Stock market tips and experiences

[DrVenture]

What I understand is what I posted. That white collar, particularly tech industries, over-hired and are now making corrections. That and FED rate hikes have had an impact on the labor market at the high end. Where we differ is in the definition of "job recessions". I have seen real job recessions. And context. This comes across as a staffing pullback in the face of record profitability, and FED rate hiking from near zero to mid 5's.

The chart that you posted shows an unemployment rate (all occupations) of 4.4% - higher than a year ago, but still historically low. August of 2023 was 3.9% - extremely low. In October of 2009 the same figure was 10%. Context is everything.

As an individual interested in economics, I am sure you know that rate hikes, to lower inflation, have the consequence of impacting the job market. Which they appear to have done to the tune of .5% over the past 12 months. Not a huge number, when still well under 5%. This also means that the lowering of rates now underway, has a strong potential to reverse any losses associated with the FEDs effort to quash inflation. Thus, recent data points need to be taken in that context.

[DrVenture]

Originally Posted by kudos

https://www.nytimes.com/2024/08/21/b...s-economy.html

"Numbers"

It is behind a paywall. But, the headline says it all. No one is arguing the "numbers". The pushback is two fold. Firstly, an objection to the characterization that Powell said that the numbers are "fake". He did not. Secondly, that these numbers represent anything except a typical response to two years of rate hikes having the expected result of lowering inflation and impacting the labor market.

We are still at 4.4% unemployment. New data may show a trend otherwise, but that data does not exist as of yet. And may actually go the opposite direction, due to aggressive rate lowering. All remains speculation until the numbers are collected and a trend line emerges.

I make no predictions, but this labor impact was telegraphed by the Fed for more than two years. Making it appear cause and effect. And it is the data that they have been looking for to lower rates more aggressively.

I am certainly not making any investment moves based on anything that I have observed. I doubt anyone else is, either.

[kudos]

Originally Posted by DrVenture

No one is arguing the "numbers".

The numbers were "fake" when months later they realized they were completely wrong. Also, how they categorize full-time jobs these days or lengths to determine if someone is unemployed or not still throws everything off.

[DrVenture]

Originally Posted by kudos

The numbers were "fake" when months later they realized they were completely wrong. Also, how they categorize full-time jobs these days or lengths to determine if someone is unemployed or not still throws everything off.

.

Except nothing about the way they do those calculations has changed. And if it did, they would be fully transparent about that.

Here is a thorough article regarding the hows and whys of economic data revisions. It is nothing new, been going on for a very long time.

https://journals.ala.org/index.php/d...view/6383/8404

From the link (2017) "There’s a small rub, however, in the Payroll Employment Number: It is a very rough estimate and is revised the following month—and then again the month after—as more information arrives at the BLS. These revisions can be large and may materially change the picture of the economy. Here’s an example: The first release (October 3, 2008) of the September 2008 nonfarm payroll employment data indicated a loss of 159,000 jobs. The second release (November 7, 2008) of the September 2008 employment data indicated a loss of 284,000 jobs. The third release (December 4, 2008) of the September 2008 data indicated a loss of 403,000 jobs."

Sound familiar?

We will have to agree to disagree and look back in 6 months to see where we are. Anyone like to make any predictions?

[other_evolved]

Originally Posted by DrVenture

As an individual interested in economics, I am sure you know that rate hikes, to lower inflation, have the consequence of impacting the job market. Which they appear to have done to the tune of .5% over the past 12 months. Not a huge number, when still well under 5%. This also means that the lowering of rates now underway, has a strong potential to reverse any losses associated with the FEDs effort to quash inflation. Thus, recent data points need to be taken in that context.

So many people do not understand this point. In order to combat inflation, rates go up, and pain is the point and the cure. It's like chemotherapy.....try to kill of the bad without killing off too much of the good.

[XutvJet]

Originally Posted by DrVenture

Not sure what your definition of "closing in fast" is.

We had a recession in 2020, just 4 years ago.

2022 brought a near 25% S&P correction that lasted 287 days. Less than two years ago.

We also saw a 13% drop (correction) in the Nasdaq this year, along with an 8.5% S&P drop.

The market has been on a unsustainable climb since about 2017. COVID really made things weird when it comes to the market and what has happened in the last 4 years is a bit of an anomaly. The Fed, Wall Street, investors, companies, and consumers have gotten WAY to used to unrealistically low interest rates. Dialing back the interest rate isn't going to help things like the Fed hopes. Consumers and business have lived outside their means for too long. Consumers are piling on debt because they don't have the money but can't stop living beyond their means. It will be like a miniature version the 2008 collapse. It will be rapid and the trigger not clearly known until it's pulled.

I'm not a doom and gloom type person. I'm just a realist that knows that what's been going on, isn't sustainable. I also work entirely in mergers and acquisitions so I get a bit of view from behind the curtain. Am I planning on selling? Nope. Have I prepared myself for an extended multi-year downturn and likely have my portfolio shrink by 20+%. Yep. I lived this many times now.

[DrVenture]

Originally Posted by XutvJet

The market has been on a unsustainable climb since about 2017. COVID really made things weird when it comes to the market and what has happened in the last 4 years is a bit of an anomaly. The Fed, Wall Street, investors, companies, and consumers have gotten WAY to used to unrealistically low interest rates. Dialing back the interest rate isn't going to help things like the Fed hopes. Consumers and business have lived outside their means for too long. Consumers are piling on debt because they don't have the money but can't stop living beyond their means. It will be like a miniature version the 2008 collapse. It will be rapid and the trigger not clearly known until it's pulled.

I'm not a doom and gloom type person. I'm just a realist that knows that what's been going on, isn't sustainable. I also work entirely in mergers and acquisitions so I get a bit of view from behind the curtain. Am I planning on selling? Nope. Have I prepared myself for an extended multi-year downturn and likely have my portfolio shrink by 20+%. Yep. I lived this many times now.

Thanks for the detailed clarification. I would not disagree that ZIRP is unrealistic. Great for many things, but undoubtedly stimulative under the right conditions. Definitely not great for those reliant on fixed income. It has the tendency to force them to accept lower returns or go further out on the risk spectrum than they might be comfortable with.

I am always prepared for a drop of 20% or more. I have used such dislocations for my benefit several times. I was the guy buying at 40% discounts in May and April of 2020, when many experienced people were frozen in place. But, if this trip to 0% for a full decade, and now back to 5.5% has taught me anything, it is that there is no "normal".

Little of what was predicted over the past 15 years has actually been proven to be true, based on pure theory. To be more specific, there were many who believed that a full decade of ZIRP policy would result in massive inflation. This never happened, and it eventually took ZIRP, massive monetary stimulus, supply chain disruptions, labor shortages and more occurring simultaneously, to even get to moderate inflation which lasted less than two years. Another example of so many economic minds being very wrong was the notion of what the FED balance sheet expansion would cause. It actually has gone quite well, no one even speaks of it any longer.

I believe the book on economics is still being written and we are possibly in the early chapters. And, if the FED is smart (I believe they are), they will stop lowering rates long before we get to ZIRP again. So, what is the "perfect" number to achieve parity? Who knows? Meanwhile, we will get another big event eventually, and on and on. I am ready to put a lot of money to work over the next two years. As Dirty Harry once said, "Make my day".