> My understanding is that the fed is leaning into this particularly hard in order to dislodge the stubborn housing bubble.
They are trying to reduce inflation. The housing bubble certainly played a part, but inflation was hitting nearly everything. A big concern here, is that many smart people think a fair bit of that inflation was due to COVID related supply chain disruptions (which still persist, see China and COVID). So while raising interest rates will help, it may not be the right tool for the job (but it is the only tool that the Fed has, so here we are).
> For an individual (someone who isn't a current business owner), does this basically mean we should continue stockpiling savings, and avoid moving (rent) / avoid buying house / buying a car?
Definitely build up your savings. The other three are more complicated. Rents appear to be finally going down in some marquee markets. So moving might actually save you money. Buying a house now feels like a bad idea, seems like the market is still carrying on from the fumes of the bubble, but interest rates are definitely having an impact. Based on historical examples, the full impacts will probably take a few years to shake out as housing tends to move pretty slowly. And buying a car, well that is complicated. If you need one, buy one. If not, probably best to avoid it.
If you do have savings, might make sense to start looking at CDs, treasuries, and municipal bonds. Interest rates are up and if you have a chunk of cash sitting around those are good ways to put it to use.
> Any ideas how long this could last / what the bottom looks like?
Watching the Fed is the key here. And the Fed is watching inflation. So as long as inflation stubbornly persists the Fed is likely to keep raising rates, and that is going to impact the economy. I read somewhere that the "market" is expecting inflation to normalize in the summer of 2023. But personally that feels optimistic. I think we still need to shake off the COVID induced supply chain disruptions before things get back to normal, and that still feels like another year or so away.
2022 was the worst performing year ever for bonds and among the worst-10 for stocks -- we've never been this deep in the "negative returns across sectors" quadrant as we are right now, and there's no clear indication or catalyst to suggest we're recovering yet either.
Wow. Take the maximum of both axis, which represent the ceiling of what you can earn with a conservative stock or bond portfolio, and it blows the rest out of the water. Really enjoy the way they distilled this down.
With China dropping its zero-covid policy, I think we're realistically on the way out. However there's no avoiding that we need to pay for 2-3 years of lost global productivity.
I mean picture yourself stopping work for 2-3y with zero planning, living on debt and pretending like nothing happened. At some point the bills come due.
I am not sure what to think about China. Dropping the zero-covid policy feels like just the start. They still might go through a couple of waves of covid before things get back to normal. Or things could snap back fairly quick, hard to predict.
Another factor working its way through the system is the "reshoring" of manufacturing. A lot of companies gave up on China and are moving their manufacturing to other countries or closer to home. This probably creates inflationary pressures as the development of the manufacturing facilities create s a fair bit of demand, but also staffing the facility creates more demand for the local workforce. So if this trend continues I could seeing this being a long term inflationary pressure.
I think at least the China situation or lack of manufacturing capacity will resolve itself by the end of the year. Reshoring will change things but I think over the next 2-3y, making it so that overall the big turbulence we live now goes down slowly until the end of the year and then stabilizes at a higher inflation rate than expected (3-4-5% out of my magic hat), but not as wild as now.
They are trying to reduce inflation. The housing bubble certainly played a part, but inflation was hitting nearly everything. A big concern here, is that many smart people think a fair bit of that inflation was due to COVID related supply chain disruptions (which still persist, see China and COVID). So while raising interest rates will help, it may not be the right tool for the job (but it is the only tool that the Fed has, so here we are).
> For an individual (someone who isn't a current business owner), does this basically mean we should continue stockpiling savings, and avoid moving (rent) / avoid buying house / buying a car?
Definitely build up your savings. The other three are more complicated. Rents appear to be finally going down in some marquee markets. So moving might actually save you money. Buying a house now feels like a bad idea, seems like the market is still carrying on from the fumes of the bubble, but interest rates are definitely having an impact. Based on historical examples, the full impacts will probably take a few years to shake out as housing tends to move pretty slowly. And buying a car, well that is complicated. If you need one, buy one. If not, probably best to avoid it.
If you do have savings, might make sense to start looking at CDs, treasuries, and municipal bonds. Interest rates are up and if you have a chunk of cash sitting around those are good ways to put it to use.
> Any ideas how long this could last / what the bottom looks like?
Watching the Fed is the key here. And the Fed is watching inflation. So as long as inflation stubbornly persists the Fed is likely to keep raising rates, and that is going to impact the economy. I read somewhere that the "market" is expecting inflation to normalize in the summer of 2023. But personally that feels optimistic. I think we still need to shake off the COVID induced supply chain disruptions before things get back to normal, and that still feels like another year or so away.