The Post Fed "New Normal"

Why a Probable Recession Matters to Markets

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NASAQ 100 Continues to Correct

Hey Guys,

Are central banks facing a great awakening? What will the price be for this fight against inflation?

As I'm writing this inflation is at 8.6% and the NASDAQ is down nearly 4% again today.

Many of us forget what a recession feels like and how good it actually is for innovation for companies that know how to utilize it.

This past week we’ve seen indicators of a future potentially significant earnings recession. The Fed is hiking rates as the economy is slowing, with limited ability to curb global inflation that is based on energy prices, China Covid-zero and supply-chain issues far outside of their fiscal and monetary control.

Layoff Trends accelerating

Layoffs in startups now are including Web3, such as Coinbase, Wealth Simple and many others. These layoffs have started in real-estate.

30-year Fixed Mortgage Rate Flashing Warning Signals (30-FMR)

There are warning signs as the Housing market cools, which is around 5% of the American consumer economy.

• The average rate on the popular 30-year fixed mortgage rose 10 basis points to 6.28% Tuesday, according to Mortgage News Daily.
• The rate was 5.55% one week ago.

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Mean Reverse Pressure on NASDAQ 100 Normal with Rate Hikes & QT

Year to date, the NASDAQ 100 has corrected 32%. Considering the massive bubble BigTech stocks were in, this is not surprising. My prediction is layoffs will occur, especially at boated companies like Amazon who over-hired during the pandemic to meet demand.

The demand destruction in crypto and Web3 and high-growth industries like Cannabis where a liquidity leverage issue will arise, will be enormous. Those genius VCs, won’t look so genius any longer. I believe the bottom for Bitcoin will be near the $9,500 mark. This is the either crypto bull market, where Bitcoin’s price goes up and down.

Layoffs in Web3 in Context - a Microcosm of things to come

Increasingly more companies have tethered their environment value to the price of Bitcoin including now Square, Robinhood, Coinbase and others. Consolidation will is occurring in the crypto trading marketplace space.

Home sales and prices fell again in May, continuing a downward streak as housing markets across the country react to rising interest rates. Due to the U.S. household debt to GDP ratio being higher, stress on real-estate and households will become intense in the Summer of 2022.

A global recession (likely already in Europe and China) presumes many zombie companies, startups, small businesses and consumers actually go bankrupt, which is totally normal. The new paradigm of the cost of capital will be significant different from the previous decade.

Never has the U.S. employment rate been so un-correlated with reality in the history of the U.S. economy. To compare this kind of inflation with the 1970s is absurd, given rising geopolitical tensions, the pandemic, a China recession, Energy crisis, food crisis, environmental disaster cost to the economy growing and unprecedented QE creating a consumer bubble where savings are quickly evaporating.

Dangers of the Global Housing bubble bursting

Rising rates have caused a sharp turnaround in the housing market. Home sales have fallen for six straight months, according to the National Association of Realtors. Real levels of inflation account for a 20% increase in rents in many hot job markets in the U.S. suggest wages are not even remotely accounting for inflation and many individuals will be priced out of their cities of choice as they get laid off.

On LinkedIn there have been tons of stories already of Coinbase and Wealth Simple employees where this has already occurred. The pandemic QE was so radical that $Trillions of dollars flooded the market, creating major bubbles including a global housing bubble. China’s debt problem in the real-estate sector is showing contagion now in the rest of the world.

Layoffs Combined with Rising Rents is the Adding Pressure

How can afford a 6% mortgage rate if they are laid off? What is the potential risks to the U.S. consumer?

A new survey by Realtor.com found that rents for Miami-area apartments have risen?58% since March 2020?— the fastest rate for any major US metropolitan area. Miami is the 2022 Web3 Capital of America. Who can afford rents that high if they are unemployed?

Rising rates have caused a sharp turnaround in the housing market. But as of June 15th, 2022 rate hikes and QT are just beginning. What do we expect to happen?

Prospects of BigTech stocks and NASDAQ 100 are Poor

High-growth stocks and the NASDAQ 100 could see continued pain. Bitcoin and EV stocks and other bubbles crash the hardest because they were essentially bubbles within a bubble. Michael Burry wasn’t wrong, he just was a bit over earnest in his timing. The Bubble watchers tend to be as dumb as we are in timing the market. Bill Gates can short Tesla and say Web3 is for fools, but he also has his own agenda.

In filings with the Securities and Exchange Commission, Compass announced a 10% cut to its workforce, and Redfin announced an 8% cut. These are real-estate firms, we are nowhere near the bottom until the housing bubble collapses. Can such a thing occur? It’s nearly guaranteed to do so now with consumer sentiment low with the probability of a global recession increasing with each passing week. This is just common sense guys.

Redfin’s stock is down 81% YTD, that’s not unusual when mean-reversion form a Bubble means a probable consumer recession. Fed stimulus means many zombie companies have been existing longer than they should have, this includes many SPACs that had no business going public, and should have been regulated. The U.S. in their failure to regulate their markets, have created get-rich schemes for the top 20% that are nearly unimaginable accelerating wealth inequality and income inequality. This?means minorities, youth and women are experiencing a significantly less fair version of Capitalism.

The Real-Estate Hype Problem

Many people enthusiastically purchased houses and real-estate during the pandemic in the WFH craze. Perhaps 30% of these won’t be able to afford them in the coming months and years.

Fed Credibility is Shattered

The Fed’s credibility has been all but destroyed during this process of rising inflation that’s now compared to the dot.com crash of 2000, but is actually much worse due to the high debt to GDP ratio of the U.S. economy. The United States Government Debt is estimated to have reached 137.20 percent of the country's Gross Domestic Product in 2021. This is a problem for the health of U.S. Capitalism, that is overly depending on the impact of consumers, healthcare and the real-estate sectors.

Anyways guys those are some of the macro-economic indicators I’m thinking about in relation to markets today, and there’s no light on the horizon for a while.

Thanks for reading!

Soft landing? Liquidity enough to protect us? Fed so far behind the curve?

If you want to follow my insights on stocks, investing and stock trading including buy alerts and so forth, you can do so?here.

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What do you think we are in for in the 2nd half of 2022 and in 2023?