession it was obvious that there are no experts who can shield investment portfolios in a bear market and only smart conservative and balanced portfolios can withstand the test of time when bear market returns.
6
Be honest with the American people. Rate increases forces a recession. You cannot whine about inflation without pushing for recession. You cannot have it both ways.
If you don’t like inflation you are literally asking for a recession. That is the cure for inflation that we have. So people screaming about inflation are also screaming for causing a recession.
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@Paul Hossman
It's not either/or. There's a middle ground between the two. It's a bit difficult to land there without overshooting, but it's not impossible.
7
@Paul Hossman when the economy has been juiced to fantastical heights then yes we are asking for a recession. We would be receding from something illusory and damaging to the average world citizen. Have we really become that much more productive in the pandemic with a war and sanctions just taking a bite? No. It's a giant pyramid scheme and either we face some music now or face complete collapse later.
6
One sure way to decrease demand would be to tax it away from the rich… but alas our political system has no such resolve.
39
I don’t disagree that the equation is skewed but what if rather than having so much accumulate to the top in the first place ala the trickle down nonsense, some of the wealth went to the workers first?
The thinking needs to change. We’re conditioned to trickle down as if it’s a law of nature.
5
Seems like a path to stability of the "market" would be to increase the value of a stock by doing things with corporate resources that benefit society and make life better instead of focusing only on profiting the shareholders and executives without regard for how that affects society.
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@magicisnotreal Ah but the rub is for many their 401Ks are tied to the markets . So we're in bed with the devil.
6
There are a number of fundementals driving the market and the interplay between them is very complex. The first thing to remember is that the money supply expanded dramatically and, while the rate of increase has declined, that money is still out there and has to go somewhere. The next thing to remember is that the US is continuing to run a huge trade deficit and this means there are other huge pools of cash sitting out there that has to go somewhere. The counteracting forces include the deflation of the crypto bubble, the lofty valuations of US stocks, and the anti-inflationary moves by the fed. What comes next is hard to predict, but at some point there will be more balance between these forces and the market will stabalize. Is that now or a year from now may also depend on two factors not mentioned above...what happens in Ukraine and with the energy markets. May you live in interesting times.
7
@Ben P I am not surprised Walmart is down. I was in there the other day. As usual, the shelves are a mess, many of them bare and I looked high and low for assistance. I needed some garden gloves. Unless they were a pack of three, all were over $8! So I wandered over to Ace Hardware with a much larger selection and found a few great pairs reasonably priced. Same thing happened with flower pots which I found at Home Depot. Walmart was my go to, but no longer. Not sure what's going on with them, but definitely poor management has caught up. My point is that yes times are difficult, but individual companies do play a role in their own hard times.
10
Forward $10 for my predictions
6
In the list of very important things we should talk about the profitability of corporations and the money grab by shareholders is not even in the top ten. The only possible thing important about it is more how the corporations support fascists throughout the world and how that might destroy us, but their profitability is unimportant. If they cannot make money even when the laws favor only them, then they are totally without skill and should fail.
Remember, the stock market is only important to about ten percent of the country, and that number will go down as the war on labor continues. If the market fails only the rich will lose. Everyone else is already a loser in the US.
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@Chris
My 401k and modest investments would beg to differ.
If the market tanks, it will wipe out smaller investors like myself while the truly rich are insulated enough they will come out of it richer than ever - A bear market is a great time to buy.
I don't want the market to fail - I want the rich to pay their fair share and stop getting bailouts from the tax payers.
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@Chris
Tell that to all the [barely] middle class people whose savings are unfortunately tied to the stock market!
12
@Chris "...the stock market is only important to about ten percent of the country..." This is not correct; nearly 60 million people participate in 401Ks in America. That is a dramatically larger number than just 10% of the country no matter what number you consider "the country" to be. The stock market is long overdue for a serious correction given the lofty levels of valuations courtesy of interest rates suppressed to near zero for years and massive amounts of liquidity pumped into the markets particularly since the beginning of the pandemic. As the market adjusts to the reversal of absurdly loose monetary policy (which has only just gotten started), plenty of people will feel the loss of paper wealth both as their 401Ks fall in value and as the rocket ride of house prices finally meets some rational gravity. That loss of perceived wealth will absolutely have knock on effects to those who are not super wealthy.
21
Missed opportunity to use the term "Dead Cat Bounce".
Is it or isn't it? We'll know in a few weeks (months), stayed tuned folks!
6
And don’t try to catch a falling knife!
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@Ziggy A falling blade has no handle!
2