What we are witnessing in real-time is monetary policy failure. The full cost of which will be revealed during the deflationary phase...
There has never been a rate hiking cycle without a recession and there has never been a recession without a significant rise in unemployment. Therefore, today's bullish pundits are of the mind that for the first time history, we will have both - no recession and no significant unemployment.
Unemployment rate (red)
Fed funds rate (green)
The two most recent cycle downturns were the Tech bubble in Y2K and the housing bubble in 2008. This pandemic hangover bubble features both six sigma Tech overvaluation and RECORD housing overvaluation yet pundits don't predict a meaningful correction in either market. What we are witnessing is 15 years of central bank moral hazard unwinding the hard way. Amid abject denial.
Here we see homebuilder stocks inversely correlated to homes sold, for the first time in history. Which is why the ratio of homebuilder stocks to homes sold is at a record high (bottom pane).
In Tech-land, delusion is likewise rampant. The best performing sector so far in 2023 is about to see the largest earnings decline of any sector:
"This year’s rally in the shares of the biggest technology companies is the best thing going for bulls. It’s about to run into an earnings season that’s expected to deliver the biggest profit drop for the tech sector in more than a decade."
The (15%) projected drop for tech earnings in the first quarter would be the biggest since 2009. The consensus has been consistently weakening: Six months ago, analysts in aggregate were expecting that tech-sector earnings would edge up by 1%"
Q4 2022 saw the biggest decline in Tech spending in U.S. history:
At the beginning of a Tech bubble, the stocks hiring the fastest perform the best. When the bubble collapses, the stocks laying off the fastest perform the best.
"Tech already has cut 5% more than for all of 2022, according to the report, and is on pace to eclipse 2001, the worst year ever amid the dot-com bust"
We saw all this before of course in Y2K. Back then it took 17 years for the Tech sector to overcome the bubble high. This time, gamblers are expecting new highs any day now.
We just got "better than expected" CPI, but the core CPI re-accelerated. There has never been a time when the Fed paused rate hikes with the core CPI above the Fed rate. So another rate hike is a lock for May.
The Fed has raised rates 4.75% but the core CPI has only come down 1%. Which means we are witnessing monetary policy failure for the first time in history:
Warren Buffett says more bank failures are inevitable, but ALL deposits are safe. Which is totally delusional.
"Investing legend Warren Buffett believes there could be more bank failures down the road, but depositors should not ever be worried"
"Buffett said the government would likely step in to backstop all depositors in all U.S. banks if that was ever necessary, though he did note that would require Congressional approval"
Buffett, 92, said he so confident that U.S. depositors are safe that he would put a million dollars of his own money in a bank"
A multi-billionaire doesn't even have $1 million of his own money in a bank, but he says it's 100% safe.
Because if it's not, HE is not getting bailed out this time.
