06/01/22 JUNE thoughts

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My opinion so far

  1. In economy…

The fed controls big part of the economy, fed is lagging on inflation, they put their self in a data dependent mode, and markets are just betting if Paul volcker will be back or not, no one knows… the only thing I know is that this is a huge bet! Also…there is a election coming In November, so a rate hike slow down occur in September is reasonable, but doesn’t mean it’s a ‘fed put’ it’s just Biden asking jpow to do so, yup, the market is hard… remember there are still war and china risks….

What I also think is that fed does not want this chaos (recession) to happen, if so, that means they are wrong on everything…

They intend to bring down the market since last December when they sold their stocks, and the most efficient way to do so, is open their mouth, say the magic words, let the market self correct, and we have all witnessed it since the beginning of the year, that the 10 year shot up to 3%, 30 year mortgage went to 6%, nasdaq down almost 30%, it worked well, the market is just more efficient that it self priced-in to 3.25% — 3.50% interest rate at the end of 2022…

2. In businesses…

Inflation hit hard in all part of the world, inflation is just another word for ‘tax the poor’ in the environment like this, people suffer, and it is real.

Small business suffering from higher costs, cutting margins, hence laying off employees, leading to more suffering environment…

Inventory have build up since the pandemic, now they’re facing cutting prices in some sectors, although some sectors remain on shortages…

Trucking demand are slowing also, higher gas prices and less demand is hurting their margins….

Wealth is created by good and services, not stocks…

3. In real estate…

From June 1, Fed will begin to start their balance sheet run off to sell their bonds, predictably spiking yields, hence spiking mortgage rates, and more aggressive starting in September, bringing bond value down more, causing yield spike and moving mortgage rate even higher, in housing market there’s 1%=10% rule, 1 percent of interest rate increase, equals 10 percent of housing price decrease, so we can easily predict, at the end of 2022 there will be a 10–30 percent of decrease in housing value,10 percent is the best case scenario, and 30 is the worst, and in a environment of higher construction cost, with an lower housing demand, will just make no sense to build… if home listings spikes, I can’t even imaging how much the price will fall, and with some defaults ahead…

4. In stocks…

Retail investors are buying dip heavily, especially gen z, lot of them are with margins, even if Warren Buffett or other institution said sell, young investors are still yolo in stocks with diamond hands catching the falling knife, expecting to stonk, or to the moon.

I’m not saying that you shouldn’t buy the dip, I’m just saying a move like this is fully betting on fed, hoping that the inflation will come down at 2% by the end of the year (trusting the fed), despite Ukraine Russia war, china zero covid lock down, china recession, Europe inflation and gdp slow down… Which they are all factors or catalysts to a hotter inflation…is a bold move…

To see a market that have been over sold like this, I don’t believe is this simple…

Im looking forward to see a retail investor capitulation…

PE compression is coming, we are still 30 percent above pre pandemic level… and the economy is a lot worse…