At times like this, what everyone wants to know is "How soon is inevitable?"...
So far, this year is evolving eerily similar to 2008. The year started with inflationary hysteria, and it's ending with unforeseen deflationary collapse. Then as now, forecasters were continually behind the curve. Their predictions were outdated the moment they were printed. What follows is a comparison of 2008 risks vs. now:
First, on a relative comparison of this monetary asset bubble. Put it this way, Crypto losses in 2022 are MORE than the entire size of the subprime mortgage market equaled in 2007: $2.15 trillion vs. $1.3 trillion.
The size of the 2021 IPO market in total IPO count and subsequent collapse is vastly larger than every other year in market history including Y2K.
Which is why this week when we learned that Goldman Sachs "beat" earnings expectations, that meant their profits DECLINED -48% year over year. Following their own standard Wall Street model of lowering earnings expectations so it always looks as if companies are beating expectations even when profits are collapsing.
Criminality is built right into the standard valuation model.
IPO data: https://stockanalysis.com/ipos/statistics/
And of course the current housing bubble features the largest two year price increase in U.S. market history. By any valuation measure - price/income, price/rent, price/CPI this bubble is larger than the one in 2007.
Not just in the U.S. but across the developed markets world (Europe, Canada, Australia) are all RECORD overpriced with central banks RECORD tightening.
I've been writing a lot about policy error lately so I will give the summarized version now. It's shocking to me that not one pundit has raised the risks of the Volcker gambit taking place right now. That is by FAR the greatest risk in conjunction with Fed-induced EM meltdown.
"The odds of a 1 percentage point hike were at 83% early Thursday, but later dropped to about 45% following comments from Fed Governor Christopher Waller:
"We don't want to make snap policy decision based on some knee-jerk reaction to what happened in the CPI report"
That's EXACTLY what they did last month. The CPI report came out on the Friday before FOMC, and they leaked to the WSJ a .75% rate hike over the weekend. They totally panicked.
However, instead of Fed-induced depression all we hear from pundits (and the Fed) now is that rates will go up this year and down next year. And it will all end in a "soft landing".
By the way, we were told the same thing back in 2008:
Which gets us to the related topic of recession denial which today has reached epic levels. Wall Street is going to bury a lot of people, which is what they do best.
"The current recession exists purely in the imagination, not in the real world"
The Fed as always is laser focused on stale data months old at this time. They are totally ignoring the bond market and the flattened yield curve. The difference between now and 2008 is that year over year CPI "inflation" is higher now than it was back then. However, nominal prices of commodities are LOWER now than they were back then. Either way, it's the same result. Far more focus on inflation than recession.
I put together this comparison list of current factors pointing to recession vs. factors currently pointing to expansion. What you notice is that the expansion list is mostly comprised of lagging indicators. Whereas the recession list is driven by real-time market indicators. Except GDP, which forms the very basis of economic growth and is likely ALREADY in confirmed recession. In other words today's experts are ignoring their OWN definition of recession as I write. Similar to 2008 when the economy entered recession NINE months prior to Lehman. But the Fed thought the economy was still growing.
One big difference between now and 2008, is that back then the banking dominoes were already falling - New Century Financial, Bear Stearns, Countrywide, Washington Mutual, Fannie/Freddy, AIG etc. etc.
This time, the dominoes are sovereign nations. Led by Russia and China. China pulled the WORLD out of recession in 2008, this time around they are leading the world into recession.
Ironically, COVID started in China and they are handling this crisis worse than every other country on the planet. They are STILL in lockdown mode two years later. The wealthy are leaving China like rats on a sinking ship:
"Scarred by Shanghai’s chaotic lockdown under the Covid-Zero policy that has made China a global outlier, Hu is joining what investment migration consultancy Henley & Partners estimates is a cohort of 10,000 high-net-worth residents seeking to pull $48 billion from China this year — the second-largest predicted wealth and people outflow for a country after Russia"
China's GDP growth rate is now predicted to be 3.4%, however it has been a moving (lower) target all year. Similar to the U.S., crash is happening faster than analysts can change their models.
The problem of course is that there is now a massive divergence between Wall Street and Main Street. The latter of which has remained far too complacent and over-positioned in stocks:
Final bagholder transfer of ownership is now complete.
A necessary and sufficient condition for final collapse.
In summary, the S&P 500 peaked in October 2007 and then exploded a year later in October 2008.
This past year, the S&P peaked in December 2021. Therefore, if anything this current disaster is AHEAD of schedule.
But, you don't see headlines like this one at the bottom, you see this at the top. Because that's what this is, the second denialistic top prior to the second and bigger crash.
Deja vu.
“We have seen very robust, significant activity for about the last 18 months that’s continuing here into the third quarter. So, really a record sales run for us”
Indeed.