[Tyga11]

Originally Posted by dradernh

I'm not sure how you took the experience of one person beginning 40 years ago - not advice, mind you, but their experience - and got to your conclusion.

This sentence was perhaps the key to that experience: "[retiring at 45] had a lot to do with our household's earnings and the circumstances of the overall market during the years we were saving and investing for retirement."

To flesh it out further: DINKS, high earners, tiny monthly nut relative to income, started investing at a time of declining interest rates that were still declining years after we stopped working, and well-suited to just socking away year-after-year what we didn't need to live on every month. We still lived well and traveled widely in 1st - we just did it after paying ourselves first while living in a small apartment and driving an econobox for a decade after getting out of the M6.

What we see now is that in an era of rates rising quickly and significantly, the circumstances that helped us retire so early are not necessarily in place at the moment. So it goes.

If any of that is of use to you, please feel free to take what you want from it.

Did you work for PIMCO

[LuvMyE92]

Originally Posted by dradernh

I'm not sure how you took the experience of one person beginning 40 years ago - not advice, mind you, but their experience - and got to your conclusion.

When I started my job here 21 years ago, I had a very nice Porsche 911 that was a few years old at the time. One of my new coworkers the same age as me had a bit of an attitude and asked, "how can you afford to buy a Porsche?"

I answered, "No kids."

That shut him up pretty fast.

Everyone has different circumstances. We make different salaries, we have different family situations, live in different parts of the world and have different tolerances for risk.

[antzcrashing]

75 Basis points is baked i…………….

No

[Tyga11]

Originally Posted by antzcrashing

75 Basis points is baked i…………….

No

Yes, it was baked in. What was not baked in were the remarks after by Powell which influenced the market which you saw in real time

[antzcrashing]

Originally Posted by Tyga11

Yes, it was baked in. What was not baked in were the remarks after by Powell which influenced the market which you saw in real time

Cause no one could have guessed prior to Powell talking that he would be hawkish in lift of 8.3% YOY inflation…. Right.

The market is foolishly optimistic that the fed will 180 for no good reason. It's visible from a mile away

[Tyga11]

Originally Posted by antzcrashing

Cause no one could have guessed prior to Powell talking that he would be hawkish in lift of 8.3% YOY inflation…. Right.

The market is foolishly optimistic that the fed will 180 for no good reason. It's visible from a mile away

You think so now? Or are you saying they were?

[Chick Webb]

Originally Posted by Tyga11

Yes, it was baked in. What was not baked in were the remarks after by Powell which influenced the market which you saw in real time

Agreed; market had it at about 80%. And you saw the market drop a little, then start back up when Powell's brief started, and then headed straight back down when they realized where he's at.

I heard a fascinating interview yesterday on Bloomberg. Some woman, the CEO of an investing firm (sorry, can't recall either name), postulates that Powell isn't trying to tame inflation so much as he is trying to disabuse the markets of the notion of the so called "Fed Put".

Her reasoning is that taming inflation is not a sufficient outcome, given that the Fed is viewed by many as largely responsible for a lot of it, and Powell doesn't simply want to be known as Paul Volker, Jr. She said he wants his legacy to be the reestablishment of a truly independed Fed, one that doesn't have to come in and rescue the markets every time liquidity gets tight.

Why kill the Fed Put? Well, she said, the bailouts that started in 1987 with Greenspan's reaction to Black Monday (Oct 20, BTW, coming up soon....) have distorted the markets, specifically allowing people to take more risk with less-than-normal downside. The persistence of this over 35 years has done a lot of damage to capital markets and economies, as the Fed (and central banks all over the world), has essentially been forced to intervene by injecting money into markets on numerous occasions. Thus, she says, many in the Fed feel that it's become beholden to the market, and that the Fed is really not independent as a result and can't effectively do its job. Powell, she said, wants to fix that.

Like I said it was a fascinating interview, and a very clever and nuanced take that considers not just the financial reality, but political/institutional/personal factors in his decision making. Powell, after all, is a very wealthy man with a big ego in a position of extraordinary power from which he cannot be removed. And he's got 4 years to run the show his way. If she's right, it's very, very bad news for the markets in the near term. We could see another 20% drop, easily, over the next 6-12 months, with incredible volatility, as Powell and the market essentially engage in a staring contest. Who will blink first? The market thinks (no, it knows, based on recent history), that it'll be Powell. But, what if it's not?

A couple of links to background info -

The Greenspan Put

Black Monday (1987)

[Tyga11]

Originally Posted by Chick Webb

Agreed; market had it at about 80%. And you saw the market drop a little, then start back up when Powell's brief started, and then headed straight back down when they realized where he's at.

I heard a fascinating interview yesterday on Bloomberg. Some woman, the CEO of an investing firm (sorry, can't recall either name), postulates that Powell isn't trying to tame inflation so much as he is trying to disabuse the markets of the notion of the so called "Fed Put".

Her reasoning is that taming inflation is not a sufficient legacy, given that the Fed is viewed by many as largely responsible for a lot of it, and Powell doesn't simply want to be known as Paul Volker, Jr. She said he wants his legacy to be the reestablishment of a truly independed Fed, one that doesn't have to come in and rescue the markets every time liquidity gets tight.

Why kill the Fed Put? Well, she said, the bailouts that started in 1987 with Greenspan's reaction to Black Monday (Oct 20, BTW, coming up soon....) have distorted the markets, specifically allowing people to take more risk with less-than-normal downside. The persistence of this over 35 years has done a lot of damage to capital markets and economies, as the Fed (and central banks all over the world), has essentially been forced to intervene by injecting money into markets on numerous occasions. Thus, she says, many in the Fed feel that it's become beholden to the market, and that the Fed is really not independent as a result and can't effectively do its job. Powell, she said, wants to fix that.

Like I said it was a fascinating interview, and a very clever and nuanced take that considers not just the financial reality, but political/institutional/personal factors in his decision making. Powell, after all, is a very wealthy man with a big ego in a position of extraordinary power from which he cannot be removed. And he's got 4 years to run the show his way. If she's right, it's very, very bad news for the markets in the near term. We could see another 20% drop, easily, over the next 6-12 months, with incredible volatility, as Powell and the market essentially engage in a staring contest. The market thinks (no, it knows, based on recent history), that it'll be Powell. But, what if it's not?

A couple of links to background info -

The Greenspan Put

Black Monday (1987)

Thanks for sharing that. Seems like they are adamant about doing everything they can to destroy the economy to give to magical 2% of inflation.

Powell didn't even answer the question of 'lag time' by the CNBC reporter. I've lost complete confidence

[antzcrashing]

Originally Posted by Tyga11

You think so now? Or are you saying they were?

Market was optimistic for the last 3 rate hikes, despite the writing on the wall.

I sound like a bear but I am not, I don't support jumping all or even majority into cash or bonds. I have a small short in by way of SQQQ and VIX calls, risky but a small hedge

[chassis]

The projections in the news release on the Federal Reserve site, if anyone read it, shows inflation with a 2-handle in 2023.

Does this mean happy days are around the corner?

[antzcrashing]

Originally Posted by chassis

The projections in the news release on the Federal Reserve site, if anyone read it, shows inflation with a 2-handle in 2023.

Does this mean happy days are around the corner?

Most likely yes, bc the YOY inflation will be a comparison from then to early this year, and month-to-month inflation has been low. But even still, that could mean several months of pain in the meantime

[Tyga11]

Originally Posted by antzcrashing

Most likely yes, bc the YOY inflation will be a comparison from then to early this year, and month-to-month inflation has been low. But even still, that could mean several months of pain in the meantime

We will accept it as long as long as Tesla keeps going up

[dangerus_car]

Originally Posted by Tyga11

Yes, it was baked in. What was not baked in were the remarks after by Powell which influenced the market which you saw in real time

What was Powell remark? If you notice the chart (any stock any chart), at around 3:10 PM eastern time the candles were all bullish with long bottom wick, then it went downhill from there….

[tgrundke]

Originally Posted by antzcrashing

Most likely yes, bc the YOY inflation will be a comparison from then to early this year, and month-to-month inflation has been low. But even still, that could mean several months of pain in the meantime

Rate of change is one thing; The actual rate of inflation is another. If the YoY or MoM change is minimal/flat, but the rate of inflation is a steady 7-8%, we're in the same pickle.

Keep in mind that Powell may not need to raise rates like Volker did to accomplish his goals: he's also draining $90+bn/mo. through QT which is going to help beat down inflation without going to 18% interest rates.

We've got a massive asset bubble that has to revert. There is going to be pain across certain asset classes, no way around it.

[antzcrashing]

Originally Posted by tgrundke

Rate of change is one thing; The actual rate of inflation is another. If the YoY or MoM change is minimal/flat, but the rate of inflation is a steady 7-8%, we're in the same pickle.

Keep in mind that Powell may not need to raise rates like Volker did to accomplish his goals: he's also draining $90+bn/mo. through QT which is going to help beat down inflation without going to 18% interest rates.

We've got a massive asset bubble that has to revert. There is going to be pain across certain asset classes, no way around it.

Mom and yoy measure rate of inflation at certain intervals. If mom measure is low for 12 months, the yoy at that time, which is a key measure, will be low as a consequence. July and august usa inflation were basically zero, if that trend continues or at least it stays low, then the yoy reads 12 months from july ie 2023 will be favorable. Its a bit more complicated due to core and non-core inflation, gas, etc. Hard to extrapolate with high degree of certainty but those recent months are a good thing if you root for low inflation and fed easing

[Chick Webb]

Originally Posted by Tyga11

Thanks for sharing that. Seems like they are adamant about doing everything they can to destroy the economy to give to magical 2% of inflation.

Powell didn't even answer the question of 'lag time' by the CNBC reporter. I've lost complete confidence

The point that the interviewee was making is that it's naive to think that all he's trying to do is get back to 2%, and that the bigger picture is not only more complicated, but more consequential in the long run. Likely painful, too.

As to Powell, he's clearly given up trying to provide any forward-looking prognostications, likely because like the rest of us, he has no idea what's going to happen next. Gundlach compared him to Mr. Magoo in an interview yesterday, driving his jalopy while blind and stopping only when he runs into something solid. While unflattering, that may be a reasonably accurate take.

[Chick Webb]

Originally Posted by antzcrashing

July and august usa inflation were basically zero, if that trend continues or at least it stays low, then the yoy reads 12 months from july ie 2023 will be favorable.

There are a lot of ways to measure inflation, but the Fed generally excludes food and energy from their analysis, due to the volatility of their prices. The so-called Core CPI (CPI ex food & energy) rose 0.3% from Jun-Jul, and 0.6% from Jul-Aug. That isn't anywhere near zero; a 0.6% m-o-m increase is 7.2%/yr. If you average the m-o-m increases in Core CPI from Feb-Aug it's still a 6.2% inflation rate. I think your "basically zero" assessment is incorrect.

Going forward the m-o-m numbers are expected to come down, but very slowly. That's in part because there's a big lag in the impact of housing costs, and the increase in those remains high (+0.7% Jul-Aug). They will remain high for quite some time, and make up 30% of the Core CPI, so inflation for that reason alone will remain elevated well into next year.

An additional factor is the impact of the employement rate on inflation, which also remains strong. An unemployment rate of 3.5% creates wage pressures that on their own contribute roughly 4.5% to inflation. As long as unemployment remains low that component will remain high. It's estimated that the unemployment rate has to get to 5.5-6% in order to get the wage component of inflation below 2%.

It's really not complicated. People who have jobs keep spending money, even if they have to borrow to do it. People who do not have jobs do not spend money. In other words, Jobs == Demand. The unemployment rate hasn't barely budged. The Fed needs to decrease demand and is going to keep going until it does. People are going to lose their jobs. Lots of them. That's the "pain" Powell was referring to yesterday.

Link to data referenced above - Consumer Price Index Summary

[LuvMyE92]

Originally Posted by Chick Webb

It's really not complicated. People who have jobs keep spending money, even if they have to borrow to do it. People who do not have jobs do not spend money. In other words, Jobs == Demand. The unemployment rate hasn't barely budged. The Fed needs to decrease demand and is going to keep going until it does. People are going to lose their jobs. Lots of them. That's the "pain" Powell was referring to yesterday.

I am not an economist, and heck I haven't stayed at a Holiday Inn Express in years, but I did take more than 2 semesters of Economy in college. I seem to recall that in the Keynesian economic theory, 4% unemployment was "normal" and a target for a healthy economy. If we are below that, then it just adds more fuel to the argument that Chick makes above.

Which is unfortunate.

Of course, the unemployment rate is misleading, because it only considers people who want to work. We probably have a bunch of people who should be working, but are not because of the myriad of reasons, many of which came about with Covid. So those folks are living off of their savings and investments, which reduces... something. Liquidity?

[chassis]

Consumer liquidity is a good topic, will post a chart later.

[Chick Webb]

Originally Posted by LuvMyE92

I seem to recall that in the Keynesian economic theory, 4% unemployment was "normal" and a target for a healthy economy. If we are below that, then it just adds more fuel to the argument that Chick makes above.

Keynes defined "full employment" as an economy in which the only people out of work were transitioning between jobs (it's called "frictional" unemployment). Since then economists have added a "structural" unemployment component, so the generally agreed rate is somewhat higher than Keynes would say.

The Bureau of Labor Statistics (BLS) tracks unemployment using the the nonaccelerating inflation rate of unemployment (NAIRU). Specifically, they define full employment this way:

BLS defines full employment as an economy in which the unemployment rate equals the nonaccelerating inflation rate of unemployment (NAIRU), no cyclical unemployment exists, and GDP is at its potential.

That's vague enough and dependent on so many factors that as you might expect the NAIRU varies. As do "experts" view of what the NAIRU is. The CBO assumes it's about 4.4%, I believe.

Originally Posted by LuvMyE92

Of course, the unemployment rate is misleading, because it only considers people who want to work. We probably have a bunch of people who should be working, but are not because of the myriad of reasons, many of which came about with Covid. So those folks are living off of their savings and investments, which reduces... something. Liquidity?

Clearly there were a lot of people sitting on COVID Cash for quite some time and that hurt the labor participation rate. Which, no doubt, contributed to both the labor supply problem and the demand for goods and services problem that's put us in this inflation box. But, as of August, we're very nearly back to the pre-pandemic labor participation rate. Unemployment ticked up 0.2% in August, but not because more people were unemployed; employment actually rose by 315,000. It went up because more people entered the pool of job seekers, as the participation rate rose 0.3%. It's now just 1% shy of where it was in February 2020. Maybe all that COVID Cash has been spent?

References

Full employment - Full employment: an assumption within BLS projections

Unemployment stats for August - THE EMPLOYMENT SITUATION — AUGUST 2022

[Fishbuddy]

With interest rates hikes, housing market and stock market (leading indicator) how long before auto industry is hit? I see all the time peoples car payments are well over $1,000/ month and I just don't feel this can continue.

[XutvJet]

Simple answer here: It's complicated and is going to take time.

There is no quick fix. This whole situation is related to COVID and the government reaction (I'm talking most governments in the world) to the situation. Yes, they overreacted, but you really can't blame them as they had never had to deal with a situation like COVID in present time and there was so much fear going around. They had to prop up the economy to keep the world out of an economic collapse. The issue is they helped too much and let it go on too long. Investors, private equity, etc. got greedy and got rich. Workers started having a different view of work, work ethic, and some got greedy and wanted to be compensated for seemingly basic jobs. Everyone had money and were spending it like crazy because they were bored sitting around all day because of COVID. Many were getting paid to do nothing. The stock market became WAY OVERVALUED. Then there came the chip shortage, supply chain issues, etc. that we're still dealing with that to some extent. Property and auto dealers got super greedy and buyers paid way too much for homes, cars, etc. because they had the money and were impatient. Inflation sky rocketed as a result of all of the above. The market hardly budged at first with all this inflation and in many cases, market value continued to increase (WTF?). The thought was people had jobs so everything was fine. That's so far from the truth. And so, here we are. We never learn.

- The market is going to tumble for while, probably well in the 1st quarter of 2023.

- A lot, and I mean a lot, of people, will lose their jobs. All sectors will be hit.

- Home and car values will plummet because of interest rates, lost jobs, and the suckers that overpaid.

- There will be lots of home and auto loan defaults.

- Wages will go down. Gone are the days of making $17/hr making burritos or coffee orders at Chipotle and Starbucks. It's not sustainable and people aren't going to continue pay excessively high prices for fast food because they no longer can afford it.