The reality is we cannot see the future of our incredibly complex, ever-changing economy. Sure, this hasn't happened in the past, but on the other hand the economy today is vastly different than it was even fifty years ago. Not to say we couldn't end in a recession - of course that is a distinct possibility - but the reality is that we don't have a ton of history to draw on when it comes to post-pandemic recessions exacerbated by supply chain issues and large-scale war in major energy-producing countries.
I wonder if you've shorted the equities markets to the greatest degree practically possible given your financial situation? If not, then I think you're phrasing things with too great a degree of absoluteness.
In terms of the Fed's goal, it is reduction of inflation. Unemployment is both a driver and a signal of that, but it's not the ultimate goal. And besides, a rise in unemployment doesn't guarantee a recession - we're at 3.5% and folks from the Fed have said they see 4% as consistent with keeping inflation stable at an appropriate level. It is absolutely possible to have 4% inflation and not be in a recession.
I don't short stocks, but I would not buy the US market at the moment. There will be bear market rallies but I do think this is still a bear market and will take years to play out.
High interest rates causing unemployment and reducing investment is the lever they will use to defeat inflation, it's very very hard to get right and the Fed has a long track record of getting it absolutely wrong (including over the last decade when they stoked a massive asset bubble in the US and all sorts of crazy behaviour like NFTs and crypto speculation). I suspect they will get it wrong this time too.
The Fed created this bubble (and arguably others since 2000) with loose monetary policy, and now they're trying to kill it with tight monetary policy - what could possibly go wrong!
>I wonder if you've shorted the equities markets to the greatest degree practically possible given your financial situation? If not, then I think you're phrasing things with too great a degree of absoluteness.
The equities market doesn't have great correlation with the common pleb's job outlook so it makes no sense to short the equities market based on these kind of predictions.
The prediction was that we are guaranteed to go into a recession. Are you suggesting that we might have a recession in which the stock market doesn't decline? Bear in mind that this is a situation in which we can be sure the Fed will not prop it up, since they're the cause of it going down in the first place.
If we're making predictions about recessions based on history, then it seems pretty clear that the result of one will be a market decline.
I think the issue is that we’re already in a recession, everyone has been talking about this for months, and the stock market has taken a giant turn downward already last year. It could stay at its current level for a year or two before rising again, but the stock market has already been expecting a recession and that’s likely why it’s this low already.
It doesn’t have to drop more in a recession because it already has! People losing their jobs and spending less is already predicted by Wall St.
Apologies for not being clear. I was referring to this quote which you quoted.
>But it seems like overall, and especially in lower-wage jobs, employment is still humming along and people are very much not getting laid off.
There will not be a soft landing.
It seemed like you were responding to this statement that was about employment rather than the stock market, before making your comment about shorting the equities market.
This is a classic, desperate hope that people have going into a recession. "This time could be different". We've been waiting a long time for this one. It's not just about COVID, otherwise why would it happen as things get better.
Many of these businesses being hit were long overdue for a fall and behaving highly irrationally. This borders on the severity of the .com bust, though it does appear to be less severe.
How do we know it won't be worse either? We could be heading into a downturn and turmoil to rival the great depression.
> This borders on the severity of the .com bust, though it does appear to be less severe.
I don't think this is remotely true - the .com bust killed off a huge number of companies (and an enormous amount of market cap) that weren't profitable and had no real path to profitability. This time we're talking about layoffs at companies like Meta and Amazon that are just throwing off money every quarter.
The reality is we cannot see the future of our incredibly complex, ever-changing economy. Sure, this hasn't happened in the past, but on the other hand the economy today is vastly different than it was even fifty years ago. Not to say we couldn't end in a recession - of course that is a distinct possibility - but the reality is that we don't have a ton of history to draw on when it comes to post-pandemic recessions exacerbated by supply chain issues and large-scale war in major energy-producing countries.
I wonder if you've shorted the equities markets to the greatest degree practically possible given your financial situation? If not, then I think you're phrasing things with too great a degree of absoluteness.
In terms of the Fed's goal, it is reduction of inflation. Unemployment is both a driver and a signal of that, but it's not the ultimate goal. And besides, a rise in unemployment doesn't guarantee a recession - we're at 3.5% and folks from the Fed have said they see 4% as consistent with keeping inflation stable at an appropriate level. It is absolutely possible to have 4% inflation and not be in a recession.