It Does Not Add Up!
ITS NOT ADDING UP!
Have you ever had a “weird” feeling, like something might not be wrong or right – but just weird? That’s the feeling I have with ALL of the markets right now (its ALL of them – bond, equity, real estate, crypto).
Let me set the stage for you. We are coming off two decades of “free” money or very little interest rates. We had a two-year pandemic (and in places – still going). The NASDAQ hit an all-time high of 16,057 on Nov 19,2021 only to fall to 10,798 on June 17, 2022, and then back up to 12,811 on August 10, 2022! Simply, it went to ALL time high, fell dam near 40%, and then recovered 14% by August 10th! Real Estate (or at least home prices) SURGED to all-time highs by March 2022 – and have cooled BUT not really fallen. Rent prices CURRENTLY are at all-time highs. Oil was dirt cheap (in fact cheap since 2014) and then spiked to over $120 in March 2022. Crypto hit an all-time high in Nov 2021 (Bitcoin hit 69,000 on Nov 9th, 2021) only to fall 70% by August 2022.
Again, simply we went down in ALL markets to start the year. Probably with good reason. Inflation was going up, a war in Ukraine, and still had supply / COVID issues worldwide.
However, JUST IN 7 MONTHS, we have recovered over half those loses BUT everything has remained the same. Well, not really – the FED is still hiking (as of 8/15/22) at record paces. What happened to “don’t fight the FED”?
Is our patience that short? Meaning, when you look at the only FACTS that we have.
Supply chain issues improving – but still 14.3% down (and much more in certain areas like autos)
Fed is still raising rates. We have gone .25 / .50/ .75/ .75.
Inflation is still high. Look at food and housing! I get oil/gas has come down BUT still higher than Dec. 2019.
We still have a war in Ukraine. Get this, wheat is cheaper than before the war. Go figure.
We still have COVID around – although much better – thank God.
10-year yield has risen from .3 to almost 3.5 (down to 2.9 at time of writing).
The bond market has inverted at least 4 time’s – and the last time for at least 4 days. Think of that for a second, its more expensive to get a 2-year loan than a 30-year loan!
Credit Card delinquency going up AND balances. Auto payments going further out AND starting to have some delinquency (although overall, still low).
I know that markets look forward. I am much more of a “bullish” person – normally. However, this BIG run up (17%) doesn’t seem to add up to me. Call it a feeling, just witnessed (and felt) a 28% crash, still looking for my ass that got ripped off the last 6 months – I don’t know. I try to look at the little facts that we have – and it doesn’t seem to add up. 1 + 1 is not equaling 2 now. It’s always fun living through history, and something that nobody has gone through (at least in our time).
Again, I don’t want to predict Armageddon. I’m not that smart. I just want people to think about the other side – so we don’t get a real good lesson in how to lose a ton of money. We do not know what is going to happen on the employment side (still VERY tight labor market at this time) when rate increases have really kicked in. We sure don’t know whats going to happen in Ukraine (or China). We don’t know whats going to happen to the real estate markets. The median P/E for the S&P is between 13 and 15 normally, yet as of today we are at 19.4. Retail companies are getting killed (Lowes, Target, Walmart, etc.), and even e commerce has been difficult. Credit card companies have reported balances going up, delinquencies going up, and inflation still around 8. The consumer is around 70% of our economy – I have seen nothing that says they are spending 17% more. Something just seems off!
Again, I’m not that smart. So, I have no idea if the markets over corrected too much on the crash. If inflation has peaked. If some of this was transitory (as Powell said). If energy has peaked. The world is not going to end with the war in Ukraine. Maybe Bitcoin really is worth $500,000 a coin. Maybe, but I would just be patient and careful now! All I do KNOW is that NOBODY has been through a global recession, global pandemic, and times like this before!