stevenkesslar

Interesting and complex topics.
Here's a very thoughtful and granular policy analysis on housing finance and its potential impact on short term recession mitigation.  It elucidates many complex policy points that naturally are of interest to investors in real estate and stocks, like me, trying to avoid potential profit degradation from recessionary policy outcomes.
Will the housing market drive a recession anytime soon, like it did in 2008, when subprime lending had extremely detrimental policy impacts on a correlated group of macroeconomic variables?  Here's a strong opinion Kennon states that I think impacts a textured policy analysis:
If you read the data-driven line of reasoning Kennon refers to, he has a great point.  In plain English, if you are old you are rich.  And if you are young you are fucked.  I'm guessing most people reading this are on the old side of the generation war.
Kennon expostulates that it is a BAD policy choice that 2 in 3 Americans own their homes.  Almost all with either no mortgage, or a low fixed rate mortgage with an average interest rate of 3.7 % .  Really?  If this is BAD policy, who needs GOOD policy?  What's wrong with 2 in 3 Americans having affordable homeownership?
Kennon, who is young, is protesting what he views as Fed-driven interest rate musical chairs that has left many young people who want to buy homes standing - for now.  He's obviously right.  I think what he is missing is that the policy also created a solid bedrock of home equity and wealth for 2 in 3 Americans.  In other words, NOT just the rich.  This either mitigates against a recession, or puts a floor on how low a recession can go. 
We know how awful things got during the Great Recession, when toxic mortgages resulted in millions being foreclosed on and an estimated $6 trillion in home equity vaporized.  We are now living with the opposite policy choice.  And it seems to be working out pretty well.  Perhaps we could call it the difference between a Great Recession and a Recession Gone Missing.  Kennon argues, with factual precision, that  "housing prices could collapse and most people would still be above water."  That is the exact opposite of the Great Recession.  It's a bedrock of economic stability. 
The same postulation was shown to be true during the Great Depression, when home prices (albeit among a much smaller slice of Americans) dropped an average of 67 %.  That is, after all, what made it a Depression.  And a Great one.  We have the opposite problem.  Lucky us.
I'm a fan of the idea of government-financed 3 % fixed rate mortgages for young Americans.  Both to help them build wealth, and to put a further floor under how bad a future recession could be FOR ALL OF US.  Granted, recessions are not all like 1929 or 2008, driven by imploding home values and a sudden mass extinction of middle class wealth.  But the worst recessions are.  So this is a long term anti-recessionary economic policy that offers many benefits.  But also requires a nuanced policy debate. 
Kennon is right that such a de facto policy worked well for the old. And in and of itself it would not drive up the deficit.  The opposite.  It would generate a multitude of tax revenues, which are also anti-recessionary.
Our sage @augustus offers an extremely cogent remonstrance against historically large federal deficits, which I passionately concur with.  In plain English, massive deficits could fuck everything else up, badly. 
Not anytime soon.  But by the time that bomb goes off, it will be too late.  As Kennon argues, the malcontent young generations of today are paying the price in terms of high interest rates.  While a separate thread would be required to granularly dissect and disaggregate the many variables driving high interest rates, certainly the massive federal deficits are part of the problem.  Most Americans agree on this.  They could drive a deep recession, or a Great Depression, somewhere down the line.
 

Interesting and complex topics.
Here's a very thoughtful and granular policy analysis on housing finance and its potential impact on short term recession mitigation.  It elucidates many complex policy points that naturally are of interest to investors in real estate and stocks, like me, trying to avoid potential profit degradation from recessionary policy outcomes.
Will the housing market drive a recession anytime soon, like it did in 2008, when subprime lending had extremely detrimental policy impacts on a correlated group of macroeconomic variables?  Here's a strong opinion Kennon states that I think impacts a textured policy analysis:
If you read the data-driven line of reasoning Kennon refers to, he has a great point.  In plain English, if you are old you are rich.  And if you are young you are fucked.  I'm guessing most people reading this are on the old side of the generation war.
Kennon expostulates that it is a BAD policy choice that 2 in 3 Americans own their homes.  Almost all with either no mortgage, or a low fixed rate mortgage with an average interest rate of 3.7 % .  Really?  If this is BAD policy, who needs GOOD policy?  What's wrong with 2 in 3 Americans having affordable homeownership?
Kennon, who is young, is protesting what he views as Fed-driven interest rate musical chairs that has left many young people who want to buy homes standing - for now.  He's obviously right.  I think what he is missing is that the policy also created a solid bedrock of home equity and wealth for 2 in 3 Americans.  In other words, NOT just the rich.  This either mitigates against a recession, or puts a floor on how low a recession can go. 
We know how awful things got during the Great Recession, when toxic mortgages resulted in millions being foreclosed on and an estimated $6 trillion in home equity vaporized.  We are now living with the opposite policy choice.  And it seems to be working out pretty well.  Perhaps we could call it the difference between a Great Recession and a Recession Gone Missing.  Kennon argues, with factual precision, that  "housing prices could collapse and most people would still be above water."  That is the exact opposite of the Great Recession.  It's a bedrock of economic stability. 
The same postulation was shown to be true during the Great Depression, when home prices (albeit among a much smaller slice of Americans) dropped an average of 67 %.  That is, after all, what made it a Depression.  And a Great one.  We have the opposite problem.  Lucky us.
I'm a fan of the idea of government-financed 3 % fixed rate mortgages for young Americans.  Both to help them build wealth, and to put a further floor under how bad a future recession could be FOR ALL OF US.  Granted, recessions are not all like 1929 or 2008, driven by imploding home values and a sudden mass extinction of middle class wealth.  But the worst recessions are.  So this is a long term anti-recessionary economic policy that offers many benefits.  But also requires a nuanced policy debate. 
Kennon is right that such a de facto policy worked well for the old. And in and of itself it would not drive up the deficit.  The opposite.  It would generate a multitude of tax revenues, which are also anti-recessionary.
Our sage @augustus offers an extremely cogent remonstrance against historically large federal deficits, which I passionately concur with.  In plain English, massive deficits could fuck everything else up, badly. 
Not anytime soon.  But by the time that bomb goes off, it will be too late.  As Kennon argues, the malcontent young generations of today are paying the price in terms of high interest rates.  While a separate thread would be required to granularly dissect and disaggregate the many variables driving high interest rates, certainly the massive federal deficits are part of the problem.  Most Americans agree on this.  They could drive a deep recession, or a Great Depression, somewhere down the line.
 

The federal budget deficit for the 2023 fiscal year clocked in at $2 trillion and 7.5% of GDP—roughly double what the deficit averaged as a share of the economy from 2016 to 2019.  Incredibly, hundreds of billions of dollars of PPP is still going out the door, despite the Senate Finance Committee stating a couple of weeks ago that 95% of these claims are fraudulent.  This is all about unsustainable federal spending and massive debt. It will end very badly.

If Meta's gains hold til the close, it'll be the largest single-day market cap gain in history.
Kevin Slater

Huge profits announced today by Meta and also Amazon. The market surges.   Then there’s this piece by Axios. 
 
Just a moment...
WWW.AXIOS.COM The US clearly has performed better than the rest of the developed world since the onset of Covid. I’m actually concerned the economy is just too hot right now to consider interest rate cuts…even in March. Let’s see how things look once we get to March. 

I do. So does the market - it is up 17% today after announcing a dividend for the first time.  Hard to make the case that a recession is imminent when tech companies are prospering. Nasdaq 100 index is up something like 80% for the year. Is a recession coming. Yes. Is it imminent? Does not appear so. Should you be ready, just in case? Always. 

Things are NOT good.  The economy is only humming along because of huge debt spending by the Federal Government (which is not sustainable and will itself cause a crises) and consumers going into debt.   
 
Layoffs Hit 10-Month High As Financial And Tech Companies Slash 39,000 Jobs (msn.com)
 

That is a classic bubble.  And the return is about 50% for the past year.

12% of the US population is now collecting Food Stamps.
That's 4 million more people since 2019.
THAT statistic speaks more to the reality of what's going on for the average American than all these cherry-picked reports of "low unemployment".  Most unemployment statistics are drawn from charts of people "actively looking for work" and ignore the millions of people who have given up trying, and instead live permanently on public assistance.
Keeping in mind that most US news outlets are now owned by the same few large Corporations that have an agenda to keep us believing what they want us to know and preventing a mass protest to the direction that Global business interests are taking us. Data is constantly skewed and interpreted by expressing numbers that don't give the complete picture of the overall problem. Much of the "employment" that is being touted, isn't providing enough income to put food on the table.
 

Further to the above, the November/December2023 jobs numbers previously reported were increased by a whopping 126,000 jobs combined.  So a truly spectacular three months of jobs reports.  An analyst in the attached article repeats my prediction yesterday that a March interest rate cut is almost certainly off the table now.  Things are just going too well for the US economy for interest rate reductions in the near future.  
Also, they comment that recent layoff announcements by companies such as UPS are a minor factor in the grand scheme of the larger job market.  Basically, just a blip.
Things are just going too well with the US economy right now.
 
MSN
WWW.MSN.COM  

Another massively positive jobs report was issued today busting through expectations. With such a strong economy, robust jobs picture, and upbeat consumer sentiment…there is clearly no recession on the horizon. 
 
Labor market grew 353,000 in January, soaring past expectations
STOCKS.APPLE.COM The gains were roughly double economists’ predictions of 177,000, reinforcing that the economy...  

I get your point.  If you go to the store and pay more for eggs, that is real.  If your house is worth $50,000 more, that's not real. 
It's an extremely pessimistic way of looking at things.  
Here's an investment question.  My stock nerdy nephew started buying SOXL at about $7 a share in Fall 2022, when it was beaten down to a low by the imminent recession mongers.  He kept adding positions, and kind of risked the store on it.  But only because it is an index fund with only solid profit makers like NVDA.  And he was racking up huge paper gains.  I think he went from about $200,000 or so invested to now over $1 million in value on paper.  With most of it being an  unrealized long term capital gain.  I, by comparison, got in late at like $17 a share, and have only doubled the tens of thousands I put in.
By your investment standard, both my nephew and I are poor.  And bat shit crazy, to boot.  First, it is only a paper gain.  Second, if it is ever realized, we will have to pay lots of taxes.  Therefore, we are shitty investors.  Just like my roughly 30 % annual return on real estate value over about 25 years is total shit, by your standards.  After all, I have to pay property taxes every year.  And since I haven't sold, the homes may be worth nothing tomorrow.  Is this the investment "logic" you are espousing?
By the way, just to cheer up the gloom a bit ......
Stock prices and home prices may not be crashing.  But egg prices have!
Egg prices are crashing. Here’s why

 
It's terrible!  Obviously a recession is coming!  😉

Consumer sentiment surges while inflation outlook dips, University of Michigan survey shows
 
 

Like I said.  There is data.  If one chooses to drink it.  

The $50,000 average increase in net worth is an average. Meaning, for the vast majority of Americans, net worth increased.  So, no, it is not a small percentage of the population.  It is the vast majority. 
Stock ownership is in fact concentrated in the top 10 % of the population, as you argue.  But my best friend, who is an escort, texted me his stock gain in 2023 - something like 25 % if I recall right.  That's a five figure number, not millions.  But it was meaningful to him.  And he said it was a great Christmas present.
My nephew is not rich.  But once he hits the sell button on SOXL he and his wife can buy a home for cash if they want.  The American Dream lives.  Who knew?  Oh, he'll also pay long term capital gains taxes.  If we could all compromise, like we did in the 90s, that could help pay off the deficit.  Which is a recessionary threat.  And most Americans do see it that way.
Meanwhile, 2 in 3 Americans own homes.  Most with no mortgage or a low fixed rate mortgage.  That is bedrock.  Again, this helps explain why the recession has gone missing.
You are correct that home values can go down.  But so can inflation.  It has.  Meanwhile, real wages have gone up.  You only want to focus on the bad news.
 
 

Actually, no.  There is data.  
Americans' net worth grew 37% after pandemic hit: Fed survey
Real median net worth increased from $141,100 to $192,900 between 2019-2022
Auggie, it's horrible that the price of cereal has gone up.  It's a wonder that people with $50,000 more in net worth aren't starving to death.  How do they even get by?  And worse, a recession is coming!
Again, there is data.  
While its true that the average person with $50,000 more in net worth by 2022 and higher real wages in 2023 can barely afford a bowl of cereal, the fact that we made it past the global inflation and supply chain squeeze might explain why people are feeling better.  Ya think?  The US had lower inflation than most of the rest of the West.  Even though inflation sucks.  And our economy came out the strongest on the planet.  Maybe that helps explain why this recession has gone missing for so long???
It does help explain why my stock nerd nephew's net worth went up hundreds of thousands of dollars........... in the last few days!   He bought SOXL at about $7 a share in Fall 2022 and just kept buying more.  Which speaks to why we might not have a recession.  All that investment in tech and chips is paying off.  The US is the global leader.  I followed my nephew's lead, but own a lot less SOXL.  So my net worth only went up tens of thousands in the last few days.  It's horrible!  A recession must be coming!  
That said, opinions do matter.
😉

After a brief break to catch something to eat, we now return you to your regularly scheduled recession.
Consumer sentiment surges while inflation outlook dips, University of Michigan survey show
On a two-month basis, sentiment showed its largest increase since 1991, said Joanne Hsu, the survey’s director. Consumer sentiment has improved amid a drop in gasoline prices and solid stock market gains.  
This is horrible.  Doesn't anybody realize a recession is coming?
 

If I had to name one thing that would drive a recession in the next year, it would be commercial lending.  There was some recent report that up to 500 banks, mostly regional, are at risk.  Because they have a lot of loans on their books to office buildings and retail that were negatively impacted by COVID. 
So far, that's a theory.  As you said, I don't think any of these geniuses know what is going to cause a recession.   They'll figure it out with 20/20 hindsight. 
The poster child for that is subprime.  I thought it was obvious that there was a massive housing bubble that was going to burst.  In part because they were really toxic loans, designed to blow up.  But Alan Greenspan, for one, didn't see it coming.   Something similar is not at all apparent to me on commercial loans.  Yes, they are under stress.  Yes, lots of those loans have to be refinanced in 2024 or 2025 at higher rates.  But will it cause some big explosion like subprime?  That's very murky.  We'll know it when it happens.  if it happens. 
Meanwhile, Glenn Neely's prediction six months ago that we'll be at S & P 5500 by Summer 2024 or so is looking more likely.  We're now half way there.
I don't buy all the pessimism about consumer debt and consumer financial stability.  Yes, inflation sucks.  Yes, I want my fucking Big Mac for 25 cents, like in the good old days.  But, that said, 2 in 3 Americans own homes with low fixed rates.  Middle America's average net worth went way up.  Consumer debt balances were at all time lows during COVID, and have now simply returned to the low side of normal.  Consumers are the ones who will drive prosperity, not a recession.  Even if what a Big Mac costs does suck.
I brought up the federal deficit because a lot of smart people - Druckenmiller, Dalio - argue that could cause a huge financial crisis.  But they are not saying that is imminent, or anytime soon.  We have time to get our shit together before anything like that hits, at least in their minds.

The Absolute Worst Predictions of 2023
PREDICTED BY: A WHOLE LOT OF PEOPLE …
CNBC, Oct. 10, 2022: “JPMorgan’s Jamie Dimon warns U.S. likely to tip into recession in 6 to 9 months” Bloomberg, Oct. 17, 2022: “Forecast for US Recession Within Year Hits 100% in Blow to Biden” The Economist, Nov. 18, 2022: “Why a global recession is inevitable in 2023” Bloomberg, Dec. 6, 2022: “Wall Street Chorus Grows Louder Warning That 2023 Will Be Ugly” Wall Street Journal, Jan. 2, 2023: “Big Banks Predict Recession, Fed Pivot in 2023” Fox Business, Feb. 6, 2023: “Bank of America ‘still forecasting’ 2023 recession” POLITICO, April 4, 2023: “Jamie Dimon warns of new economic storms ahead” CNBC on April 12, 2023: “Fed expects banking crisis to cause a recession this year, minutes show”

I get your point.  If you go to the store and pay more for eggs, that is real.  If your house is worth $50,000 more, that's not real. 
It's an extremely pessimistic way of looking at things.  
Here's an investment question.  My stock nerdy nephew started buying SOXL at about $7 a share in Fall 2022, when it was beaten down to a low by the imminent recession mongers.  He kept adding positions, and kind of risked the store on it.  But only because it is an index fund with only solid profit makers like NVDA.  And he was racking up huge paper gains.  I think he went from about $200,000 or so invested to now over $1 million in value on paper.  With most of it being an  unrealized long term capital gain.  I, by comparison, got in late at like $17 a share, and have only doubled the tens of thousands I put in.
By your investment standard, both my nephew and I are poor.  And bat shit crazy, to boot.  First, it is only a paper gain.  Second, if it is ever realized, we will have to pay lots of taxes.  Therefore, we are shitty investors.  Just like my roughly 30 % annual return on real estate value over about 25 years is total shit, by your standards.  After all, I have to pay property taxes every year.  And since I haven't sold, the homes may be worth nothing tomorrow.  Is this the investment "logic" you are espousing?
By the way, just to cheer up the gloom a bit ......
Stock prices and home prices may not be crashing.  But egg prices have!
Egg prices are crashing. Here’s why

 
It's terrible!  Obviously a recession is coming!  😉

Great!  Let's take that same view with Climate Change.  Relax and do nothing for 30 more years!
The truth is probably the same in both scenarios.... Some are overreacting, and some are not worried enough.
Since I can only control my own actions, I plan to continue to pay down my own debt while reducing the amount of single use plastic products I purchase, and then not worry about everything else.

Consumer sentiment surges while inflation outlook dips, University of Michigan survey shows
 
 

I remember a very high stakes prediction similar to this involving Henny Penny, Foxy Loxy, Goosey Loosey, and Turkey Lurkey. They KNEW.

Consumer sentiment surges while inflation outlook dips, University of Michigan survey shows
 
 

Actually, no.  There is data.  
Americans' net worth grew 37% after pandemic hit: Fed survey
Real median net worth increased from $141,100 to $192,900 between 2019-2022
Auggie, it's horrible that the price of cereal has gone up.  It's a wonder that people with $50,000 more in net worth aren't starving to death.  How do they even get by?  And worse, a recession is coming!
Again, there is data.  
While its true that the average person with $50,000 more in net worth by 2022 and higher real wages in 2023 can barely afford a bowl of cereal, the fact that we made it past the global inflation and supply chain squeeze might explain why people are feeling better.  Ya think?  The US had lower inflation than most of the rest of the West.  Even though inflation sucks.  And our economy came out the strongest on the planet.  Maybe that helps explain why this recession has gone missing for so long???
It does help explain why my stock nerd nephew's net worth went up hundreds of thousands of dollars........... in the last few days!   He bought SOXL at about $7 a share in Fall 2022 and just kept buying more.  Which speaks to why we might not have a recession.  All that investment in tech and chips is paying off.  The US is the global leader.  I followed my nephew's lead, but own a lot less SOXL.  So my net worth only went up tens of thousands in the last few days.  It's horrible!  A recession must be coming!  
That said, opinions do matter.
😉