Economy crash =/= stock market crash?

adindas

reported a few minutes ago. Inflation rose 8.6% in May, highest since 1981 Published Fri, Jun 10 2022.

https://www.cnbc.com/2022/06/10/consumer-price-index-may-2022.html

Expect the market to tank in the US stock market opening (about two hour from now) and throughout the day until the market close.

adindas

Type_45 said:

adindas said:

bd10 said:

Type_45 said:

bd10 said:

I'll bet on policy mistake. Fed's hand is forced, inflation is getting political and not "just" an economic issue. Baseline assumption: too aggressive tightening, accepting recession in the process. Wouldn't be surprised if Fed would accept that to reign inflation in a bit. Forward Libors are lower from summer next year. Would not suggest that this inversion will lead to a recession, but market's just expecting some easing. And this stop-start I fear will catch many out. Add to that, the Fed put is nowhere close to current levels. Not a good time to hold long duration assets. So yes, it will be bumpy for quite some time. Hope to be wrong but I think we're in for a real treat: high volatility, equity prices drifting lower in general. Few up-days mistaken for being a turn-around, etc. Some markets perhaps but better (=less negative) than others, bonds a no-go and cash depreciating at maybe 5-7% pa, so where to hide?

Gold? But that price will presumably come down too, so timing it right could be profitable.


Regarding the markets, I was looking at some graphs yesterday of bear markets of the past. They suck money in from the sidelines with promising rallies. Sometimes the rallies will be 20%+. Only to fall even further. 

"The job of a bear market is to take as much money as possible" - Someone on Twitter.

Problem with gold is its relationship to the real yield and trade weighted Dollar: Gold struggles when real yields rise, adjusted for FX. Pretty stable relationship since GFC. I added some earlier in the year when the inflation persistency and Ukraine war kicked off. Not much, just a bit to cover any tail risks (Putin flying off the handle, stagflation, ...). Gold and Tips for that matter would benefit if real yields fall on the account of inflation. We've got the prospect of policy mistake on one hand and rampant inflation which - yes might come off due to the base effect, but if you me whether RPI, CPI etc is representative? No idea, am looking at my personal rate of inflation, so how to make a good CPI forecast? I can't, no idea.

... historically UBS is well known and quite accurate in predicting CPI in the US. I have posted this before on another thread.

https://fortune.com/2022/04/07/ubs-peak-inflation-march-consumer-price-index-2022/

He got it right that the CPI has peaked @8.5% in March but missed the figure in April (e.g Actual 8.3% vs Predicted 8.0%)

CPI is 8.6%.

UBS were wrong. 

As I said, a minuscule down tick from 8.5% to 8.3% tells us nothing.

Who could expect the extreme measure from the EU to reduce Russian Oil/Gas import significantly?Russia successfully attacking Ukraine fields, vessels causing grain shortages around the world. Russia and Ukraine contribute 40% of the world grain suppliers.  This has not been included in the model.

Type_45

adindas said:

Type_45 said:

adindas said:

bd10 said:

Type_45 said:

bd10 said:

I'll bet on policy mistake. Fed's hand is forced, inflation is getting political and not "just" an economic issue. Baseline assumption: too aggressive tightening, accepting recession in the process. Wouldn't be surprised if Fed would accept that to reign inflation in a bit. Forward Libors are lower from summer next year. Would not suggest that this inversion will lead to a recession, but market's just expecting some easing. And this stop-start I fear will catch many out. Add to that, the Fed put is nowhere close to current levels. Not a good time to hold long duration assets. So yes, it will be bumpy for quite some time. Hope to be wrong but I think we're in for a real treat: high volatility, equity prices drifting lower in general. Few up-days mistaken for being a turn-around, etc. Some markets perhaps but better (=less negative) than others, bonds a no-go and cash depreciating at maybe 5-7% pa, so where to hide?

Gold? But that price will presumably come down too, so timing it right could be profitable.


Regarding the markets, I was looking at some graphs yesterday of bear markets of the past. They suck money in from the sidelines with promising rallies. Sometimes the rallies will be 20%+. Only to fall even further. 

"The job of a bear market is to take as much money as possible" - Someone on Twitter.

Problem with gold is its relationship to the real yield and trade weighted Dollar: Gold struggles when real yields rise, adjusted for FX. Pretty stable relationship since GFC. I added some earlier in the year when the inflation persistency and Ukraine war kicked off. Not much, just a bit to cover any tail risks (Putin flying off the handle, stagflation, ...). Gold and Tips for that matter would benefit if real yields fall on the account of inflation. We've got the prospect of policy mistake on one hand and rampant inflation which - yes might come off due to the base effect, but if you me whether RPI, CPI etc is representative? No idea, am looking at my personal rate of inflation, so how to make a good CPI forecast? I can't, no idea.

... historically UBS is well known and quite accurate in predicting CPI in the US. I have posted this before on another thread.

https://fortune.com/2022/04/07/ubs-peak-inflation-march-consumer-price-index-2022/

He got it right that the CPI has peaked @8.5% in March but missed the figure in April (e.g Actual 8.3% vs Predicted 8.0%)

CPI is 8.6%.

UBS were wrong. 

As I said, a minuscule down tick from 8.5% to 8.3% tells us nothing.

Who could expect the extreme measure from the EU to reduce Russian Oil/Gas import significantly?. This has not been included in the model.

Let's recap.  You've said:

- We've been in a bear market 
- There has been blood on the streets 
- We are at the bottom of the market
- CPI peaked at 8.5% in March


Have I missed anything?

adindas

Type_45 said:

adindas said:

Type_45 said:

adindas said:

bd10 said:

Type_45 said:

bd10 said:

I'll bet on policy mistake. Fed's hand is forced, inflation is getting political and not "just" an economic issue. Baseline assumption: too aggressive tightening, accepting recession in the process. Wouldn't be surprised if Fed would accept that to reign inflation in a bit. Forward Libors are lower from summer next year. Would not suggest that this inversion will lead to a recession, but market's just expecting some easing. And this stop-start I fear will catch many out. Add to that, the Fed put is nowhere close to current levels. Not a good time to hold long duration assets. So yes, it will be bumpy for quite some time. Hope to be wrong but I think we're in for a real treat: high volatility, equity prices drifting lower in general. Few up-days mistaken for being a turn-around, etc. Some markets perhaps but better (=less negative) than others, bonds a no-go and cash depreciating at maybe 5-7% pa, so where to hide?

Gold? But that price will presumably come down too, so timing it right could be profitable.


Regarding the markets, I was looking at some graphs yesterday of bear markets of the past. They suck money in from the sidelines with promising rallies. Sometimes the rallies will be 20%+. Only to fall even further. 

"The job of a bear market is to take as much money as possible" - Someone on Twitter.

Problem with gold is its relationship to the real yield and trade weighted Dollar: Gold struggles when real yields rise, adjusted for FX. Pretty stable relationship since GFC. I added some earlier in the year when the inflation persistency and Ukraine war kicked off. Not much, just a bit to cover any tail risks (Putin flying off the handle, stagflation, ...). Gold and Tips for that matter would benefit if real yields fall on the account of inflation. We've got the prospect of policy mistake on one hand and rampant inflation which - yes might come off due to the base effect, but if you me whether RPI, CPI etc is representative? No idea, am looking at my personal rate of inflation, so how to make a good CPI forecast? I can't, no idea.

... historically UBS is well known and quite accurate in predicting CPI in the US. I have posted this before on another thread.

https://fortune.com/2022/04/07/ubs-peak-inflation-march-consumer-price-index-2022/

He got it right that the CPI has peaked @8.5% in March but missed the figure in April (e.g Actual 8.3% vs Predicted 8.0%)

CPI is 8.6%.

UBS were wrong. 

As I said, a minuscule down tick from 8.5% to 8.3% tells us nothing.

Who could expect the extreme measure from the EU to reduce Russian Oil/Gas import significantly?. This has not been included in the model.

Let's recap.  You've said:

- We've been in a bear market 
- There has been blood on the streets 
- We are at the bottom of the market
- CPI peaked at 8.5% in March


Have I missed anything?

- We've been in a bear market : Correct
- There has been blood on the streets : Correct it will depends on your interpretation. When there is a major sell off the contrarian will strike that is what is the blood on the street for contrianas. Contrarian do not wait until a long depression, stagflation as this might not happen in a generation to come.

- We are at the bottom of the market; Wrong. I said we might be already around the bottom at that time based on the inflation figure in April (e.g 8.3 down form 8.5%) it is only an idiot will ever think a person will know the the bottom perfectly. Anyone could do that will become multi millionaires in just a few years.

People estimating the bottom based on the information at that time using technical analysis market signal. When something material change such as what happen in the EU, ban Russian oil, Russians manage to destroy Ukraine wheat fields, wheat vessels it will be a different matter. Both Russia and Ukraine are the major suppliers of grains / wheats in the worlds accounted for 40% of grain suppliers.

- CPI peaked at 8.5% in March. Yes, I said CPI might be peaking in March, as April figure down 8.3% base on UBS prediction. When something material change such as what happen in the EU it will be a different matter. This has not been incorporated in the model.

If you just play a guessing game, prophecy game your chance to get it right is 50% as the inflation is either up or down.

Zola.

I don't think anyone will win any insight prizes for having a negative feeling on the current macroeconomic outlook right now...

masonic

adindas said:

If you just play a guessing game, prophecy game your chance to get it right is 50% as the inflation is either up or down.

That's not how probabilities work. Outcomes are not always equally likely. e.g. markets will either crash by 80% this year or they will not. We all have our views about the likelihood of that, but we can all agree it isn't a 50% chance.

Type_45

masonic said:

adindas said:

If you just play a guessing game, prophecy game your chance to get it right is 50% as the inflation is either up or down.

That's not how probabilities work. Outcomes are not always equally likely. e.g. markets will either crash by 80% this year or they will not. We all have our views about the likelihood of that, but we can all agree it isn't a 50% chance.

It's not 80% anymore, given how far they've already fallen.

masonic

Type_45 said:

masonic said:

adindas said:

If you just play a guessing game, prophecy game your chance to get it right is 50% as the inflation is either up or down.

That's not how probabilities work. Outcomes are not always equally likely. e.g. markets will either crash by 80% this year or they will not. We all have our views about the likelihood of that, but we can all agree it isn't a 50% chance.

It's not 80% anymore, given how far they've already fallen.

Whenever I refer to the 80% crash, I'll be measuring from the previous all-time high.

Type_45

Zola. said:

I don't think anyone will win any insight prizes for having a negative feeling on the current macroeconomic outlook right now...

"Right now" is doing a lot of work in that sentence.  I've been saying this for many months.  And this thing hasn't even started.

Zola.

Ok Michael Burry