Inflation

[waterbottle]

IMF calls for Fed to raise rates further — 'The job is not quite yet done'

The International Monetary Fund said Friday in a new report that the US can avoid a recession this year, and that the Federal Reserve should raise rates again and hold them there through late next year.

finance.yahoo.com

Meanwhile markets are pumping off the back of tech and AI

 

[over9k]

Yeah, kind of like how all the growth plays ran in the banking carryon as everyone thought it was recession time which would mean no more rate hikes/perhaps rate drops in response.

It's all just absurd.

 

[sptrawler]

Yeah, kind of like how all the growth plays ran in the banking carryon as everyone thought it was recession time which would mean no more rate hikes/perhaps rate drops in response.

It's all just absurd.

Yep like now while rates are cranking, inflation is rife, everyone's selling down the banks.
The only time the banks make serious money. ?

 

[mullokintyre]

If the Feds do raise rates further (and I fully expect them to do so), the consequences for US business may be a tad interesting.
According to Zero Hedge , the bankruptcy rate of US businesses is now at the higest level since 2010.



I suspect there will be further acceleration, which is of course how the free market is supposed to work.
Downturns, recessions etc clear the decks of unprofitable business and pave the way for new ones that are profitable (they hope).
Mick

 

[divs4ever]

Fixed income is currently pricing a 25 at the next meeting. Fed comments before the last jobless numbers were about 50/50 on pausing at the next meeting and then the numbers came out and fixed income repriced another hike. The last dot plot showed one more but again, that was pre data dump.

As smurf has pointed out, history suggests they'll just keep hiking until something breaks/the jobless numbers can take no more but we're living in, shall we say, unusual (historically unprecedented if I'm honest) times.

IMHO rates need to go far higher but I'm not the one making the decision.

the only thing the Fed really cares about is it's own credibility , if it loses the 'jaw-bone lever' all is lost the market will wag the Fed ( because all the Fed shareholders are large BANKS )

 

[waterbottle]

Yeah, kind of like how all the growth plays ran in the banking carryon as everyone thought it was recession time which would mean no more rate hikes/perhaps rate drops in response.

It's all just absurd.

Was this what 2008 was like? Irrational exuberance in the lead up to the cliff?

 

[sptrawler]

Yep we have got on top of inflation, people have stopped spending stupid money on houses. ?

Roll up, rollup, ladies and gentlemen, everyone's a winner.?

Why go to the casino? take a sure bet on Sydney property, we will bring in new motivated buyers for you, and stream real estate dot com on the inbound flights.?

First home buyer beats 26 others to one-bedroom unit with $847,000 bid

The Newtown unit was guided at $650,000 – almost $200,000 less than the price the buyer eventually paid.

www.smh.com.au

A whopping 27 buyers registered to bid on a one-bedroom Newtown unit that sold for $847,000 at auction on Saturday.

A first home buyer made the winning bid for renovated apartment at 13/39 Laura Street, which had been guided at $650,000 throughout the campaign.
Bidding was quick to start at $685,000, and climbed rapidly as five first home buyers made offers.
The result was well above the $730,000 reserve price, and the $625,000 that records show it last traded for in December 2020.

The final price would not qualify for a first home buyer stamp duty exemption, even under the government’s proposed increased price caps, which would lift the eligibility threshold from $650,000 to $800,000.
Such a sale could qualify for a duty concession come July if the cap lifts from $800,000 to $1 million.
Successful buyer Millie was not surprised by the strong turnout or result, having missed out on multiple other homes in her one-year property search.

“I’ve been to enough auctions now that I know the price guide for something like this, and the competition for something like this,” the 32-year-old film writer and director said.

“In Sydney you’re never going to get a bargain. There is so much vicious competition to get in at the moment. There’s just nothing on the market, so I’m not surprised that it went for that price or with this many bidders. I was really prepared.”

She was close to missing out on the unit as well, having set herself a maximum budget of $850,000, given concern for further potential rate hikes.

“I know that I can afford it and I know it might mean not going on holidays as much, but I’d prefer it. I want to set up a home and to start setting up my financial future.
“The rental market is f-----. Sydney is f-----. It’s so hard to live here and so hard to rent, so hard to buy. Your option is either paying exorbitant amounts of rent or paying off a mortgage.”

Selling agent Astrid Joarder of Ray White Surry Hills had anticipated a strong turnout, but was still surprised by the result.
“I was anticipating it to be busy, but I certainly didn’t expect it to go as well as it did,” Joarder said.

Many in the crowd were shocked by the result and some were annoyed that it was guided almost $200,000 below what it sold for, but Joarder said the price guide was based on buyer feedback throughout the campaign.

 

[sptrawler]

Was this what 2008 was like? Irrational exuberance in the lead up to the cliff?

It all depends on whether the Govt want to prick the bubble and many of them have skin in the game, also add to that the fact the elites are the main supporters of the Govt, so it is a bit like shares watch if the politicians are buying or selling.?

 

[over9k]

This little issue hasn't gone away - they can't afford to mothball half their economy on energy supply issues if it's already circling the drain.

 

[Smurf1976]

Was this what 2008 was like? Irrational exuberance in the lead up to the cliff?

To me it feels more like 1999-2000 with the focus on technology and the market completely ignoring fundamentals.

Back then it was the internet and mobile phones. Anything related to the internet in particular saw its share price rocket regardless of whether the company was profitable or even had an actual business. A few valid companies yes, Microsoft for example, but an abundance of duds that ended up totally worthless.

Today the tech focus is more about EV's and AI but once again we have the market ignoring fundamentals.

2008 does have some relevance though. There was a site at the time that was tracking the number of mortgage lenders that had ceased to exist globally. By late 2007 there was already a huge list and it ended up with hundreds on that page. I doesn't seem to be anywhere near that level today but a few have fallen, it's not zero.

Another feature of 2008 was the oil price shot up. Petrol / diesel prices at the pump were going up steadily, every week was higher than the previous, and were at then unprecedented levels. Today it's utility prices, electricity and gas, that are soaring so a different commodity as such but it's still energy, it's still a price shock for something that's an input for most businesses and households.

The present isn't identical but it has some similarities to both periods. The old "history doesn't repeat but it rhymes".

 

[over9k]

Was this what 2008 was like? Irrational exuberance in the lead up to the cliff?

2008 was just a giant state of denial... until it wasn't.

I will concede to the bulls that things are indeed different now but growth plays running on expected dumps in interest rates because of recession fears? I mean REALLY?

 

[over9k]

The present isn't identical but it has some similarities to both periods.

.com bubble was mania and fomo

 

[Smurf1976]

.com bubble was mania and fomo

Recent equivalent = Australian capital city houses especially Sydney.

Totally irrational but all driven by FOMO.

 

[over9k]

.com bubble was mania and fomo

Extension of this:

I'm wondering if we're about to see an A.I bubble. Markets are always looking for the next big thing and they seem to have, for the moment, decided it's A.I.

It was electric cars a couple years ago.


So is there still room left in the pump. Hmm.

 

[waterbottle]

View attachment 157388

This little issue hasn't gone away - they can't afford to mothball half their economy on energy supply issues if it's already circling the drain.

US corporates looking schite too
Nice little piece from Allianz

Allianz | Earnings recession to catch up with corporates

All that glitters is not gold in the Q1 earnings season, with US earnings already in recession.

www.allianz.com

 

[over9k]

Yeeeep:



See the most ridiculous part is that if you look at all (most) of the other chip manufacturers they're actually doing abysmally, it's just that nvidia have been pivoting over to A.I for quite some time and are thus the market leaders by miles.

Markets are now pricing the whole A.I market to become large/all the other chip manufacturers to start to catch up and capture it, so it's a market bet rather than a company bet (on nvidia) despite the fact that, at the moment, it's basically nvidia's market.

Buying calls on nvidia alone seems a much wiser move than SOXL at the moment but an awful lot's been priced in now.

Question is, is there any more legs to it? Especially with what is now basically certain to be at least another rate rise (or more).

Very hard to say.

 

[waterbottle]

Yeeeep:

View attachment 157389

See the most ridiculous part is that if you look at all (most) of the other chip manufacturers they're actually doing abysmally, it's just that nvidia have been pivoting over to A.I for quite some time and are thus the market leaders by miles.

Markets are now pricing the whole A.I market to become large/all the other chip manufacturers to start to catch up and capture it, so it's a market bet rather than a company bet (on nvidia) despite the fact that, at the moment, it's basically nvidia's market.

Buying calls on nvidia alone seems a much wiser move than SOXL at the moment but an awful lot's been priced in now.

Question is, is there any more legs to it? Especially with what is now basically certain to be at least another rate rise (or more).

Very hard to say.

AI certainly has a role to play in the future economy, but I'm not sure how it can keep the whole market buoyant.

Besides AI, in its current incarnation, means fewer employees, unless businesses have now found a whole bunch of jobs that the same employees can do. So as of 2023, AI = higher unemployment. Checkmate, Fed?

 

[sptrawler]

To me it feels more like 1999-2000 with the focus on technology and the market completely ignoring fundamentals.

Back then it was the internet and mobile phones. Anything related to the internet in particular saw its share price rocket regardless of whether the company was profitable or even had an actual business. A few valid companies yes, Microsoft for example, but an abundance of duds that ended up totally worthless.

Today the tech focus is more about EV's and AI but once again we have the market ignoring fundamentals.

2008 does have some relevance though. There was a site at the time that was tracking the number of mortgage lenders that had ceased to exist globally. By late 2007 there was already a huge list and it ended up with hundreds on that page. I doesn't seem to be anywhere near that level today but a few have fallen, it's not zero.

Another feature of 2008 was the oil price shot up. Petrol / diesel prices at the pump were going up steadily, every week was higher than the previous, and were at then unprecedented levels. Today it's utility prices, electricity and gas, that are soaring so a different commodity as such but it's still energy, it's still a price shock for something that's an input for most businesses and households.

The present isn't identical but it has some similarities to both periods. The old "history doesn't repeat but it rhymes".

To me it has a late 1970's feel to it that led to the 1982 recession, Govt spending through the roof, pay rises in the mid to late 70's, inflation through the roof, oil crisis back then (energy crisis now), unemployment through the roof (we are going to be on our way with the migrants), then the RBA started squeezing the interest rates.
To me it may not happen but there are startling similarities, the only major difference was the drought and our reliance on farming, which has now moved to resources, if they take a huge hit that would make things really interesting IMO.
These days they have much better data collection and analysis, so maybe their interventions may be more surgical, time will tell.

What caused the 1982 recession in Australia?
Given the costs of high inflation, in the early 1980s, central banks sought to reduce inflation through tighter monetary policy that resulted in recession in a number of economies (especially the United States). In Australia, the effects of tighter monetary policy and weak global demand were compounded by drought.

Lasting from July 1981 to November 1982, this economic downturn was triggered by tight monetary policy in an effort to fight mounting inflation. Prior to the 2007-09 recession, the 1981-82 recession was the worst economic downturn in the United States since the Great Depression.
How bad was the 1982 recession?

The economy entered 1982 in a severe recession and labor market conditions deteriorated throughout the year. -The unemployment rate, already high by historical standards at the onset of the recession in mid-1981, reached 10.8 percent at the end of 1982, higher than at any time in post-World War II history.

What was the longest recession in Australia?

Australia suffered a recession from 1990 to 1991 when GDP fell by 1.7 per cent and the unemployment rate rose to 10.8 per cent. In 1991, interest rates were at an all-time high and so was the inflation percentage.7 Feb 2023

 

[over9k]

AI certainly has a role to play in the future economy, but I'm not sure how it can keep the whole market buoyant.

Besides AI, in its current incarnation, means fewer employees, unless businesses have now found a whole bunch of jobs that the same employees can do. So as of 2023, AI = higher unemployment. Checkmate, Fed?

Or the whole thing's just... completely overblown.

 

[moXJO]

Or the whole thing's just... completely overblown.

It's at the second stage of "hype".
It will revert back to building and into monetisation as companies work out how to profit.

Not sure of the time-scale. Things seem to be moving rapidly on the building front