How much longer will this bear market go on for?

Type_45

And meanwhile the stock market will exist in a vacuum...

Linton

TonyTeacake said:

Linton said:

TonyTeacake said:

I see a lot of names on here who were debating with me on here 6 months ago that high inflation will be a minor blip in the economy and won't be around for long. I was warning it will only get worse but it seemed it just went in one ear and out of the other. Now it looks like you are all worried about it, and you should be because it is only going to get much worse than I anticipated.

Interest rates will only be going be higher and in 2023 two million homeowners will be hit by a mortgage rate shock. Factor in the cost of living crisis a lot of people are going to be underwater. When the banks do their "stress test", do they factor in everything else going up 20-100% at the same time? Probably not.

I know there will be many people on here who will disagree with me because they have a vested interest, so are too emotionally involved but the true reality is that we are heading for an economic disaster.

When you have a step rise in prices it will stay on the annual CPI figures for 1 year.  6 months is too early to conclude "it will only get worse".  So far the inflation is due to external events - price of oil/gas and supply problems resulting from Covid and the over reliance of world industry on JIT (Just In Time) stock management.  To what extent that translates into a long term internal inflationary spiral is yet to be determined.

9.4% in 1 year is very different to 20%-100%.  During the 4 years 1974-1977 inflation was over 15%/year.  The world did not end.  In any real meaning of the words there was no economic disaster.

Many people disagree with you because they doubt your ability to predict the future with any useful degree of accuracy.   It requires an almost  pathological level of self belief to "know" that people who think you could be wrong are fools or a crooks   Exactly how can disagreeing with you be the result of "a vested interest"? 

Personally I have no vested interest nor much emotional involvement in the matter.  The future is unknown and the world will do what it will.  There is no "true reality" about tomorrow. The best one can do is to manage ones financial affairs as far as one is able with sufficient slack and diversification of income and wealth to withstand most storms.

I have to disagree with you. This inflation monster was started off by turning the money printers into overdrive, and to add to that we now have the shocks of external events pushing inflation higher. If you do your homework correctly the inflation we have now is much worse in comparison to the 70s, most of us know this it's down to how governments measure the CPi and a lot of things are not included now compared back to then. 

54% energy increase in April and it is estimated it could go up another 78% in October, who knows what it will be in January 2023? it looks like it is going to be a lot higher than the 4% estimated with Russia cutting the gas pipelines into Europe by 80%, this is going o be disastrous. You can argue we get most of our gas from Norway but this will have a massive effect on global prices. Factor in petrol & diesel prices going sky high in comparison to 12 months ago, this backs up what I say "when the banks do their stress test, do they factor in everything else going up 20-100% at the same time? Probably not.

You don't have to be a mathematician to work out what is going on with prices.

It would appear that you weren't around in the 1970's. I can assure you that inflation was a far more significant factor than it is now.  I remember receiving 2 pay increases in one year to keep up with prices.  One company I later worked for avoided government restrictions on pay rises paying 13 monthly salaries in one year by moving their wage policy from one month in arrears to 1 month in advance. 

It would be interesting to hear your proposal of the mechanism by which "money printing" is causing high inflation now when it failed to do so since QE started in 2008.  I can provide a mechanism for a supply hypothesis:

During Covid stock levels thoughout the world were reduced as demand for manufactured goods decreased.  Once the restrictions were lifted there was an increase in demand.  This could not be met by the supply chain because it takes time for say extra iron to be mined to be turned into steel to be transported to car factories to be turned into cars to be transported to the garage forecourt.  This was made worse by the global operation of extreme Just In Time manufacturing whereby output is dependent on a very frequent supply of components and raw materials.  

Getting the right number of containers in the right place to be used to transport say electronic goods from China to the rest of the world takes time especially as transporting empty containers around the world does not seem a viable business.  This did cause a large increase in container transportation costs.  These are now decreasing but still well above pre-Covid levels. 

To take one example of the effect of supply problems - certain VW cars are on 1 year's delivery.  This is not because the manufacturing plants are inadequate to meet the demand but results from a shortage of electronic components.  Hence he price of low mileage 2nd hand models has increased to pretty close to what a new car would have cost.  Also it doesnt help that the wiring looms are made in the Ukraine.

At some stage global manufacturing will replace the depleted stocks.  How long this will take I have no idea. 

The key factor will be whether governments globally can constrain overall wage increases until supply returns to normal and so avoid externally driven inflation being converted to an internal wage-driven inflationary spiral. However we also have the separate though hopefully temporary problem of oil supply arising from Russia/Ukraine.  So lots of unknowns (as always).

InvesterJones

Type_45 said:

And meanwhile the stock market will exist in a vacuum...

So your conclusion from a very long running other thread, is that there isn't a correlation between the economy and the stock market?

TonyTeacake

Yes I was around in the 70s.

QE in 2009 was crazy high but nothing like it was in 2020-2021, in just 6 months from March to November 2020 it expanded more than it did in nine years. With all this free money and people staying at home, most of them had nothing better to do than spend it like it was going out of fashion, you saying it like all this money printing has nothing to do with this rampant inflation. If people didn't receive money from furlough and grants do you think they would have been spending as they did?  Yes the lockdowns have played a massive part in rising inflation with governments telling people to stay at home, I don't disagree with you on that one, I know this first hand through many businesses I deal with who are still experiencing supply chain problems. The bottom line of it all is this money printing flooded the market with so much cash like we have never experienced before chasing fewer goods.


You say "It would be interesting to hear your proposal of the mechanism by which "money printing" is causing high inflation now when it failed to do so since QE started in 2008.  I can provide a mechanism for a supply hypothesis:" Don't forget banks weren't doing much lending during this time. After the crash in 2008 the housing market was in a downturn, we entered a recession and many people lost their jobs. That is why we didn't see high inflation back then. Forward the clock to 2020-2021 with all this free money, low-interest rates and cheap borrowing, with people being locked away in their homes most of them had nothing better to do because they couldn't really go on holiday, so most went on a spending spree, shopping on Amazon, extension on the house, new furniture, move home, etc, etc, etc. All it has done is created an everything bubble which will end in disaster.

Central banks and governments never talk about the CPi today and the way it was measured back in the 1970s, if they were to use the same method the inflation we have now is much higher and most people are waking up to this now. This inflation monster is now entrenched into our economy and I really can't see it going away anytime soon. 

Millyonare

Covid caused inflation, not money printing.

Businesses cut back in the downturn of 2020-2021. Then struggled to rehire in the upturn of 2022. Things will normalise in 2023, as hiring returns nearer to the mean.

TonyTeacake

Millyonare said:

Covid caused inflation, not money printing.

Businesses cut back in the downturn of 2020-2021. Then struggled to rehire in the upturn of 2022. Things will normalise in 2023, as hiring returns nearer to the mean.

I have to agree, Covid was the root cause which lead to sending the money printers into overdrive with the lockdowns.

Not sure about things getting back to normal in 2023, I believe we are going to experience many economic shocks later this year and into 2023.

Type_45

The cause of the inflation appears to be largely due to supply-side issues relating to the response to Covid.

So inflation is due to neither Covid itself nor money printing.  But the latter is certainly exacerbating the problem.


It's for the reason that inflation is due to supply issues that raising rates won't solve the problem.


Hence we are in this situation due to twin policy errors:  1) the response to Covid and 2) the tightening of money.


There are other issues since which have poured petrol on the dumpster fire.

masonic

I'd say the main driver is the war in Ukraine (food, energy), and a secondary factor is China's continued zero Covid policy and lockdowns (other goods).

InvesterJones

Type_45 said:

The cause of the inflation appears to be largely due to supply-side issues relating to the response to Covid.

So inflation is due to neither Covid itself nor money printing.  But the latter is certainly exacerbating the problem.


It's for the reason that inflation is due to supply issues that raising rates won't solve the problem.


Hence we are in this situation due to twin policy errors:  1) the response to Covid and 2) the tightening of money.

I presume you mean loosening not tightening as a cause for inflation? If you believe loosening was in part to blame then you would also believe tightening should in part help reduce inflation, right?

Type_45

masonic said:

I'd say the main driver is the war in Ukraine (food, energy), and a secondary factor is China's continued zero Covid policy and lockdowns (other goods).

Switch off CNBC and Biden's pressers.