Is it Coming or Not?
Sitting around and waiting for 2008 has become a global pastime.
You’d think we’re in the middle of the worst economic downturn since the Great Depression based on the news, yet we’re not.
We are in what I refer to as “justice for reality” valuation compression.
For over a decade during the artificially low interest rate regime, central banks created an environment that favored expensive valuations and cheap leverage for the upper class where the highest echelons of society and executives got rich while the average workers did very poorly.
Money flowed from the central banks to the commercial banks and straight to the executives and large shareholders who kept it there.
Using a cocktail of buybacks and taking full advantage of low inflation, they invested very little back into the company, thus thickening the margin substantially.
Now, this is all reversing.
Instead of hiring more personnel to show revenues are growing at the expense of everything else, companies are laying off and prioritizing net income over revenue growth.
It’s about the bottom line.
Reality is back. Normalcy is here.
Is it painful to bring society back to order? Yes. Do innocent bystanders suffer in the process? Always. Are mistakes made by the very people we entrust with our money and our fate? Absolutely.
Have you ever seen what it looks like when a platoon with little discipline gets a new commander? They finally understand what the military is like.
Nearly 70% of the U.S. economy is supported by consumer spending.
Do you know what’s funny about this resumption to normalcy in terms of lending rates and the cost of cash? What’s ironic is that it is impacting the rich disproportionately.
Take a big tech company that has lost 50% of its share price and think about all of the worthless options the employees won’t be able to exercise coupled with the fact that so many of them are getting fired as part of the “efficiency programs.”
Companies are calling it resizing.
This process helps the working class because of the millions of people that are still short in the service sector (more than 2M workers).
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This means that while all of the classic signs of a recession are screaming and flashing red, GDP is still chugging along.
While the Federal Reserve is making sure that the inflationary nightmare they recklessly allowed to occur in the first place is turned into a tight and restrictive freezing hell as long as we don’t call this period a recession, one major impact is being felt across all sectors of the economy, and that is the credit chokehold.
In real estate, lending, and business, credit is constrained everywhere, and funds are exiting banks in favor of money market accounts.
I don’t think I’ve ever seen an economic period where the winners have been the masses and the losers were the elites.
Something is missing in this puzzle, and I’m afraid to think of what that might be.
Only one thing comes to mind, and that is the FED making a colossal mistake.
Time will tell if I’m right.
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