Recession Watch - May 2022

Another imminent fed rate hike, VC funding drying up, housing at all time highs, etc.. China and Europe not looking too hot either. 

Is a recession all but guaranteed? we make good money but the average Joe making 40k/yr is definitely feeling the pain and will have to shrink their budgets to make life work with increasingly higher rents. 
 

Curious to know what you guys are thinking and planning for the next 6-18 months. Delaying marriage and kids, house, and vacations? Going all cash or FOMO'ing into RE?

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Comments (65)

Controversial
May 2, 2022 - 7:46pm
PrivateTechquity 🚀GME🚀, what's your opinion? Comment below:

1.4% decline in GDP and that number is muted somewhat by the insane inflation. I just hope everyone remembers who put enacted the policies that allowed this. It's going to get ugly. 

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May 3, 2022 - 7:45pm
jarstar1, what's your opinion? Comment below:

For someone who is ostensibly in the finance industry, that kind of reading of the GDP number really doesn't make sense. GDP is the broadest possible lens for looking at the health of the US economy, and when you dig down it really isn't as bad as it seems, most of the reason for the negative drop is due to the increased trade deficit and drawing down inventories. The fundamentals are much stronger: overall private sector sales rose 3.7%, personal consumption is up 2.7%, non-residential fixed investment is up 15.3%, the economy added 1.7m jobs bringing the unemployment rate to 3.6% from 3.9%. 

May 4, 2022 - 11:18am
K-Peezy, what's your opinion? Comment below:
jarstar1

For someone who is ostensibly in the finance industry, that kind of reading of the GDP number really doesn't make sense. GDP is the broadest possible lens for looking at the health of the US economy, and when you dig down it really isn't as bad as it seems, most of the reason for the negative drop is due to the increased trade deficit and drawing down inventories. The fundamentals are much stronger: overall private sector sales rose 3.7%, personal consumption is up 2.7%, non-residential fixed investment is up 15.3%, the economy added 1.7m jobs bringing the unemployment rate to 3.6% from 3.9%. 

Good points, but there's even further digging that shows me more to be nervous about. Are overall private sector sales up in nominal dollars, or in real product/services moved? Same for personal consumption. Fixed investment going up that strongly is definitely a positive, I agree wholeheartedly. As for the jobs, sure there were that many jobs added, but then why are there also record numbers of job openings that are going unfilled? The ratio is close to two openings per unemployed worker, and that's a pretty stark sign to me.

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May 4, 2022 - 7:45pm
IncomingIBDreject, what's your opinion? Comment below:

Except for the fact that the senate is 50/50 and Republicans have a strong presence in the House. They can easily get bills passed if they wanted but the swamp career politicians scream  "Midterms! Midterms!" just to keep collecting their salary and kickbacks from corporations and foreign governments.

People forget that many of these politicians existed from the days of Bush or even before. I don't even want to know how long McConnell has been around. They are neocons who will vote destructive policies into place that hurt everyone except the elites in their circle - despite talking about a balanced budget they always vote to raise the debt ceiling and always vote for more tax breaks for the ultra wealthy without the middle class getting material benefits from these tax cuts. 

Until we get term limits in place the legislative branch is a body of government that will achieve  nothing materially good for the people. 

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May 2, 2022 - 10:11pm
K-Peezy, what's your opinion? Comment below:

Dick Steele

Old news. We've moved on to Ukraine.

Based on the news that just dropped about Roe v Wade, we're about to move on (pretty violently I'm sure) again...

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May 2, 2022 - 11:16pm
Memberberries, what's your opinion? Comment below:

I'm doing better than ever financially. I won't be delaying anything. 

On the topic at hand, my understanding is that you cannot get inflation under control caused by monetary or fiscal policy unless rates rise above the level of inflation, but in this case some of it is supply chain linked, so I'm ballparking that to get inflation under 3% we will need a 400-500 bps Federal Funds rate, which would obliterate the economy. Absolutely obliterate it. Congress, the White House, the Federal Reserve fucked this all up so badly starting in March 2020 (both GOP and Dems fucked up so badly). All they had to do was protect the most vulnerable and move on with life. Instead, they gave in to media driven panic and engaged in arguably the most catastrophic public policy in American history. Europe was bad, too, but their inflation isn't as bad as ours because they had a bit more fiscal restraint. Also, Europe's most catastrophic public policy was WW1.
 

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  • Associate 3 in RE - Comm
May 3, 2022 - 11:12am

Can you elaborate about what specifically congress did in March 2020? Do you mean the stimulus payments? Genuinely curious. 

Most Helpful
May 3, 2022 - 3:12pm
Memberberries, what's your opinion? Comment below:

Can you elaborate about what specifically congress did in March 2020? Do you mean the stimulus payments? Genuinely curious. 

The executive branch agencies recommended--against all known medical science and history--to shut down society based on the fear-mongering of the media. The state governments almost all complied. Congress then proceeded to spend something in the order of $7-9 trillion in a 18 months to prop up the economy. Then the new presidential administration exacerbated the problem with supply shortages by issuing vaccine mandates and by not enforcing employment law with employment offices simply allowing people to continue to collect unemployment without seeking a job--this lasted through September or October. Then some large states--NY and California, for example--persisted in lockdowns or closures into the summer of 2021, with California not effectively opening back up until 2022. Flush with huge sums of federal dollars and pent-up demand with insufficient labor supply and you've got a recipe for atrocious inflation. This, of course, was exacerbated by the Federal Reserve setting rates to 0 and US federal debt being the only safe investment in the world during a time of mass uncertainty, pushing rates into the 0 or even negative territory and mortgage rates down into the 1%s with 15-year mortgages, causing a housing boom and a pending bust.

We walked away with no evidence of any public policies effectively stopping Covid, a 30% increase to the national debt, and stagflation. 

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May 3, 2022 - 9:12am
GoingToBeAnMD, what's your opinion? Comment below:

Doing a variety of things, a few of them are hedges working against each other for the moment, but that's OK:

  1. I am working on moving up to the next level in my career. I want to be the one doing layoffs, not receiving them. Being a Director should help insulate me from that a bit.
  2. I have revived one of my "side hustles" (god I hate that term - can we all come up with a new one???) and it's worth about $35/hour to me. Not all the money in the world but enough to keep me clothed and fed. 
  3. I am increasing my options trading skills. I have been putzing around with a small portfolio and trying to grow that. I can't quite claim income from it just yet, but it's a good landing place for any severance package that comes my way. 
  4. I have a new Porsche 911 on the way. I am still proceeding with that purchase regardless of what may come. I have the money set aside for that and I've come to terms that its never a good time for a purchase like that and life is short - you just have to do it at some point!

I still haven't figured out what I'm going to do in terms of gold. Overall, I have been disappointed in its performance during the pandemic. I have both paper & physical but have to decide if it's really worth holding on to or better used in other ways. 

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May 3, 2022 - 9:29am
GoingToBeAnMD, what's your opinion? Comment below:

Thanks for that. You know, life really is short. I only have so many more years left on the planet. And I just plain got the balls to get over my fears and decide that you're basically never ready for such a big purchase so you might as well do it now. So, yeah, I started looking last September, got the allocation in March and it will arrive this summer. I'm just going to enjoy it and drive it fast because it brings a smile to my face :) 

You can read about my allocation stuff here: https://www.wallstreetoasis.com/forum/off-topic/porsche-allocations

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May 3, 2022 - 9:31am
GoingToBeAnMD, what's your opinion? Comment below:

Thanks! I didn't get too crazy with it. Just a base 911 Carrera in Guards Red. The most important option for me was Sport Chrono so that you can launch the car. I tried that at PECLA and had an amazing time with it. 0-60 in less than 4 seconds will make anyone on the planet feel alive!

I posted my Porsche allocation journey here: https://www.wallstreetoasis.com/forum/off-topic/porsche-allocations

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May 3, 2022 - 1:22pm
GoingToBeAnMD, what's your opinion? Comment below:

Sure, I guess that's OK because I've shared bits of it in other postings. 

In the past - like when in between consulting engagements - I have used poker to supplement my income. I enjoy and study the game and have reached a level where professional play for income is possible. Make no mistake about it, it's still "a hard way to make an easy living" and you have to sharpen up your skills. That's what I meant by "reviving" this side hustle, I've been practicing more & more recently because my game has fallen off just a little. So I'm tightening things back up, and as of this moment I am profitable again and it's worth anywhere from $34 - $36/hour for me. I keep a low overhead - in spite of the 911 - and that hourly rate makes it a viable side hustle for me. 

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May 3, 2022 - 11:56am
Dunder, what's your opinion? Comment below:

Playing devil's advocate could also say that 1) the US consumer is still very strong and balance sheets are robust 2) supply chain and labor issues are easing (look at freight rates) 3) starting to see inventory to sales return to more normal levels and increased promotions, setting up for potential goods deflation in the back half. Potentially sets up for an environment where inflation moderates, fed doesn't need to hike as much as mkt is anticipating, and the consumer is still strong. 

Housing prices are strong but likely to stay at this level i.e. not a bubble. The pricing is more supply driven, as there was a significant shortage of houses built post 08. Read a few builders transcripts and you'll see how tight things are.

Also, given most of us are younger, there is a lot of recency bias so good to remind yourself: not every recession is 2008. Recessions come in a variety of flavors and doesn't have to be a disaster. 

  • VP in PE - LBOs
May 3, 2022 - 12:32pm
Dunder

Playing devil's advocate could also say that 1) the US consumer is still very strong and balance sheets are robust 2) supply chain and labor issues are easing (look at freight rates) 3) starting to see inventory to sales return to more normal levels and increased promotions, setting up for potential goods deflation in the back half. Potentially sets up for an environment where inflation moderates, fed doesn't need to hike as much as mkt is anticipating, and the consumer is still strong. 

Housing prices are strong but likely to stay at this level i.e. not a bubble. The pricing is more supply driven, as there was a significant shortage of houses built post 08. Read a few builders transcripts and you'll see how tight things are.

Also, given most of us are younger, there is a lot of recency bias so good to remind yourself: not every recession is 2008. Recessions come in a variety of flavors and doesn't have to be a disaster. 

This. When has there been a recession when everyone and their mother is predicting one? The litmus test is that if my Uber driver is warning me of a recession, it's probably time to take the other side of the bet. This strategy even worked for NFTs and alt coin cryptos in calling the peak. The main thing about a bubble is that you're not aware you're in one. 

May 3, 2022 - 12:42pm
Dunder, what's your opinion? Comment below:

Half agree...I'm guessing the Volker driven recession in the late 70's early 80's was widely expected (I'm sure there were others if any macro guys want to jump in). But this is where "the market is not the economy". Agree that when everyone is pricing a recession, risk assets may not have that much downside even with a recession. 

May 4, 2022 - 1:49pm
UFOinsider, what's your opinion? Comment below:

Not at all.  There are indicators, and a lot of people know it's a bubble and are trying to cash in on it.

Bagholders and people with poor timing don't know it's a bubble, but everyone else is acutely aware.

Economists just lawyer it because they're a bunch of academics who don't realize the indicative metrics to measure economic activity shift in real time.

Get busy living
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May 3, 2022 - 1:16pm
AnalyzeANDchill, what's your opinion? Comment below:

adding a significant amount of cash as USD is going to increase because fed is raising rates to crush inflation. Bought 1k worth of food for deep freeze and non perishable food. That being said I still think people are underestimating the coming recession maybe not her but i think most people seem to not know anything is coming or talk it back. 

I feel like everyone predicted inflation because it was obvious and it came in just as strong or maybe stronger then expected, I think the coming recession will be the same. 

May 3, 2022 - 4:09pm
Legion42, what's your opinion? Comment below:

I am in bitcoin. Most people don't realize the halving is coming, when supply will be cut in half. Theoretically, the price should double to make miners profitable. Halving is in one year and a half. Also my sense is that bitcoin is becoming a leading indicator for the stock market. We saw the price increase was a signal of inflation coming way before every one saw it. And the recent crash was ahead of the stock market crash as well. My view of BTC has changed, I believe the digital gold argument but I am increasingly believing that BTC is tracking the stock market and competing for capital with it. But who knows Warren Buffet said its going to zero so what the fuck do I know. 

May 3, 2022 - 7:47pm
UCSDThrowaway, what's your opinion? Comment below:
Legion42

I am in bitcoin. Most people don't realize the halving is coming, when supply will be cut in half. Theoretically, the price should double to make miners profitable. Halving is in one year and a half. Also my sense is that bitcoin is becoming a leading indicator for the stock market. We saw the price increase was a signal of inflation coming way before every one saw it. And the recent crash was ahead of the stock market crash as well. My view of BTC has changed, I believe the digital gold argument but I am increasingly believing that BTC is tracking the stock market and competing for capital with it. But who knows Warren Buffet said its going to zero so what the fuck do I know. 

I just don't see the bitcoin appeal with there being more and more talk about crypto being regulated. That kinda defeats the whole point, imo.

Anyways - I personally hope we see a 75 bps hike. Multiple throughout the year. Fuck it 

May 4, 2022 - 10:44am
SirAxwell, what's your opinion? Comment below:

Personally, I see the appeal for BTC and ETH when the Macro environment is right (near zero rates spurring risk taking, like 2020 and 2021, where crypto outperformed almost every equity/asset), but I certainly do not see the appeal with the impending rate hikes. Anyone who ever took a freshman year Econ class knows that interest rates and economic activity are inversely correlated, so I'd be looking at commodities, healthcare, and utilities currently. Persons saying BTC in this environment is the "flight to safety" need a lobotomy IMO. I mean the poster above, in a thread about an impending recession, said he's in BTC because he increasingly believes it tracks equity performance. Why the fuck would you want to be in an asset that tracks equity performance in a recession? 

May 5, 2022 - 8:50am
GoingToBeAnMD, what's your opinion? Comment below:

"Some people are so far behind they think they're leading" - Junior Soprano

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May 3, 2022 - 7:52pm
UCSDThrowaway, what's your opinion? Comment below:
jarstar1

Considering this was in the fashion forum I thought it was going to be about watches... My recession watch would be a cool Swatch, like a System 51 or Skin (if I'm gonna go quartz I want to take advantage of the thinness).

Lol I guess the bot AI moved it there but I moved it back 

May 4, 2022 - 7:40pm
IncomingIBDreject, what's your opinion? Comment below:

Wait you are a mod?

Array

May 5, 2022 - 2:09pm
CarsnWatches, what's your opinion? Comment below:

I actually thought the same thing when I first read the title. I thought the OP was waiting for a recession to scoop up a luxury watch. 

May 3, 2022 - 8:13pm
fuzie, what's your opinion? Comment below:

Came in here thinking this guy is talking about a watch you should wear during a recession.

Array
May 4, 2022 - 1:45pm
leonkatelen, what's your opinion? Comment below:

Ah yes, nobody would have thought to cross check the economic activity of a country that is 20% of the world's economy through methods ranging from satellite surveillance, international trade records, consumption, capital market activity, infrastructure development, light pollution and raw resources extracted.

May 4, 2022 - 10:35am
Lawrence3, what's your opinion? Comment below:

I'm still relatively new at my job, so I understand that if things get bad I'd likely be early in the queue. With that understanding, I've been hoarding savings and focusing my discretionary spending only on experiences and seldom on things. This is generally my life philosophy, but I've buckled down on minimizing material purchases. I have a pretty solid emergency fund but it's still stressful to think about the possibility of layoffs

May 4, 2022 - 12:08pm
NoBrim, what's your opinion? Comment below:

Any recommendation on allocation of cash 22-26 year olds should be holding (outside of emergency fund/savings)? I want to be prepared worst come to worst but I can't sit here acting like mega-cap tech is not going to rebound eventually (1-3 years). Everyone seems panicked in the moment but my God does this look like "buy the dip" moment.

May 4, 2022 - 2:05pm
UFOinsider, what's your opinion? Comment below:

* SPXU calls in my speculation account.

* Stable value 401K allocations until the air clears in financial markets.

* Long [as in, very very long] RE position with cash on hand to buy more if everything suddenly goes on sale :D

* I still play around with few hundred at a time to try and noise trade but I'm disrupted too often during the day to ever hope to turn a profit....so yeah.  Boo.

We will soon be living in peak "markets =/= economy" so I'm looking forward to a change.  The last few decades of falling rates and balance sheet increases have frankly gotten rather boring.  COVID / WFH / Russian sanctions / inflation / decoupling / sustainable energy.....these disruptions are pushing us to a new regimen, and I'm pretty sure no one know exactly what it looks like yet. 

My frank opinion, Trump's direct stimulus payments to John Q Taxpayer during the lockdowns are the financial innovation of the century.  People have long advocated for it and knew it could be done....but he actually did it and erased the fictional notion that stimulus was just for big business.  And I get that his motivation was to try to buy the public's love ahead of the 2020 election but what he did was permanently change the discussion on guaranteed minimum income, stimulus policy, and more bluntly the entire field of demand side economics.  

Get busy living
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May 4, 2022 - 5:42pm
ex-Detroiter, what's your opinion? Comment below:

Remember that inflation is a YoY measure. The denominator is still from a weird time period. We had negative spot prices for oil during this time period. Some of the inflation readings could be a measurement artifact. I'd feel more confident in the reading once the comparison year is a non-COVID period.

May 4, 2022 - 9:03pm
Pio nono, what's your opinion? Comment below:

If we don't have a recession now we will have a depression later. Take that to the bank.

Jun 3, 2022 - 5:11pm
UCSDThrowaway, what's your opinion? Comment below:

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Jun 3, 2022 - 5:38pm
GoingToBeAnMD, what's your opinion? Comment below:

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Jun 3, 2022 - 6:24pm
UCSDThrowaway, what's your opinion? Comment below:

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