Friday, June 2, 2023

Economic Update: Mixed Jobs Report, Fed Skip, etc. (video)

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  1. Marty: Thanks for these economic updates! You cover a lot of important facts about the economy. I would add a few more things that would definitely affect the second half of this year.
    1. Consumer spending will slow down due to more cautious spending.
    2. Student loan repayment will resume this month. There will be $5billion less spending for many households.
    3. Inflation will pick up pace as you have been noted from your previous blogs.
    4. Monetary tightening will continue with less liquidity in the market.
    5. Dollars will continue to gain while the equity market will drop in a slow pace.
    6. Oil price will go up in the summer time. OPEC meeting is this week. The Saudi needs oil price to be above $80 per barrel in order to fund its mega projects.
    7. AI hype will fade away as valuations become reality.
    8. China recovery hype is not as strong as investors thought it would be.
    9. Housing market slow down is very serious, especially in the commercial sectors.
    10. Fed will have no choice but to continue to hike interest rates because of sticky inflation.
    Those are my 2-cents thoughts and should be taken like a grain of salt.

    1. Good stuff Sam!
      1. Yes, there is evidence, particularly from the Q1 retail earnings calls that consumers are cutting back on discretionary items.
      2. Yep
      3. Inflation (all things equal) will continue to slow next couple of months due to year-on-year base effects... July thru December, however (all things equal), base effects will be net bullish (higher) for inflation... However, if indeed the consumer cuts spending, add given the notable price declines currently in the manufacturing apace, you have potentially notable offsetting factors... Plus if we do see recession later this year, inflation will indeed drop notably when that happens... I do, however, see it coming back very soon thereafter.
      4. Until recession hits
      5. Yes, dollar should rise, in a flight to quality, should recession occur... However, the lower interest rate result will be an offset... And, in the end, it has much to do with what's happening in other countries... If US rates plunge amid recession, and if the presently more stubborn Eurozone inflation, for example, hangs on; interest rate differentials will favor the Euro.
      6. I do believe oil is due for a technical bounce, we discussed that internally Wednesday, right before it bounced... Yes, OPEC wants the price higher (arguing, however, with Russia over production cuts)... And, in recession, while oil could hold up, less demand will be a headwind.
      7. Yep!
      8. China's most recent data has surprised to the upside... Chinese equities responded resoundingly to end the week... Govt is instituting add'l measures to stimulate... I think the China-skeptics have been a bit too eager... While there are indeed (debt bubble) risks for China, political incentive is huge to achieve 5% growth, and positive markets, in 2023... But, yes, a global slowdown is problematic for the Chinese economy, and vice versa...
      9. Yes
      10. A recession will ultimately see the Fed cut rates... But I agree, it'll be stickier than the norm (for recessions) and the Fed will not be nearly as aggressive as they've been in the past; until it gets really ugly, that is.

    2. Thanks for the great inputs Line By Line.
      Your inputs are insightful!

      I read a few articles over the weekend about junk bonds. Given the current economic environment, junk bonds are feeling the pain. Companies that have bad balance sheets will not survive the next recession (that is my opinion).

      In addition, Bloomberg came out with an article called: "Trillion-Dollar Treasury Vacuum Coming for Wall Street Rally". Starting Monday, the United States Secretary of the Treasury will release the first batch of bonds worth over $170billion. The offering will continue on throughout the third quarter until the void is filled with $1 trillion dollar. How will this affect Wall Street? The available liquidity will get tighter in the near future until like you said that a "recession hits".
      Lastly, CNBC had a video clip that I like. The title said "High net worth investors hold record cash." Investors that have $1million or more reshuffle their portfolios to hold Cash on hand from 24% to 34%. Their action speaks loudly regarding the current macroenvironment. As a result, the next bull market will be massive with all this cash that is currently sitting in the side line.