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US economy returned to growth last quarter, expanding 2.6%

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Re: US economy returned to growth last quarter, expanding 2.6%

#171

Post by francisofascii »

nostrademons wrote: post #49
importantbrian wrote: post #6

This is the weirdest "recession" I can remember. Business leaders are constantly talking about how challenging the economic environment is and the need for layoffs etc. Meanwhile most of the underlying indicators are actually positive. Growth is strong, employment is strong. Anecdotally we're still having trouble finding good candidates. It's almost like there is a class of business leaders who are just trying to wis…

The stock market, interest rates, and advertising spending are leading indicators, while unemployment is a lagging indicator. Business leaders know the financial structure of their company, and many of them know that they can't survive at 2% rates, let alone 5 or 10% rates. The gloom from business leaders is forward-looking. They're fine for now , while consumer spending holds up and they can run on old debt. But as…

If too many companies can't survive and start to go bankrupt, the Fed will pivot. If we enter a major recession, high inflation will most likely be over.

Re: US economy returned to growth last quarter, expanding 2.6%

#172

Post by onlyrealcuzzo »

mgamache wrote: post #153

The Yield curve, Mortgage Rates, Bonds and Asset Prices are all in bad shape. Combined with rapidly falling income (due to 15%+ real inflation) it's a disaster in the making. Homes will likely fall 30-35% in adjusted value in the next 12 months. A lot of people's net worth is in their homes. This will be the largest post WWII drop in home prices. Don't forget the strong dollar is crushing economies around the world,…

This is the dumbest "recession" because it comes on the dumbest asset pump.

The S&P is still up 13% from pre-pandemic. That's slightly below historic the historic average, but nothing to be alarmed about.

Home prices are still WAAAAAAY above historic averages. Even if they drop 20%, they'll still be way up.

The only people that will get hosed are speculators.

You didn't "lose" money if you lost "unrealized gains".

Re: US economy returned to growth last quarter, expanding 2.6%

#174

Post by lamontcg »

davidgay wrote: post #115
nostrademons wrote: post #49

Earlier quoted context omitted.

The stock market, interest rates, and advertising spending are leading indicators, while unemployment is a lagging indicator. Business leaders know the financial structure of their company, and many of them know that they can't survive at 2% rates, let alone 5 or 10% rates. The gloom from business leaders is forward-looking. They're fine for now , while consumer spending holds up and they can run on old debt. But as…

> But as soon as they need to roll over their debt, everything collapses. They'd need to increase revenues by 2-5x, and they can't. That would imply that debt-servicing is their dominant cost. That seems wrong (e.g., a grocery store presumably spends a large fraction of its revenue on purchasing groceries from wholesalers).

The companies that are going to hit hardest are going to be in stuff like commercial real estate. That's where people have been flipping loans over at 1% interest rates in order to survive, living on the margin. As rates go up their debt service balloons and they'll no longer be able to survive given their vacancy rates.

That'll spill over into losses for the financial sector, possibly a CMBS meltdown and a financial crisis, which will spill over into the real economy.

All the job losses in housing and real estate and the hit to the financial sector will result in unemployed people who are no longer buying stuff so you'll see a contraction in everything consumption related. That'll lead to much lower ad buys, so that'll hit the ad companies. They'll all layoff staff which acts as a positive feedback loop.

Right now mostly we're just seeing companies whose CEOs see this coming down the pike who are laying off some staff early and trying to position better for the recession.

It isn't correct to say that e.g. Google's business is reliant on them flipping over loans cheaply, but they are certainly dependent upon other businesses in the economy being able to flip over loans cheaply.

Re: US economy returned to growth last quarter, expanding 2.6%

#175

Post by lotsofpulp »

function_seven wrote: post #155
lotsofpulp wrote: post #99

Earlier quoted context omitted.

What rates are you referring to? https://fred.stlouisfed.org/series/fedfunds Last time fed funds rates were as high as they are now was Jun 2019. And then a few more times before that.

Look at the 3-month (90-day) commercial paper rates. They're split into different data sets on the FRED site[0][1], changing in 1997. I combined them into a single chart here: https://ibb.co/h7c7DJS (Is ImgBB a good site? I stopped using imgur after too many dark patterns) [0] https://fred.stlouisfed.org/series/WCP3M [1] https://fred.stlouisfed.org/series/DCPF3M

Seems like it came down after 2007 and 2000 highs at similar levels. But who knows, maybe US government will leave it high. Maybe they will bring it back down to juice asset prices. Maybe the parameters of the world have changed to not allow that.

Re: US economy returned to growth last quarter, expanding 2.6%

#176

Post by thfuran »

darawk wrote: post #129
davidgay wrote: post #115

Earlier quoted context omitted.

> But as soon as they need to roll over their debt, everything collapses. They'd need to increase revenues by 2-5x, and they can't. That would imply that debt-servicing is their dominant cost. That seems wrong (e.g., a grocery store presumably spends a large fraction of its revenue on purchasing groceries from wholesalers).

That isn't quite right. What it implies is that debt service is a significant fraction of their margins, which is a subtle but actually quite significant difference. If a grocery store makes 1% profit on each item it sells, and its debt service cost is 1% of its revenue (making it roughly "1% of its cost") a doubling of debt service cost wipes their margin to zero.

But only requires 1% increase in revenue to sort out.

Re: US economy returned to growth last quarter, expanding 2.6%

#177

Post by [deleted] »

JPKab wrote: post #122
davidgay wrote: post #115

Earlier quoted context omitted.

> But as soon as they need to roll over their debt, everything collapses. They'd need to increase revenues by 2-5x, and they can't. That would imply that debt-servicing is their dominant cost. That seems wrong (e.g., a grocery store presumably spends a large fraction of its revenue on purchasing groceries from wholesalers).

Debt servicing is a constant thing for businesses to be able to make payroll and acquire inventory for later resale or processing. Based on your thoughts here I'm going to assume you haven't worked at a small business before. If you have it must have been awesome to work at a place that didn't have to borrow money constantly.

[deleted]

Re: US economy returned to growth last quarter, expanding 2.6%

#178

Post by nicholasjarnold »

importantbrian wrote: post #6

This is the weirdest "recession" I can remember. Business leaders are constantly talking about how challenging the economic environment is and the need for layoffs etc. Meanwhile most of the underlying indicators are actually positive. Growth is strong, employment is strong. Anecdotally we're still having trouble finding good candidates. It's almost like there is a class of business leaders who are just trying to wis…

This is just an opinion based on personal experience across multiple companies, but I think many of us can probably agree that companies (large, medium and small) seem to hire up a lot of people who provide tenuous value during the high times, like what's been occurring since post-2008 in the US.

Those W2 employees are expensive recurring liabilities to the companies employing them. This expense can be offset in various ways (R&D credits, cheap money, endless VS cash, public statements about "always growing", other stuff I don't know about I'm sure). However, when the cracks in the system begin to show companies need to accomplish at least a couple of things: reduce recurring expenses and maintain an image of success (publicly traded or not!) despite the headwinds.

Now, one way to accomplish those goals might be to join in with your fellow "biz leaders" and make statements about an upcoming recession and hard times, etc. This allows you to blend in with the crowd rather than be "that one company that is maybe failing". Once the blending in step is accomplished it leads into being able to start reducing headcount without freaking out too many people (it's not just Meta, it's everyone!).

> ...I can't figure out why other than maybe they think it would allow them to reestablish power in the labor market.

Also, yeah, I've toyed with this idea too. After many years of pay band compression recent years have shown (for at least software engineers) that it's possible to individually negotiate up quite a bit. If you are qualified and can communicate that clearly, then you are in for a big raise or three. Until recently, even if you weren't particularly qualified you could still do this. This knowledge has spread pretty widely. Obviously capital doesn't like it when labor can say "Screw it, I'm out. 'Gonna go get a big raise instead of stick around and deal with X". This could indeed be the opportunity that capital was waiting for to readjust those dynamics again.

Re: US economy returned to growth last quarter, expanding 2.6%

#179

Post by christkv »

vikingerik wrote: post #136
importantbrian wrote: post #6

This is the weirdest "recession" I can remember. Business leaders are constantly talking about how challenging the economic environment is and the need for layoffs etc. Meanwhile most of the underlying indicators are actually positive. Growth is strong, employment is strong. Anecdotally we're still having trouble finding good candidates. It's almost like there is a class of business leaders who are just trying to wis…

There never was a real recession - it's an artifact of year-over-year numbers that were so skewed from pandemic effects. Pent-up consumer demand shifted much activity from 2020 into 2021. This is the source of all the apparent weirdness. Every yearly number in 2021 looked great thanks to comparing an artificially high number to an artificially low 2020 baseline. Then every yearly number from 2022 looks terrible, beca…

I really hope you are right but the massive debt taken on by all the western countries has me worried about their ability to actually respond to a hard recession if it hits this winter.

Re: US economy returned to growth last quarter, expanding 2.6%

#180

Post by lotsofpulp »

cwkoss wrote: post #166
lotsofpulp wrote: post #151

Earlier quoted context omitted.

I keep reading this house as a retirement fund comment online, and I have no idea what it means. Are reverse mortgages a common part of people’s retirement? https://www.urban.org/urban-wire/reverse-mortgage-use-differ... > At a time when seniors are sitting on a mountain of housing wealth and have anxiety about their finances, this should be a well-used program. Instead, despite rising senior population, participatio…

Many middle class seniors sell their homes to pay medical or long term care expenses.

I would like to see stats on that because the Medicaid asset test excludes $636k of one’s home value.

https://www.medicaidlongtermcare.org/basics/home-ownership-i...

There should be no need to sell a home for almost everyone to receive healthcare or long term care (which would be covered by Medicaid/Medicare). And if people wanted to move to higher end facilities, those cost $10k+ per month, so selling a median house to live in one does not buy you much.

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