I’m going to list off 10 reasons to legitimately be bearish for the markets right now. If there is any one thing I’d like you to comment on if you are bullish for the markets (especially regarding the fed pausing rates and inflation being sticky), by all means, share.
I and many others are all failing to understand why it’s yolo season.
- The 10 year is still dropping while markets go up. What kind of psycho shit is that? For the record, the bond market is king. Every time we’ve come across a financial crisis of some kind, the bond market always pings problems and problems happen. It’s like the Babe Ruth of forecasting shit breaking.
- Inflation is sticky. How exactly can you pause rate hikes when inflation is sticky without inflation going back up? You can’t, demand will ramp up again while rates are still low and only make the problem worse. Not only is the fed not going to pause rates, but they’re more likely to raise them several more times.
- Higher rates means more problems for banks. Less and less liquidity for anyone overleveraged in US treasury bonds which for the record, is a TON of banks. This means that banks not only lend less because of this, but because of the looming debt ceiling crisis, money going back into the economy will likely be less which means less deposits for banks. When this happens, deflation happens which is great depression kind of shit.
- The fed clearly outlined a recession for 2023.
- US projection to run out of money moved from August to June of this year. This is because the treasury saw less in taxes this year despite everything it paid the IRS to collect more. Seems like the ultra wealthy pulled off another hat trick again! Knowing how the government works, I wouldn’t be surprised if this is the inflated time-line. It’s probably mid-May.
- There is a massive credit bubble around commercial real estate. Roughly $1.5 trillion are due for repayment in 2025 and because of inflation and cultural changes around WFH, there’s a good chance major banks won’t see much of that back. This then furthers their liquidity crisis. If rates doesn’t cause them to keel over, this absolutely will.
- The rapidly escalating conflict in Ukraine. This alone is becoming a massive blackhole for US tax payer dollars. Thanks to the individual who leaked the documents covering Ukraine, we now know we’re losing the fight. So, not only have we pumped BILLIONS of dollars into the problem, but after this is all said and done, we may not even see that money back if ever. Does the federal government expect the middle class to pick up the tab for this too? Ha, of course they do.
- OPEC is cutting off supply to oil causing oil prices to go up thus making inflation worse.
- Demand for housing is absolutely plummeting which will likely begin effecting the means to increase supply here soon.
- Commercial real estate defaults are growing rapidly.
I find it borderline hysterical to see the market go up when companies are seeing enormous profits still. It’s as if retail and institutions can’t see how this impacts inflation. Demand for money is still high which is why these companies are all profiting still. If demand is still high, there WILL BE NO PAUSE.
Furthermore, rates were never meant to be low as a normal part of the economy. Rates are meant to be low when it needs to be stimulated. If rates constantly remained low, we’d live in a constant rate of inflation. If the fed can’t stimulate the economy because rates are already as low as they can be, how exactly do you expect the fed to handle crisis that disrupt the flow the economy?
So please, if you have a legitimate reason as to why the market is pricing in a pause, especially around sticky inflation and everything else mentioned above, I’m all ears. I say this humbly too. I will be asking questions and really investigate how and why markets should be pricing in a pause. If you can help it, providing a source would be nice.
TLDR:
I want to know why the market is pricing in a pause despite sticky inflation plus the many other elements mentioned above that genuinely require the fed to stimulate the economy. Can’t stimulate the economy when inflation is sticky or when rates are low. So, rates need to go up yet, the overall market thinks otherwise.
Why?