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Inflation

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Interesting chart on the S&P500, testing a confluence of support with the upward sloping trendline from the October low and the downward slopping trendline from the all-time-highs. All trading involves risk, but if this latest round of hot inflation data fuels a break below these key levels, it could open the door to that next down leg.
 
CityIndex said:
Interesting chart on the S&P500, testing a confluence of support with the upward sloping trendline from the October low and the downward slopping trendline from the all-time-highs. All trading involves risk, but if this latest round of hot inflation data fuels a break below these key levels, it could open the door to that next down leg.
Click to expand...
IMHO the casus belli is when earnings start reporting poorly. At the moment, there's a real battle/tug of war between rate rises and earnings. The moment earnings beats are unable to counteract the rate rises (i.e keep p/e at least neutral) it's armageddon.

So the first order question from there is, what's going to pummel earnings? Is it going to be costs? Rate rises dump the demand side for goods/services but they don't improve the supply side. In fact, they make some of it worse.

The second order/deeper question then becomes, what's actually driving the cost increases? ;)
 
I think we could be looking at a stagflation situation now, inflation does not seem to be coming down even if interest rates are hiked up. The chickens are coming home to roost for central banks, they could be trapped.

Central banks kept interest rates ultra low for to long and the war in Ukraine hasn’t helped either with higher prices.
 
I agree danny. Almost as if there's something structural driving it that central banks can't do anything about hey? ;)
 
over9k said:
Big call smurf. These companies are leviathans. They can simply buy up any and everything that even looks like it's going to be a threat. Hell, worst case for them they've got enough money/power/influence to just stifle any innovation they didn't think of themselves.

They are holding both the carrot and the stick, so to speak.
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It is and they are.

But I still remember the laughter in the office when it was announced, on mainstream news, that Apple was going into the mobile phone business. Literally nobody took it seriously. Nokia was far too entrenched and Apple are just that also-ran computer company that everyone thought would've gone broke by now, right?

It didn't take long at all for iPhones and other smartphones to become ubiquitous, Apple to become one of the most successful tech companies and Nokia to become the butt of jokes.

There's a pretty long list of companies and brands that were at the top a generation ago but which are either dead completely, or at least irrelevant, today across all sorts of industries. Giants can fall if they don't stay on top of their game. :2twocents
 
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over9k said:
IMHO the casus belli is when earnings start reporting poorly. At the moment, there's a real battle/tug of war between rate rises and earnings. The moment earnings beats are unable to counteract the rate rises (i.e keep p/e at least neutral) it's armageddon.

So the first order question from there is, what's going to pummel earnings? Is it going to be costs? Rate rises dump the demand side for goods/services but they don't improve the supply side. In fact, they make some of it worse.

The second order/deeper question then becomes, what's actually driving the cost increases? ;)
Click to expand...

I have a feeling you're going to say crude :p

The Fed has enough evidence now to aim or a tighter credit environment. This may be hopium rally 2.0 ala June 2022. The 'Jackson Hole' moment could be the release of economic projections in roughly a month's time where the Fed revises the dot plot upwards.

The historical context for a recession is huge. The only time in recent history where the Fed raised rates during a hiking cycle and didn't cause one was in 2018/19 when the Fed caved in and started cutting.

Meanwhile, layoffs are accelerating when compared to what we saw in 2022, and companies are angling for more. Private credit is becoming more difficult to access. We're seeing that manifest with consumers rejecting higher prices for some goods (Domino's?), international trade being at covid levels (Baltic dry lows) and companies reporting poor guidance (Walmart thinks their consumers may be in trouble soon).
 
IMO the biggest problem facing us is consumer confidence, ATM as the RBA keeps saying there is still plenty of savings buffer around, consumers feel the current situation is just a blip and everything will be ok soon.
Well that confidence can turn very quickly IMO and there are plenty of storm clouds on the horizon as the Captain would say.
The next 6 months could be very telling, especially on the political front, coal and gas are a hot potato and a big contributer to the economy and to power supply stability, the growing uncertainty and the high profile media coverage gives it could very well prick the bubble IMO.
A doom and gloom period could soon wash over Sydney/Melbourne and if they sneeze the rest of the country gets a cold.
I think keeping an eye on the politicians demenour, will give an indication as to how serious it is getting, there will be some nerves tingling in Canberra, especially when Adam goes on a rant. Lol
Just my thoughts.
 
sptrawler said:
IMO the biggest problem facing us is consumer confidence, ATM as the RBA keeps saying there is still plenty of savings buffer around, consumers feel the current situation is just a blip and everything will be ok soon.
Well that confidence can turn very quickly IMO and there are plenty of storm clouds on the horizon as the Captain would say.
The next 6 months could be very telling, especially on the political front, coal and gas are a hot potato and a big contributer to the economy and to power supply stability, the growing uncertainty and the high profile media coverage gives it could very well prick the bubble IMO.
A doom and gloom period could soon wash over Sydney/Melbourne and if they sneeze the rest of the country gets a cold.
I think keeping an eye on the politicians demenour, will give an indication as to how serious it is getting, there will be some nerves tingling in Canberra, especially when Adam goes on a rant. Lol
Just my thoughts.
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Whether or not consumers do have cash to spare is irrelevant IMO.
The RBA, and other central bankers, are committed to the notion that CPI can be tamed via interest rate hikes. They are unable to abandon that paradigm without causing the market to question their necessity (what's the point of a central bank if it can't actually guarantee stability?)
So their hand is forced. They must 'get the job done' and historically, that has almost always coincided with a recession.
 
waterbottle said:
Whether or not consumers do have cash to spare is irrelevant IMO.
The RBA, and other central bankers, are committed to the notion that CPI can be tamed via interest rate hikes. They are unable to abandon that paradigm without causing the market to question their necessity (what's the point of a central bank if it can't actually guarantee stability?)
So their hand is forced. They must 'get the job done' and historically, that has almost always coincided with a recession.
Click to expand...
Also whether they're willing to spend it.

The inflation narrative has my "lived through the 70's inflation" boomer parents very nervous.

So the narrative alone may dump consumer spending without the rba doing a damn thing.

Ironically, if rate rises get inflation under control that might actually make people confident/willing to start spending again, requiring even more rises.

Funny how this all works isn't it?
 
waterbottle said:
Whether or not consumers do have cash to spare is irrelevant IMO.
The RBA, and other central bankers, are committed to the notion that CPI can be tamed via interest rate hikes. They are unable to abandon that paradigm without causing the market to question their necessity (what's the point of a central bank if it can't actually guarantee stability?)
So their hand is forced. They must 'get the job done' and historically, that has almost always coincided with a recession.
Click to expand...
The thing is the RBA don't have much else at their disposal, to control inflation than interest rates, the Government has the fine control levers.
So all the RBA can do is crank interest rates, until they are sure the wage/price or money supply/price spiral is under control and has stabilised or reversed.
IMO why it usually ends in recession, is because when consumers stop buying due to lack of confidence, it takes a long time to change the sentiment, that's why the recovery is usually slow from a recession.
But a lot of businesses go broke, a lot of people get unemployed, a lot of water has to go under the bridge.
Only my opinion and as usual it will be interesting t watch how it pans out.
 
over9k said:
The inflation narrative has my "lived through the 70's inflation" boomer parents very nervous.

So the narrative alone may dump consumer spending without the rba doing a damn thing.
Click to expand...
Your boomer parents have lived through 5 recessions or major downturns, they will be well aware of the indicators. ;)
!982 recession, 1987 crash, 1990 recession we had to have, 2000 tech wreck and then Asia stock market crash, 2008 GFC and here we are again. :wheniwasaboy:
IMO the only saving grace today is technology, the RBA, Treasury etc can gather and process information faster than they ever could before, this alone may allow them to be much more exact on their interest rate movements and timing may be perfect. That would be nice. :xyxthumbs
 
sptrawler said:
The thing is the RBA don't have much else at their disposal, to control inflation than interest rates, the Government has the fine control levers.
So all the RBA can do is crank interest rates, until they are sure the wage/price or money supply/price spiral is under control and has stabilised or reversed.
IMO why it usually ends in recession, is because when consumers stop buying due to lack of confidence, it takes a long time to change the sentiment, that's why the recovery is usually slow from a recession.
But a lot of businesses go broke, a lot of people get unemployed, a lot of water has to go under the bridge.
Only my opinion and as usual it will be interesting t watch how it pans out.
Click to expand...

If the Government closed down all the TV and Radio stations, stopped all newspapers being printed and locked the shopping centres for 1 month inflation would be fixed for the year.

Advertising leads the mob to buy that which they do not need nor want.

Capitalism has been degraded to a 1984 experience for most of the mob.

gg
 
Smurf1976 said:
It is and they are.

But I still remember the laughter in the office when it was announced, on mainstream news, that Apple was going into the mobile phone business. Literally nobody took it seriously. Nokia was far too entrenched and Apple are just that also-ran computer company that everyone thought would've gone broke by now, right?

It didn't take long at all for iPhones and other smartphones to become ubiquitous, Apple to become one of the most successful tech companies and Nokia to become the butt of jokes.

There's a pretty long list of companies and brands that were at the top a generation ago but which are either dead completely, or at least irrelevant, today across all sorts of industries. Giants can fall if they don't stay on top of their game. :2twocents
Click to expand...
unnamed(2).png

Not saying you're wrong, I just don't see how you're right. I can't think of something that even might knock ms/apple/google etc off their pedestals.

Seems like nokia just got caught napping to me, nowadays companies just buy up anything that might be a threat and I can't even think of one.
 
waterbottle said:
Here we gooooooooo

www.cnbc.com

Fed can't tame inflation without 'significantly' more hikes that will cause a recession, paper says

The Federal Reserve is unlikely to be able to bring down inflation without having to push rates considerably higher, according to a research paper.
www.cnbc.com www.cnbc.com

Just what I've been saying. The historical precedent for a recession is too strong.

Now we have former Fed governers dropping the R word.
Click to expand...
Which, globally speaking, begs the question of where the capital will flee to.

Where's the best port in the storm? ;)
 

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