State of the Market

[rocktronAMP]

https://www.reuters.com/markets/glob...-1-2024-08-02/

Stocks plunge on recession fears. Fed didn't cut last meeting, but BofE did (just a little). Been saying it for months, but a recession is coming, and likely a fairly severe one. US debt will grow significantly, long term interests rates will rise - even as short is cut low to deal with the crisis. As in 2020, Fed will also expand its balance sheet, since interest rate cutting won't be enough. Why? because there is too much debt. Beyond this deflationary event, that I expect to play out over the next 1 year, inflation will rise because the debt cannot be defaulted on.

Like "the credit crunch"or "covid", once people can name it, they will take it to be real, but not before. So there is still time to arrange your life as best you can against risk.

For many people then the bank balance is £0.00 then and definitely nowhere near £1,000,000.00. Without an income of any sort, what is to become of us?
We can't get rid of debt. We owe it. No money fool is going to write it off. The stock market did recover a little. I don't see any chance of a Bubble like ifrom 2002 to 2024 for the entire world. It has short spurts of yippee and then the bubble pops just like post COViD. Companies overhired in 2021 and the flaming Ukraine Russo war reared its ugly head. The economy and the world just can't caught a break for a year or two.

[mogga71]

I think it will likely happen quickly, if for no other reason than central banks are now better practiced at it. It took some figuring out prior to 2009, because cutting interest rates to near zero was not enough, and they had to invent ways to take assets onto their balance sheets - government bonds at first, then mortgages, commercial bonds. These were things not done since the great depression in the 1930s. In the 2020 crash they even started taking on ETF funds invested in equities.

It is interesting that QE did not cause inflation, at least not in the CPI. But it certainly did cause asset inflation didn't it? House prices and stocks and shares did very well since 2009. I think what triggered the big jump in CPI was Trump giving stimie checks direct to households, with his signature on them, to make it seem like he personally was handing out the money. Of course people just went out and spent it, especially as many of them had excess savings because they had to sit at home in lockdown.

The difficulty is that inflation causes longer term interest rates to rise - since no one will lend in an inflating currency unless they get a very good interest rate to compensate for the loss in real value of the principal. With US debt to GDP at 123% and interest rates at 5% and $30 trillion in debt, the US is close to being able to just cover its mandatory spending (interest, pensions and benfits, military spending) from tax receipts - its in the 90+% range at the moment. In a recession the debt will baloon, and tax receipts will fall, and the US will certainly be in fiscal dominance. Hence my expectation of a panic cut to short term rates and QE in the next year or two, and then stagflation and higher longer term rates overall.

The point is, that rates went to 5% to fend off inflation but killed the economy. But now we are going to get more debt and more inflation, but will no longer even be able to afford 5% to defend the currency. The max interest rates that the US and UK are going to be able to afford going forward will fall. There is simply too much debt and it can only be inflated away. Worse, this is an accelerating process. "interesting" times ahead...

Agree with this 100%. America is in big trouble. I think pretty soon you will see the whole investing landscape change and a pivot into hard assets, energy etc.

[willendure]

We can't get rid of debt. We owe it. No money fool is going to write it off.

Debt owed by corporates can be eliminated either by 1) paying it off or 2) refinancing at a better rate or 3) default and bankruptcy.
Debt owed by countries can be eliminated by 1) paying it off through rising taxe rates or productivity or 2) inflating it away 3) structural reform or 4) defaulting on it.

Sovereign default is a very bad idea and does massive harm to a country. However, UK defaulted on its war loans from WW1 and WW2 and the USA let us off - since they took over as the world hegemon from the UK (structural reform of a sort). Sovereign debts at end of WW2 are at comparable levels to where they are now. The issue was resolved back then by huge GDP growth in the USA, loans from the USA to rebuilt the rest of the world, and inflation - real rate estimated to be around -10% for 5 years post WW2.

Right now, that kind of post war recovery GDP growth seems very unlikely. Sovereign default is not an option where it can be avoided. So that leaves increasing tax rates (Labour), and inflation. Yippee.

On the corporate side, there are a lot of zombie companies that need to refi this year and next to survive. So expect a lot of bankruptcies and layoffs.

Debt can and will be got rid of. The problem is that when it does it causes money to dissappear - deflation - and that is like emptying the oil out of a running engine.

[sadkingbilly]

you're all DOOMED! - DOOMED, i tell ye!

[OzzieExpat]

you're all DOOMED! - DOOMED, i tell ye!

If you're not panicking. Then you clearly don't understand the gravity of the situation.

[SussexSeagull]

Regardless of what you think of the current Labour government I imagine if they thought they could they would love to splashing money about as it goes down well with the electorate. The fact they aren't speaks volumes.

We have a long haul ahead of us.

[escapeUK]

Regardless of what you think of the current Labour government I imagine if they thought they could they would love to splashing money about as it goes down well with the electorate. The fact they aren't speaks volumes.

We have a long haul ahead of us.

Wait till you see how much they spent on police overtime!

[agentzero]

We have left wing governments in the UK and in also the US at present.

More and more of Silicon Valley CEOs and VCs are now backing Trump in the US because Trump will free Mergers and Acquisitions in tech and cut regulations in the US.

If that happens, and boom in Silicon Valley follows, there should be a knock on effect in the UK, as tech workers in the UK are effectively treated as much cheaper offshore resources by US tech companies.

If Kamala wins, there is much less hope.

The Democrats aren't left wing. There are only two parties in the USA that can realistically win an election there. The Democrats are solidly centrist with some centre right economic policy. The Republicans are now hard right, tipping into the edge of despair.

I mention this just to clarify that international comparison matters. Labour aren't left wing, in their current incarnation. They are centre left. Facts matter.

[agentzero]

Your contracting market, perhaps. Mine, definitely not. Of course, this is largely why the anecdotes posted in this thread have limited value. Anyway, you're agreeing with my point that cleaning up messes from meltdowns is part of the lucrative aftermath of a meltdown in the financial services and other areas that are directly exposed to meltdowns. Obviously, many markets are completely insensitive to financial market meltdowns or even boom in those circumstances as money is shifted around.

I do wonder about some of the negativity around here, though, particularly from posters with usernames that scream negativity . To some extent, you make your own opportunities. There are limits when your whole operating model has been undermined by the commoditisation of IT services, but definitely at the margins, and recognising and accepting the big shifts before your competition is part of the skillset of contracting.

Your post is crass and clearly incorrect. The single anecdote is yours. The person to whom you replied is currently the majority of contractors. I'm also in a good position, in a well remunerated role, but have the intelligence to know it's luck, rather than something unique about me or my roles or divine intervention. It's not nice to pretend others are at fault when there is a direct correlation between the stockmarket trend upwards or downwards and volume of contractor roles upwards or downwards.

The contractor market statistics speak volumes, or lack of volume if we're avoiding puns.

In this sense, it's probably worth you being binned from your role soon to ensure that you learn to be humble, which as I have done throughout my long contracting career. If the expected stockmarket major correction occurs soon then it would be fitting if you weren't spared. My patience for contractors who are too big for boots expired a couple of decades ago.

[agentzero]

My problem with this new Labour administration is that they seem to view commercial activity as a dirty thing, to be eliminated. How dare people be so crude as to want to earn and keep money, to build wealth. Reves might be an economist, but a political one, and one that believes in some pretty marxist bs. Harris too. Chirst, its just about enough to make me think that Trump might be a good idea, though I believe he will not do anything remotely effective, and will just do more bailing out to win political favour.

Your last post about the markets and recession were fair. This post is mad. Labour are not "anti commercial activity", which is a huge badge to attach to what is going on now. The current administration are very obviously not Marxists either.

Why did you post this rubbish? Some people here seem to read zerohedge and take some sewage seriously. It's disturbing.