Why is the market holding up so well?
From my perspective, albeit bearish-leaning, it appears that the momentum to the negative is building? Additionally, there are an abnormally high amount of potential black swan triggers (e.g., food shortages in Africa / Asia this winter, energy crisis in Europe from Russia cutting things off, crypto domino, snowballing of earnings coming down under new multiple regime, continued persistent inflation, world war, Taiwan etc.)
Q4 2021 article: “U.S. consumers grew their total debt to $15.6T in the fourth quarter of 2021. This represented the largest quarterly rate of increase since 2007”
Q1 2022 article
Debt then continued to rise through Q1… adding another $266B in Q2 2022… getting to $15.84T. Interestingly, credit card balances are up $71B vs. Q1 2021
https://www.newyorkfed.org/microeconomics/hhdc
April 2022 article:
“Investors are growing more skittish about bonds backed by consumer debt, worried that inflation and slowing growth will increase the number of low-income borrowers falling behind on car payments or credit-card bills.”
https://www.wsj.com/articles/investors-turn-cautious-on-consumer-debt-11649624240
May 2022 article:
“In March, 8.5% of subprime borrowers defaulted (60+ days) on their car loans, according to Equifax. That’s the second-highest total on record.”
https://www.kbb.com/car-news/subprime-car-loan-defaults-rising/
June 2022 article:
“Auto defaults up 10 of the past 11 months”
https://www.autoremarketing.com/subprime/auto-defaults-10-past-11-months
July 2022
“Home sale cancellations hit highest rate since start of pandemic in June (60,000 home purchases, equating to ~15% of monthly home sales)” This is up from 12.7% in May and 11.2% prior year
https://nypost.com/2022/07/13/home-sale-cancellations-hit-highest-rate-since-start-of-pandemic/
Recent tech announcements for slower hiring / hiring freezes
Microsoft
Apple
Nvidia
Lyft
Uber
Snapchat
https://fortune.com/2022/05/09/tech-hiring-slowing-down-job-market/
Corporate Debt
https://fred.stlouisfed.org/series/BCNSDODNS - has doubled since 2011… and is up 50% since 2018
Couple the above with debt as a % of market value of corporate equities… at an all time low (https://fred.stlouisfed.org/series/NCBCMDPMVCE) – would this imply that corporate equities are still broadly overvalued compared to the last 50 years?
“Yields are going up which will make it harder for smaller companies to refinance and thus, it will be harder for them to make debt payments” – thought this was particularly interesting to think about re private equity if there is a pause in sellside M&A or tightening of credit by companies leverages at >6x. What if they are forced to refinance at lower debt levels… say 4.5-5x and at higher rate? Think about the equity destruction…
Stocks
“Bubble expert Jeremy Grantham predicts weak earnings will hammer stocks - and warns the S&P 500 could plunge another 25%”
I am cautiously pessimistic about the overall health of the market. There is just so much stupid rhetoric out there right now. I forget the exact title, but there was a very misleading WSJ article last week basically signaling that the latest consumer data was showing that spending was up. Initially this struck me as very weird, but what they tried to bury was the fact that people aren't actually buying more things, the items they buy just cost more due to inflation. In fact, they are actually buying less, it's just way more expensive to do so lmao. So inflation adjusted spending is actually flat to down. What scumbags, trying to get people to believe things are improving.
Another thing: today on WSJ front page "investors bet fed will need to cut rates next year". Hahahaha what a load of shit. Even if they are able to curb inflation with current rate increases (very unlikely IMO) everything still costs a fuckload more for consumers. It's not like prices are going back to pre-covid levels - slowing inflation just means that prices aren't rising as fast, which doesn't really even matter when goods already cost 2x what they used to a year ago.
Also, lots of debt maturities in '23, '24, '25 which will lead to refinancing/Rx activity. This will make or break the economy in my view. Its a question of whether the fed chooses to murder corporate earnings and slow inflation, or let inflation run rampant and let companies continue their addiction to cheap credit. Either way consumers and normal working class citizens are fucked. It's honestly such a shame.
Do you know the boomer song “bbbbaby you ain’t seen nothin yet”? That perfectly describes the situation here.
Wait for people to cry “uncle” - wait for the stock market to be down so long people stop auto contributing in their 401ks. Wait for venture capital and private equity limited partners to refuse to meet capital calls and cause losses at banks. Wait for companies who need moar investor money to survive like Tesla to go bk. Wait for the account frauds to be revealed such as Amazon web services. Wait for the circular tech economy where everyone buys each other’s saas products and advertising to dry up. Wait for bitcoin to go to zero and the claw back lawsuits to start flying, and ultimately for all of the stupid bitcoin articles to stop,
Then you will be singing The Who song - Won’t Get Fooled Again,