Economy/economics

[mjd1001]

Not so much politics, but economics...

 

Anyone noticing how similar the sp500 chart is in 2024 to 2007? 

 

-Early to mid 2007 many articles were written (you can still look them up) that the economy was great, recessions risks overblown. Early to mid 2024, same thing.

 

-SP500 went up quite a bit early in the year, faltered slightly in the spring, before reaching all time highs in July. 2024, same thing.

 

-During July/August earnings in 2007, a few subtle signs of slowing in earnings emerged, caused market to falter a tiny bit through Early August, but most 'economists' said nothing to worry about. 2024, same thing.

 

-10 year treasury yields peaked in June 2007, starting to fall after that by quite a bit, especially through July/August. This year in 2024 they peaked in April/May, but held at a level close to that and are starting to fall quite a bit at the end of July going into August.

 

-By summer of 2007, It started to look like Fed was going to cut rates in September. It turned out they cut rates more than expected in September (1/2 point). 2024, looking like rates will be cut in September, will we get a surprise 1/2 point cut?

 

-The rest of the story in 2007 was markets rallied off the September rate cut for a bit back to the highs, before faltering at the end of the year, and the bottom dropping out early the following year. Will that be the same story in 2024? It's Eerily similar so far.

 

Certainly we don't have the exact same conditions now as then. This is an election year.  We don't have a huge number of houses that are going to have mortgages reset at higher rates like we did back then (but commercial real estate maybe?)  Lots of govt spending still sloshing around now.  They say history doesn't repeat, but it echoes....I'm just wondering how big of an echo we may have in the next 6-12 months.

[sherpa]

We had a financial crisis based on mortgage failures, and complete distrust in the value of securities relating to that.

We don't have that now.

[mjd1001]

45 minutes ago, sherpa said:

We had a financial crisis based on mortgage failures, and complete distrust in the value of securities relating to that.

We don't have that now.

But do you have commercial real estate failing (or taking massive hits in value) at a much greater rate than then, with many more loans set to reset in the next 2-12 months at much higher rates (commercial real estate loans are often not like home mortgages, they are usually closer to 5 year resets that roll over rather than 30 years-to-completion). 

 

Also, while the housing market isn't likely to get flooded with foreclosures and bad loans like it did in 2007-2008, there is a huge amount of inventory that is unsold out there in certain areas.  The news keeps on saying 'housing shortage, housing shortage'...maybe a housing shortage in super low end cheap houses in some areas, but its becoming the opposite issue elsewhere.  We still own and rent a home in Florida, and near Port. St. Lucie and in some areas within an hour of Tampa, there are HUGE housing communities where builders are building and building homes with dozens of unsold built (or partially built) homes that are no longer moving.  I have read there are some same issues near Austin, TX and Tennessee....and a younger relative of ours just bought and sold a house north of Dallas where they told us 2 years ago when they bought they were building houses 6-8 at a time in their community, they just moved out after selling and nothing has sold for the last month they were there.

 

Again, history isn't repeating, but it may be 'echoing' as the saying goes.

Edited August 1 by mjd1001

[Orlando Buffalo]

1 minute ago, mjd1001 said:

But do you have commercial real estate failing (or taking massive hits in value) at a much greater rate than then, with many more loans set to reset in the next 2-12 months at much higher rates (commercial real estate loans are often not like home mortgages, they are usually closer to 5 year resets that roll over rather than 30 years-to-completion).  Again, history isn't repeating, but it may be 'echoing' as the saying goes.

You beat me to it, history does not repeat itself but it often rhymes. The double items I see right now as shaky is the commercial real estate and the money currently pumping AI without any way to monetize it fully. 

[Tiberius]

Bloodbath on Wall Street today.

 

I can't help but think unrest in the Middle East is scaring investors. A war between Israel and Iran would be an economic killer.

[Tommy Callahan]

 

 

Or, maybe just maybe it's all those bad micro data starting to drive the macro. 

 

 

 

[mjd1001]

25 minutes ago, Tommy Callahan said:

 

 

Or, maybe just maybe it's all those bad micro data starting to drive the macro. 

 

 

 

Well, these numbers fit the mold of history 'echoing' or 'rhyming' with 2007 a bit.  Another inflation report will be critical, but the jobs report, the 10 year action, pretty much cements a rate cut in September and ANY 'worsening' of the numbers could put 50 points on the table...which, again, would 'rhyme' with 2007 in a way few expected just a couple weeks ago.

 

When you look at the 10 year yield in 2007, it started dropping quickly month before the ultimate stock sell-off, and unemployment started ticking up months ahead also, just like now.

Edited August 2 by mjd1001

[Tommy Callahan]

Just now, mjd1001 said:

Well, these numbers fit the mold of history 'echoing' or 'rhyming' with 2007 a bit.  Another inflation report will be critical, but the jobs report, the 10 year action, pretty much cements a rate cut in September and ANY 'worsening' of the numbers could put 50 points on the table...which, again, would 'rhyme' with 2007 in a way few expected just a couple weeks ago.

It's an ugly place to be for most folks.  Pain or pain.  

 

A rate cut while the stimy funds are still flowing would drive inflation though the roof..

 

 

[mjd1001]

28 minutes ago, Tommy Callahan said:

It's an ugly place to be for most folks.  Pain or pain.  

 

A rate cut while the stimy funds are still flowing would drive inflation though the roof..

 

 

Normally yes, but if the economy is slowing SO much more than people think, maybe not? 

I'm not saying its true, but maybe its like the tide. When the economy was getting stronger, it was like the tide was coming in. Right now we might be at the point where the tide is just starting, SLOWLY, to go back out.  That is going to accelerate (how fast it goes out, equating it to the economy slowing).  The fed giving a single interest rate cut will be like someone with a fire hose spraying water on the beach, its might be so small at this point compared to the volume of water leaving the beach with the tide going out.

[leh-nerd skin-erd]

The market does...what the market does.  Economic data, interests rates, unemployment, adversity, housing starts, oil, foreign markets, corruption, truth, fiction and a whole lot of screaming heads constantly telling us the world is at the precipice. 

 

For those of us not in the midst of concern about sequence of returns, with a sensible plan that deals in years/decades....optimism is the order of the day imo. 

[Tommy Callahan]

It's interesting and scary how x has disabled sharing from a lot of economic accounts right now 

 

Totally down now 

Edited August 2 by Tommy Callahan

[Tiberius]

20 hours ago, mjd1001 said:

 

 

Again, history isn't repeating, but it may be 'echoing' as the saying goes.

Is this wishful thinking on your part? A huge part of the previous financial crash was the fraud committed in bad loans and mortgages sold off against those bad loans with the companies that were supposed to give serious ratings to those mortgages just stamping them AAA ratings, the top. When that fraud was discovered big instiutions began to crumble. So where is the massive fraud today threatening the economy? 

[Tommy Callahan]

2 minutes ago, Tiberius said:

Is this wishful thinking on your part? A huge part of the previous financial crash was the fraud committed in bad loans and mortgages sold off against those bad loans with the companies that were supposed to give serious ratings to those mortgages just stamping them AAA ratings, the top. When that fraud was discovered big instiutions began to crumble. So where is the massive fraud today threatening the economy? 

It's way bigger.  It's both the fortune 500 and the state.  

 

The only thing driving any longer economic data is huge state or federal spending. And that's mostly debt.  

 

Cutting rates right now would spike inflation.  Inflation way outpaces wages for the last few years. Haven't had this many homeless since the great depression.  

 

Raising them. Well, see Japan right now. 

 

 

[Tiberius]

1 minute ago, Tommy Callahan said:

It's way bigger.  It's both the fortune 500 and the state.  

 

The only thing driving any longer economic data is huge state or federal spending. And that's mostly debt.  

 

Cutting rates right now would spike inflation.  Inflation way outpaces wages for the last few years. Haven't had this many homeless since the great depression.  

 

Raising them. Well, see Japan right now. 

 

 

Just be quiet 

[Tommy Callahan]

1 minute ago, Tiberius said:

Just be quiet 

I know.  Opposing opinions and facts really drive you nuts. 

 

If you need your echo chamber stay on Reddit or MSNBC 

[mjd1001]

8 minutes ago, Tiberius said:

Is this wishful thinking on your part? A huge part of the previous financial crash was the fraud committed in bad loans and mortgages sold off against those bad loans with the companies that were supposed to give serious ratings to those mortgages just stamping them AAA ratings, the top. When that fraud was discovered big instiutions began to crumble. So where is the massive fraud today threatening the economy? 

When you consider corporate debt that is going to be restructured at a higher rate in the next 3-6 months, a large portion of that commercial real estate....add in losses that are either 'kept off the books' (fraud) from billions of dollars of commercial real estate that has been marked down considerably already (with more likely to come), and the total dollars you are talking might not be that far off from what happened 17 years ago.

 

Also, maybe the collateral damage won't be as deep this time, but we are staring from a 'higher level' in terms of the markets.  In August of 2007, the PE of the sp500 was 18.02.  August 1 of this year its at 27.5. Over the past decade its been in the 20-24 range.  That is using the same metric...the numbers may be different depending on whether you use 'forward pe' or 'current pe' or month to month or quarter to quarter earnings..  But, PE's were in the 20-24 range when the 10 year yield AND the fed funds rate was at all time lows for most of the past decade.  The interest rates are closer now (both 10, 30 year and fed funds) to what they were in 2007, and to equal the market PE back then, BEFORE the fall even happened, you would need a 30% drop.

 

Again, this is no guarantee a huge drop will happen, but there are signs, there is data, legit data, that is pointing to that possibly happening more and more every month.

[Tiberius]

17 minutes ago, mjd1001 said:

When you consider corporate debt that is going to be restructured at a higher rate in the next 3-6 months, a large portion of that commercial real estate....add in losses that are either 'kept off the books' (fraud) from billions of dollars of commercial real estate that has been marked down considerably already (with more likely to come), and the total dollars you are talking might not be that far off from what happened 17 years ago.

 

Also, maybe the collateral damage won't be as deep this time, but we are staring from a 'higher level' in terms of the markets.  In August of 2007, the PE of the sp500 was 18.02.  August 1 of this year its at 27.5. Over the past decade its been in the 20-24 range.  That is using the same metric...the numbers may be different depending on whether you use 'forward pe' or 'current pe' or month to month or quarter to quarter earnings..  But, PE's were in the 20-24 range when the 10 year yield AND the fed funds rate was at all time lows for most of the past decade.  The interest rates are closer now (both 10, 30 year and fed funds) to what they were in 2007, and to equal the market PE back then, BEFORE the fall even happened, you would need a 30% drop.

 

Again, this is no guarantee a huge drop will happen, but there are signs, there is data, legit data, that is pointing to that possibly happening more and more every month.

An economic dip can happen at anytime. If Israel and Iran begin a real shooting war, there will be economic dislocation, but that has nothing to do with the underlying economic situation. Sh it happens. The fraud in the MBS industry burst on the scene and took people by surprise, the underlying economics really didn't matter.

[mjd1001]

11 minutes ago, Tiberius said:

An economic dip can happen at anytime. If Israel and Iran begin a real shooting war, there will be economic dislocation, but that has nothing to do with the underlying economic situation. Sh it happens. The fraud in the MBS industry burst on the scene and took people by surprise, the underlying economics really didn't matter.

The point I originally made is there are a lot of factors (not all)) but a lot that are very close to 2007. Price action on the markets. Interest rates. Treasury yields.  A lot more as we mentioned above.  In terms of levels of the indices, as more and more people begin to notice them, they may/will follow those trends. The Algos almost CERTAINLY will, and it can become a self reinforcing thing.

 

There are underlying economic factors (commercial real estate, levels businesses have to refinance at upcoming)...not to mention very few people know of fraud until AFTER the fact (and indeed often time other market factors are needed to uncover that fraud that is likely happening at some level all the time.) 

I'm just saying a trend is there. Markets rising through the year, a blip down in the spring, all time highs in the summer, a correction in mid-to-late summer. Its all happened.   Now lets see if it continues.  That would mean this correction ends soon, markets to back to all time highs....level off through the rest of the year before starting a larger correction.  I'm not predicting it, just saying there are some (not all) but many factors that are showing that.

Edited August 2 by mjd1001

[SCBills]

 

[mjd1001]

1 hour ago, SCBills said:

 

If you want to be a successful investor...anything beyond a long term buy and hold investor....well, you need luck. But beyond that....I think it might be more important to know human psychology and sociology that it is to know a ton about economics. It seems the short term to medium term market and economic moves are dictated more by what 'the masses' think at the moment (even if they are wrong) and what their actions lead to.  Supposedly the brightest, smartest, and best among us are at best doing 50-50% on being correct about their calls.

 

Sure, just by chance there is going to be someone who is right 8 out of 10 times (just like if you get a few hundred people in a room and have them flip a coin 10 times, by chance there will be some who guess it right 8 out of 10 times.....doesn't mean they are better at guessing, just simple chance when dealing with large numbers).   But, the federal reserve, their 'dot plots' are wrong most of the time when looking out more than 12 months.  The biggest wall street firms are frequently adjusting their targets for indices.  There are occasional reports of company insiders buying stock in their own company less than a year before it tanks.  Its a guessing game. 

 

Again, if you want to 'outguess' the markets in the short/medium term, don't focus on breaking down the data so much as focus on figuring out what the masses are doing, and more importantly, find that spot to be 'contrarian' to them.

Edited August 2 by mjd1001