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29-06-2022, 11:15 AM
(This post was last modified: 29-06-2022, 11:16 AM by Big Toe.)
Some form of recession is probably inevitable as there are far too many indicators that point to a recession ahead. But as more people becomes aware of it, it becomes less scary. I will be more selective and careful about buying but will sell none of my holding for the reason a recession is coming. For 3 simple reasons
1. The better companies will be less affected by it, maybe the profit growth will stall or even earnings will be adjusted downwards. Nothing to be too concerned about.
2. No one knows exactly when it will start and when it will end and right now some of the excesses (ie SPAC listings) have already taken a beating, there is further downside as these are companies inflated by air but I dont own any of them.
3. Recession usually dont last a long time, it maybe over before we know it. Or it may drag on a while longer. But it will work itself out and usually if one plays it well, we probably will emerge in a better position than when we entered. if you are playing the long game, need to stay vested, always.
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30-06-2022, 01:40 PM
(This post was last modified: 30-06-2022, 01:41 PM by Wildreamz.)
https://www.washingtonpost.com/business/...story.html
Michael Burry’s ‘Bullwhip’ Tweet Deserves Serious Attention
Quote:Hedge fund manager Michael Burry issued a tweet Monday suggesting that the Federal Reserve may pause or even reverse its campaign of interest-rate hikes:
What he’s referring to with the “Bullwhip Effect” is the deflationary effects of retailers holding too much inventory. The theory is that they will eventually have to drop prices to relieve themselves of the goods they have stockpiled.
The inventory issue has been bubbling for a couple of months, but only recently – the last week or so - has a deflationary impulse surfaced in the markets. Most all commodities are in correction mode, with the Bloomberg Commodity Index down more than 10% since June 9, as metals, energy and agricultural commodities have all fallen significantly from their highs. Even cotton has had a series of limit-down day in the futures market. When speculators first realized that faster inflation was inevitable, the natural response was to plow into commodities, and the Bloomberg index had soared as much as 43% since the start of December. But now those gains are being unwound.
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“If you buy a business just because it’s undervalued, then you have to worry about selling it when it reaches its intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.” - Charlie Munger
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UST 30years also just dipped below 3%.Hopefully Fed will hike 50bp in July and 25bp in Sept to signal they can see what is coming rather than what has happened. I guess the economy probably can at best absorb 2.5% fed funds and QT for next 12 months. The new normal still lives.
(17-06-2022, 10:19 AM)specuvestor Wrote: It's a catch22. If Fed funds goes 3.25-3.5% I suspect the yield curve might invert. Market is already looking at 2Q23 recession. Question is whether it will be a mild one.
2H22 inflation should come off to maybe 5% by year end due to higher base in 2H21. In fact the Core CPI and PCE is already showing that trend even as CPI bounced up to 8.6%
US 30 yr mortgage rates doubled to above 6% in a month. SG fixed mortgage rate above 2%. There will be short term economic pain for sure but I think the market looks forward so it's important to see what is the Fed thinking in next week's testimony and post July 50bp hike (if they hike 75 I think it sends wrong signal already).
I think economists underestimate 200bp hike in 6 months with QT on consumption and economic activities. Logistical bottlenecks including transport costs and energy prices are expected to come off in 2H22
But I do agree with Mike Burry that Biden's populist fiscal pump prime provided the spark. Biden signed the package in March and US inflation hit 5% in May and Powell say it was transitory
(16-06-2022, 03:54 PM)Behappyalways Wrote: https://fred.stlouisfed.org/series/T10YFF
US 10 year treasury should be around 1.5% to 2% above Fed's benchmark rates.
According to the “dot plot” of individual members’ expectations, the Fed’s benchmark rate will end the year at 3.4%, an upward revision of 1.5 percentage points from the March estimate.
https://www.cnbc.com/2022/06/15/fed-hike...-1994.html
If the Fed expects 3.4% by year end, then likely that 10 year treasury will probably hit 5%.
If the 10 year treasury bond rate is used as risk free rate, imagine the valuation of risk assets if it really hits 5%. Plus lower earnings due to recession, it would be a double whammy when you do valuation.
The next Fed meeting will be 45 days later and it is expected to raise rates by 0.5% to 0.75%. That meant that the 10 year treasury rate will probably rise to 4% by end July...
With no share buyback due to earnings announcements and probably earnings downgrade, things do not look good.
The sovereign bonds are probably going to get squeeze further with US increasing interest rate. Another good reason for me to like gold.
Anyone wants to buy the dip???
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The funny thing about the phrase "fortune favors the brave" is that the Roman author Pliny the Elder famously said this just before setting sail toward Mt. Vesuvius mid-eruption, and then immediately died
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward
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