I guess no one is telling anyone. Everyone's working, restaurants and stores are packed, the airport was packed today...
Investing Strategies. What is your move?
- Thread starter PimTac
- Start date
I guess no one is telling anyone. Everyone's working, restaurants and stores are packed, the airport was packed today...
Exponential increase in credit card balances / debt across all income brackets.
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Recessions are funny things. They are not the end of the world like the media wants to spout to the masses. They are technically negative growth periods. A lot of individuals and households will fare okay in a recession as long as their income is stable.
When your neighbor loses his job it’s a recession. When you lose your job it’s a depression.
And to clarify, recessions technically mean two consecutive quarters of negative growth. When they announce that we are in a recession it really means we have been in one for six months already.
This is the million dollar question. Recessions vary by the cause of them and how they react in the recovery. The typical Boom/Bust recession happens after a period of a great economy. The 70’s saw what some call a Supply Shock Recession sparked by the Saudi oil embargo.
This recession is a hybrid of sorts. We had a great economy until the
hit and pulled the rug out from under it. In addition, the government in its attempt to keep things afloat pumped massive amounts of $$$ into the economy. I think we are in uncharted territory here. The increase in fuel prices is just now starting to hit the agricultural sector. That will lead to higher food prices and shortages. On top of all this we have this “Great Resignation “ that has hit the labor markets. The stories of businesses unable to find workers has been out there for a while now. I talked to a healthcare manager the other day and he mentioned that the turnover rate in staffing is well over 20%. People are leaving due to stress. The ones that stay behind end up constantly training new hires who then leave anyway. These veteran workers are starting to pull the plug themselves. That is a experience drain. I’m sure healthcare is not alone.
What is the answer? It’s beyond me at this point. What I am fearful of is a Long L shaped recovery and stagflation.
I thought I read that CC use for staples in April is the highest, since the 08 crash..
When you're buying groceries w/ CC (assuming not using points or other things), it's quite evident people are getting squeezed.
Would be an interesting read to see if lower tier grocery stores are seeing an uptick in sales. I have a feeling they are.
The use of credit cards specifically for the rewards or cash back is really growing. What has to be looked at is the amount of credit card debt people are carrying. If you pay it off each month then you reap the benefits.
Highboy
Site Donor 2022
Using my Costco Visa for gas purchases. 4% back to me up to 7k$, 1% after. With the gas prices this high, this year’s rewards should be a lot.
The 1970s all over again????
We have rampant inflation for the first time since the 1970s. Those years were so bad that they had their own negatively connoted name – the Great Inflation.
History sure seems to be rhyming. People smarter than me believe we're going to continue following the same path as we did in the 1970s...
In short, we're headed for a recession and a period of continued high inflation. It's a toxic combination known as "stagflation" by economists. The last time our country saw stagflation was the 1970s.
Before I go any further, I realize that not all people here will share this opinion. That's OK. Reasonable people can look at the same facts and come to different conclusions.
In 2020 inflation was less than 2% as measured by widely followed "official" inflation gauges.
As you are well aware, inflation has climbed persistently higher to nearly 9% today by these same "offical" measures... its highest level in more than 40 years.
We all should have known inflation was headed much higher by looking at one thing... the U.S. money supply – more specifically, the "M2" money supply. It's all the money in our economy, including cash, checking and savings accounts, money-market accounts, and mutual funds.
The money supply grew by nearly 30% in a span of a year following the pandemic. It continued to grow by more than 40% over a two-year period.
Money-supply growth is the definition of inflation, not increases in prices. Many people misunderstand this.
Price increases are a symptom of inflation, not the cause...Inflation is caused by the Fed printing new money into circulation out of thin air... an exchange of nothing for something.
It's true that prices of certain things (like oil and baby formula) have gone up recently because of supply shocks. But that's not "inflation"...
Inflation is the general rise in all prices across an economy caused by the expansion of the money supply. Increases for certain goods because of supply shocks are just noise in the overall inflation numbers.
The late, great Nobel Prize-winning economist Milton Friedman explained it best...
Inflation is always and everywhere a monetary phenomenon.
Don't let anyone tell you differently.
When it comes to inflation, we should listen to Friedman. He spent his career studying it across many centuries, countries, and types of economies. He was a big critic of the Fed's monetary policies in the 1970s that led to that decade's rampant inflation.
There's always a lot of smoke and mirrors around the subject of inflation. Neither the Fed nor the mainstream financial media is giving you an honest explanation of what it is or what causes it.
Friedman is very clear about it. He says inflation is always caused by the same thing – a more rapid increase in the money supply than in the output of goods and services.
According to Friedman, inflation has always been accompanied by a rapid increase in the quantity of money. And a rapid increase in the quantity of money has always been accompanied by inflation.
The Fed – through its monetary policies – caused today's inflation. It's as simple as that. Of course, the Fed will never admit that. It will blame anyone or anything else it can.
It has already blamed supply-chain disruptions... the war in Ukraine... and pandemic lockdowns. I'm sure it will blame others in the future, like greedy businesses that are jacking up prices to cover their rising costs, or employees whose wages have grown too fast.
Don't believe any of it.
More to come soon
We have rampant inflation for the first time since the 1970s. Those years were so bad that they had their own negatively connoted name – the Great Inflation.
History sure seems to be rhyming. People smarter than me believe we're going to continue following the same path as we did in the 1970s...
In short, we're headed for a recession and a period of continued high inflation. It's a toxic combination known as "stagflation" by economists. The last time our country saw stagflation was the 1970s.
Before I go any further, I realize that not all people here will share this opinion. That's OK. Reasonable people can look at the same facts and come to different conclusions.
In 2020 inflation was less than 2% as measured by widely followed "official" inflation gauges.
As you are well aware, inflation has climbed persistently higher to nearly 9% today by these same "offical" measures... its highest level in more than 40 years.
We all should have known inflation was headed much higher by looking at one thing... the U.S. money supply – more specifically, the "M2" money supply. It's all the money in our economy, including cash, checking and savings accounts, money-market accounts, and mutual funds.
The money supply grew by nearly 30% in a span of a year following the pandemic. It continued to grow by more than 40% over a two-year period.
Money-supply growth is the definition of inflation, not increases in prices. Many people misunderstand this.
Price increases are a symptom of inflation, not the cause...Inflation is caused by the Fed printing new money into circulation out of thin air... an exchange of nothing for something.
It's true that prices of certain things (like oil and baby formula) have gone up recently because of supply shocks. But that's not "inflation"...
Inflation is the general rise in all prices across an economy caused by the expansion of the money supply. Increases for certain goods because of supply shocks are just noise in the overall inflation numbers.
The late, great Nobel Prize-winning economist Milton Friedman explained it best...
Inflation is always and everywhere a monetary phenomenon.
Don't let anyone tell you differently.
When it comes to inflation, we should listen to Friedman. He spent his career studying it across many centuries, countries, and types of economies. He was a big critic of the Fed's monetary policies in the 1970s that led to that decade's rampant inflation.
There's always a lot of smoke and mirrors around the subject of inflation. Neither the Fed nor the mainstream financial media is giving you an honest explanation of what it is or what causes it.
Friedman is very clear about it. He says inflation is always caused by the same thing – a more rapid increase in the money supply than in the output of goods and services.
According to Friedman, inflation has always been accompanied by a rapid increase in the quantity of money. And a rapid increase in the quantity of money has always been accompanied by inflation.
The Fed – through its monetary policies – caused today's inflation. It's as simple as that. Of course, the Fed will never admit that. It will blame anyone or anything else it can.
It has already blamed supply-chain disruptions... the war in Ukraine... and pandemic lockdowns. I'm sure it will blame others in the future, like greedy businesses that are jacking up prices to cover their rising costs, or employees whose wages have grown too fast.
Don't believe any of it.
More to come soon
With the exception of a slight turn to value, and doing more ETF's for new purchases, I've learned Jack Bogle was right. Indexes only. Every stock I've ever bought has turned sour. I was down about 13% for the first six months. Something I can live with.
Again, before I go any further, I realize that not all people here will share this opinion. That's OK. Reasonable people can look at the same facts and come to different conclusions.
1970s-Part 2
You need to understand what causes inflation to know where it's headed...If you study the money supply, it's apparent inflation isn't dropping anywhere near the Fed's 2% target anytime soon.
Here's why...
The last time the money supply even approached today's pace of growth was the 1970s. From 1970 to 1972 and again from 1975 to 1977, the money supply grew about 30%. The Fed printed the money to fund the Vietnam War and an expansion of Social Security.
Now take a look at the chart below... It shows the money supply per unit of output, as measured by real gross domestic product ("GDP") versus inflation as measured by the consumer price index ("CPI") over the decade of 1970 to 1980.
You can see that inflation (the black line) always tracks the increase in the money supply (the blue line). Friedman shared a similar chart in a lecture explaining the country's high inflation back in 1977.
It takes about a year for money-supply increases to start making their way into the economy. What's important is the two lines eventually meet. Either inflation has to rise... or the money supply has to decrease.
By 1972, the money-supply increases had finally made their way into the economy. Inflation continued rising to more than 12% by 1974. It took two years and the Fed raising interest rates to 13% to bring inflation down to 5%.
But the Fed didn't learn its lesson and kept printing. Inflation started rising again over the next few years and didn't peak until 1980 at nearly 15%. This time, it took more than two years and Fed Chair Paul Volcker raising interest rates to nearly 20% in 1981 to bring inflation back down.
Let that sink in... It took the Fed at least two years of raising interest rates each time to tame inflation. And the Fed had to raise interest rates higher than the rate of inflation just to bring it down to 5%, more than double the Fed's 2% target today.
Now, here's the scary part. Here is the same chart over the past 10 years...
This might be the most important chart you see all year.
This is the chart Milton Friedman would be looking at today to forecast inflation. The blue line shows the explosive growth in the money supply immediately following the pandemic.
Again, this increase didn't show up in inflation immediately after the Fed switched its printing presses into overdrive. It took about a year before we started seeing the effect in inflation numbers.
Since then, inflation has been following the upward path of the money supply. But as you can see, it hasn't caught up yet.
That's why I believe inflation will continue to stay elevated.
Folks arguing whether we've seen 'peak inflation' are missing the big picture...Recently we learned the latest numbers from the Fed's preferred inflation gauge – called the Personal Consumption Expenditures ("PCE") Index. PCE inflation numbers are normally lower than CPI numbers because of the way it weights an assumed basket of goods. May's PCE reading checked in at a 6.3% year-over-year gain, the same reading as April.
Some might take this as a sign that we might be seeing "peak inflation" right now.
But month-over-month growth from April to May was greater (0.6%) than it was from March to April (0.2%), meaning inflation is actually accelerating if you look beyond the year-over-year comparison that suggests it might be topping.
We'll see the latest CPI numbers on July 13. If the headline number falls from May's 8.6% reading, the markets will likely celebrate. But they shouldn't. It doesn't really matter if inflation is 8%... or 7%... or even 6%.
Supply shocks around certain commodities are causing a lot of noise in the inflation numbers. If the number falls next month, the Fed will likely credit its tightening policies.
Don't be fooled...Remember, it took more than two years of raising interest rates in the 1970s to bring inflation under control each time. And rates had to be raised higher than the rate of inflation.
More to come soon
Thing is every other country has been increasing it's money supply..Japan has been doing it for 40 years so one country's inflation rate relative to another's doesn't mean that much
If you look at futures charts most commodities are way off their highs. Corn,wheat,lumber,copper,gold,even oil has broken and they all going back to April 2020 levels like so many stocks already have. Today's "inflation" is price gouging by corporations even as futures prices are headed down just so these companies can continue making record profits.
Home Depot hasn't lowered 2x4 prices back to 2019 or 2020 levels even tho lumber futures are back to 2019 levels
Worked at a natural gas power plant for several years. In the summer, natural gas plants actually use less gas. They fire at a fixed air/fuel ratio and in the higher summer heat, they actually produce less power as there's less oxygen in hotter air vs cooler air. The natural gas plants make way more power in the winter vs the summer. Also there's way more gas in the summer than winter. Summer is when they're injecting gas into storage and winter is when they use the excess gas when everyone is using gas to heat their homes. They don't use gas for heating in the summer. The plant I was at was rated for about 300 megawatts and in the summer it was down to maybe 250-260 megawatts and in the winter could do 320-330. The gas company actually had the right to cut gas to the plant up to 10 days a year when there was a shortage, in those cases, the plant just shut down because the rate for electricity wasn't that high in the winter vs the summer. When it was most needed it the summer it couldn't produce it and it god paid the least in the winter when it could make the most.
Enjoy your Independence Day weekend.
Something to ponder: If you are doing fine despite all the increased prices and financial strains, make sure others in your family are doing fine as well especially the elders. Being on fixed income during times like this is a big strain. This weekend would be a good time to talk to everyone.
Something to ponder: If you are doing fine despite all the increased prices and financial strains, make sure others in your family are doing fine as well especially the elders. Being on fixed income during times like this is a big strain. This weekend would be a good time to talk to everyone.
I'm buying Ag, Au, and Pt at these levels.
Part 3
Again, not all people here will share this opinion. That's OK. Reasonable people can look at the same facts and come to different conclusions
The Fed just started hiking rates in March. With inflation at nearly 9% today, interest rates need to rise much higher than the Fed's 3.25% to 3.50% "neutral" target rate for the end of this year to bring inflation under control.
We're more likely to see double-digit inflation before we see it return to 2% – or even 5%.
The Fed may not have the stomach to follow through on its plans to bring inflation down to its 2% target.
It's much more difficult – and painful – to reverse the process...
Increasing the money supply is easy. It feels good at first. In 2020 and into 2021, everyone felt richer. The Fed and Congress looked like heroes. The printing presses pulled us out of a recession after the pandemic.
But the printing party carried on far too long. It's an easy trap to fall into. As Friedman put it...
When you start drinking or when you start printing too much money, the good effects come first, the bad effects only come later. That is why, in both cases, there is a strong temptation to overdo it – to drink too much or to print too much money.
The party is now over. We're in the hangover stage. Folks have spent their government stimulus checks. Now comes the difficult part.
Here's the Friedman alcoholism analogy again, describing the next part of the story... He said that getting rid of inflation is as hard as kicking alcoholism...
When it comes to the cure, it is the other way about. When you stop drinking, or when you stop printing money, the bad effects come first and the good effects only come later. That is why it is so hard to persist with the cure. In the United States, four times in the 20 years after 1957 we undertook the cure, but each time we lacked the will to continue.
By "bad effects," Friedman means slowing growth, rising unemployment, and recession. I expect the Fed will lack the will this time, too. The Fed can only bring down inflation by rapidly decreasing the money supply and raising interest rates. But that's not going to happen. The Fed's planned interest-rate hikes and balance-sheet decreases are too small and too slow.
That leaves the painful, natural way to reduce inflation... a deep, prolonged recession when economic output and demand fall. That's where we're headed.
Some experts early this year have predicted that 2022 will be the year the markets crash. Few people were talking about a bear market or a recession back then. It was explained why it was inevitable.
Things are playing out even faster than some expected...We're already officially in a bear market... and predictions about a recession are becoming more and more common.
The S&P 500 Index is off to its worst start since 1970 (there's that decade again).
The U.S. benchmark is down more than 20% this year. The tech-heavy Nasdaq Composite Index is down 30%.
And we may already be in a recession.
Remember, a recession for media purposes is two quarters of declining GDP. U.S. GDP shrank 1.5% last quarter. This quarter's number comes out at the end of July. If it shrinks again (as I expect it will), we'll "officially" be there.
But even if the economy ekes out some small growth to avoid the "official" recession definition, it doesn't change the direction our economy is headed.
Some experts continue to be the bearer of bad news, believing things are about to get much worse...As It's been shown here, inflation isn't coming back down anytime soon. Meanwhile, interest rates and U.S. consumer debt continue to rise.
Inflation hurts everyone, but it's a devastating "tax" on lower-income Americans who are living paycheck to paycheck. The bottom 20% of households spend 31% of their after-tax income on gasoline and groceries.
Part 4 (final) to come soon
Again, not all people here will share this opinion. That's OK. Reasonable people can look at the same facts and come to different conclusions
The Fed just started hiking rates in March. With inflation at nearly 9% today, interest rates need to rise much higher than the Fed's 3.25% to 3.50% "neutral" target rate for the end of this year to bring inflation under control.
We're more likely to see double-digit inflation before we see it return to 2% – or even 5%.
The Fed may not have the stomach to follow through on its plans to bring inflation down to its 2% target.
It's much more difficult – and painful – to reverse the process...
Increasing the money supply is easy. It feels good at first. In 2020 and into 2021, everyone felt richer. The Fed and Congress looked like heroes. The printing presses pulled us out of a recession after the pandemic.
But the printing party carried on far too long. It's an easy trap to fall into. As Friedman put it...
When you start drinking or when you start printing too much money, the good effects come first, the bad effects only come later. That is why, in both cases, there is a strong temptation to overdo it – to drink too much or to print too much money.
The party is now over. We're in the hangover stage. Folks have spent their government stimulus checks. Now comes the difficult part.
Here's the Friedman alcoholism analogy again, describing the next part of the story... He said that getting rid of inflation is as hard as kicking alcoholism...
When it comes to the cure, it is the other way about. When you stop drinking, or when you stop printing money, the bad effects come first and the good effects only come later. That is why it is so hard to persist with the cure. In the United States, four times in the 20 years after 1957 we undertook the cure, but each time we lacked the will to continue.
By "bad effects," Friedman means slowing growth, rising unemployment, and recession. I expect the Fed will lack the will this time, too. The Fed can only bring down inflation by rapidly decreasing the money supply and raising interest rates. But that's not going to happen. The Fed's planned interest-rate hikes and balance-sheet decreases are too small and too slow.
That leaves the painful, natural way to reduce inflation... a deep, prolonged recession when economic output and demand fall. That's where we're headed.
Some experts early this year have predicted that 2022 will be the year the markets crash. Few people were talking about a bear market or a recession back then. It was explained why it was inevitable.
Things are playing out even faster than some expected...We're already officially in a bear market... and predictions about a recession are becoming more and more common.
The S&P 500 Index is off to its worst start since 1970 (there's that decade again).
The U.S. benchmark is down more than 20% this year. The tech-heavy Nasdaq Composite Index is down 30%.
And we may already be in a recession.
Remember, a recession for media purposes is two quarters of declining GDP. U.S. GDP shrank 1.5% last quarter. This quarter's number comes out at the end of July. If it shrinks again (as I expect it will), we'll "officially" be there.
But even if the economy ekes out some small growth to avoid the "official" recession definition, it doesn't change the direction our economy is headed.
Some experts continue to be the bearer of bad news, believing things are about to get much worse...As It's been shown here, inflation isn't coming back down anytime soon. Meanwhile, interest rates and U.S. consumer debt continue to rise.
Inflation hurts everyone, but it's a devastating "tax" on lower-income Americans who are living paycheck to paycheck. The bottom 20% of households spend 31% of their after-tax income on gasoline and groceries.
Part 4 (final) to come soon
Part 4
Again, not all people here will share this opinion. That's OK. Reasonable people can look at the same facts and come to different conclusions.
Gas prices are up nearly 50% from a year ago. Food prices are up 10%, according to the latest inflation data from the U.S. Bureau of Labor Statistics.
Many Americans are now turning to credit cards as they adjust to higher prices. In April, revolving credit balances jumped 20% to a record $1.1 trillion.
Are we witnessing a slow-motion economic train wreck?
Everyday folks will keep getting poorer and poorer with every passing month, as costs rise and the value of a dollar is cheapened. Economic conditions are deteriorating fast for many Americans. And consumer spending makes up nearly 70% of the U.S. economy.
Rising prices will eat into corporate profits. The economy will slow. Bankruptcies will rise. Companies will begin laying off workers (many are already freezing their hiring today). The unemployment rate will begin climbing again.
Many experts expect delinquencies and defaults on credit cards and corporate loans to rise sharply over the next year.
As the situation gets more dire, I expect the Fed will give up its fight against inflation and throw in the towel (chicken out). It will begin easing again – printing money and lowering interest rates.
*NOTE* when and if the fed chickens out and stops raising rates and starts easing again? you'll see risky growth stocks temporarily rise, but inflation will continue to spiral UP out of control, the US$ will start back down, and commodities and precious metals will be safe bets. Right now, precious metals are in a down trend because the US$ is in a strong uptrend (we're the first country/currency to start tightening).
If it does chicken out, that just means inflation will take even longer to extinguish.
Many believe we're headed toward a deep recession with inflation... in other words, the dreaded "S" word, "stagflation". In the 1970s, we went through two painful recessions. The stagflation lasted from 1974 to 1982.
Many think it won't last that long this time, but things are going to get worse before they get better.
Have stocks bottomed?...a lot of experts are saying that earnings estimates for stocks this year are far too optimistic.
The market still believes the earnings of the companies in the S&P 500 are going to grow 18% this year. Right now they are 47% higher than pre-pandemic earnings.
Clearly, the market hasn't priced in a recession yet, much less stagflation.
Will companies start guiding down their earnings as we get into the heart of the next quarterly earnings season, which begins in July.
These pessimistic changes are going to bring down the market's valuation.
And when we're officially in a recession, investors will value the market using lower earnings multiples.
That's why I believe we still have at least another 20% to 30% downside in this bear market before it's over. In short, it's not time to get bullish on U.S. stocks.
CONCLUSION
No one wants to see our country in a crisis. But as Milton Friedman explained, to cure our addiction to easy money, we need to endure some pain. It's the only way to real recovery.
This pain will create incredible opportunities for some folks.
The End
Again, not all people here will share this opinion. That's OK. Reasonable people can look at the same facts and come to different conclusions.
Gas prices are up nearly 50% from a year ago. Food prices are up 10%, according to the latest inflation data from the U.S. Bureau of Labor Statistics.
Many Americans are now turning to credit cards as they adjust to higher prices. In April, revolving credit balances jumped 20% to a record $1.1 trillion.
Are we witnessing a slow-motion economic train wreck?
Everyday folks will keep getting poorer and poorer with every passing month, as costs rise and the value of a dollar is cheapened. Economic conditions are deteriorating fast for many Americans. And consumer spending makes up nearly 70% of the U.S. economy.
Rising prices will eat into corporate profits. The economy will slow. Bankruptcies will rise. Companies will begin laying off workers (many are already freezing their hiring today). The unemployment rate will begin climbing again.
Many experts expect delinquencies and defaults on credit cards and corporate loans to rise sharply over the next year.
As the situation gets more dire, I expect the Fed will give up its fight against inflation and throw in the towel (chicken out). It will begin easing again – printing money and lowering interest rates.
*NOTE* when and if the fed chickens out and stops raising rates and starts easing again? you'll see risky growth stocks temporarily rise, but inflation will continue to spiral UP out of control, the US$ will start back down, and commodities and precious metals will be safe bets. Right now, precious metals are in a down trend because the US$ is in a strong uptrend (we're the first country/currency to start tightening).
If it does chicken out, that just means inflation will take even longer to extinguish.
Many believe we're headed toward a deep recession with inflation... in other words, the dreaded "S" word, "stagflation". In the 1970s, we went through two painful recessions. The stagflation lasted from 1974 to 1982.
Many think it won't last that long this time, but things are going to get worse before they get better.
Have stocks bottomed?...a lot of experts are saying that earnings estimates for stocks this year are far too optimistic.
The market still believes the earnings of the companies in the S&P 500 are going to grow 18% this year. Right now they are 47% higher than pre-pandemic earnings.
Clearly, the market hasn't priced in a recession yet, much less stagflation.
Will companies start guiding down their earnings as we get into the heart of the next quarterly earnings season, which begins in July.
These pessimistic changes are going to bring down the market's valuation.
And when we're officially in a recession, investors will value the market using lower earnings multiples.
That's why I believe we still have at least another 20% to 30% downside in this bear market before it's over. In short, it's not time to get bullish on U.S. stocks.
CONCLUSION
No one wants to see our country in a crisis. But as Milton Friedman explained, to cure our addiction to easy money, we need to endure some pain. It's the only way to real recovery.
This pain will create incredible opportunities for some folks.
The End
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