Wall Street in July 2022- the craziest street of all?

Drawing I did in 2019, that keeps getting more prescient.  #sharpiescribblestyle

Disclaimer

 This post is to explain why I think the financial markets will tank more in the middle of July.  To start with, let me remind everyone that I think we're about 33 months into what will feel like a great depression, by 2027, to most people.  It might even fit the official definition of a great depression.  I call this The Phoenix Great Depression.  I think there will be a death and rebirth in so many industries, that the word phoenix describes this economic downturn well.  

In my opinion, we are now going into the 2nd, and worst, "recessionary wave" of this long financial mess.  Yes, I realize all of this is arguable.  Again, this is my opinion, just like I said in this blog post and this blog post, both from October 2019.  I used the word "recession" in both of these, because at the time the conventional wisdom was that there might be a minor recession in late 2020.  Maybe.  Conventional wisdom was wrong.  But so was I, to a point.  I didn't expect The Fed to pull $5 to $6 trillion in new money out of their ass in 2020-2021.  That inflated and warped the financial/asset markets dramtically.  So the timeline for things I epexcted, and expect to happen, got moved later.  

My calls for this year, 2022, in the stock markets were in this blog post (March 22, 2022).  I called for continuing high inflation, and rising interest rates, over most of 2022.  I also said the stock market indices would drop below these numbers in 2022:

Dow Jones Industrial Average- 27,000

Nasdaq- 10,000

S&P 500- 3,500

The averages at the time of that March 22, 2022 blog post were approximately: DIJA- 34,861, Nasdaq- 14,169, and the S&P 500- 4,543.  As I predicted, the markets have moved much lower since, and we're only halfway through 2022.  The markets closed yesterday (7/1/2022) at: DIJA-31,097, Nasdaq-11,127, S&P 500- 3,825  Those numbers were off the recent lows.  The Dow has been below 30,000, the Nasdaq below 11,000, and the S&P has hit 3,666.  I don't think we've seen the bottom yet. 

Here's why.  Everything is about The Fed's (the Federal Reserve) actions at this point.  The inflation number that came out in June (May 2022 numbers) had inflation (CPI) at 8.6% annually.  The Fed's goal is about 2% annually.  Uh, yeah, it's a bit high, as your last tank of gas proved to all of you.  To stamp down inflation, The Fed has to raise interest rates, which, in theory, will slow down the economy, as consumers and businesses back off, and spend less money.  BUT... The Fed's actions usually take 12-18 months to really take full effect.  They raised interest rates by 3/4% (aka .75% or 75 basis points) in June, the biggest rate hike in decades.  They did that because the June CPI was so high, at 8.6%, and that it was higher than the May number, 8.3%.

OK hang with me here.  That high, 8.6% inflation rate was the MAY 2022 numbers, the official CPI inflation numbers released are up through the previous month.  It takes a while to collect data and figure it all out.  

On July 13th, the next CPI number comes out, the June 2022 data numbers.  So the CPI was figured almost the same time The Fed raised interest rates.  Inflation seems to still be rising, in general.  So the number coming out on July 13th, which The Fed and every stock trader will be looking at excrutiatingly close, will almost certainly be between 8% and 9%.  It could very likely be over 8.6%.  Nobody wants that.  The Fed has already said it plans to raise interest rates again, 1/2% to 3/4% at the July meeting, held July 26-27.  If the inflation number is even close to 8.6%, they will most likely opt for another 3/4% (.75% or 75 bssis points) hike.  That's like hitting the e-brake on an already slowing economy.  

Here's the really bad part.  The stock markets FREAKED when The Fed raised rates 3/4% in June, since a 1/2% hike was expected.  Since then, the traders have decided that they over-reacted, and the markets have risen back up some.  If the inflation (CPI) rate is still high, or higher (near 8.6% or more annually) on July 13th, the markets will FREAK even more, causing another big drop in stocks (and possibly in crypto, too, and a further decline in real estate, due to another big jump in mortgage rates).  

So that's my thinking.  Again, this is not financial advice, (see my disclaimer for this blog, linked above), these are my thoughts as a futurist/Big Picture/economics geek.  These ideas are for your education and entertainment.  Do your own research and due diligence before making any financial/investment decisions.  

My hope is that my thinking may cause you to do more research, and make better decisions for yourself, your family, and your busniess, in these crazy economic times.  

Blogger's note- 7/13/2022- 

I was right about the inflation rate not dropping much.  The CPI inflation rate today, July 13th, came in at 9.1%, year over year.  That's a full 1/2% higher than last month's number.  As for the stock market, The Dow was down over 400 points at one time today.  That qualifies as "tanked."  But the three main indices have been bouncing up and down all day.  The Dow is down 167 points, as I began to write this, and the Nasdaq is down about 11 points, 20 minutes before market close.  The higher than expected inflation number makes a .75% interest rate increase much more likely at the Fed (FOMC) meeting later this month, July 26-27.  The Dow is down about 300 points, from the close the day before I wrote this blog post, and the Nasdaq is up about 130 points from the close the day before, 11 days ago.

Bloggers note- 7/14/2022- The next morning...  I told you so.

This week will set the tone financially for 2022....

 I drew this Grey Trash alien about the same time I made some stock market predictions for 2022.  You can read that post here.  #greytrash, #sharpiescribblestyle, #SEstreetlife

Disclaimer

Financially, 2022 and 2023 should be the sketchiest years of this decade.  As I wrote, in the linked blog post, we are heading into the second recessionary wave of this decade, Spring 2020 was the first.  The Fed tossed out about $6 trillion in "helicopter money" in 2020 and 2021, after Covid hit, making us all feel hood rich for a while, and spend a ton of money on stupid shit.  They did this mostly to bail out the banking system, corporate America, and hundreds of struggling small towns and mid-sized cities, but average Americans got a bit of it, too. 

In the rest of 2022, we pay the price for all that newly created money.  The most obvious price we're all paying is rising prices, inflation.  All that new money created this inflation.  It wasn't Trump or Biden, it was The Fed who created it.  The stock market is plummeting again today, in a much needed crash from ludicrous stock values.  Inflation is still rising, according to last Friday's numbers.  Inflation is still getting higher, officially 8.6% a year now, though gas prices, real estate prices, and many food prices have risen much more than that.  Prices on food and many consumer items will keep increasing this year, generally speaking.  Gas prices should back off a bit by mid to late summer, but stay ridiculous, much higher and they were a year ago.  The real estate market is turning, but it turns slow, like a huge ship.  Prices for homes, in most places, should be falling by fall or winter 2022.  This may not be a total collapse in most places, but a decent correction in prices, at least.  Millennials are about to learn how stupid real estate FOMO can be.  There will be a lot of homeowners underwater on their mortgages a year from now. Not near as many as in 2008-2009, but quite a few.   

Interest rates will keep rising for a few months.  The Fed has started raising interest rates, to try and calm down inflation, which it let get completely out of control.  The 10 year U.S. T-bill is a good gauge of interest rates.  It was 1.66% at the beginning of 2022, and is 3.15% today.  More important to working people, the 30 year fixed mortgage rate national average was 3.56% in January, and is about 6.10% today.  The last time 30 year fixed mortgage rates were this high was around Thanksgiving time, 2008, 13 1/2 years ago.  And The Fed will raise interest rates at least 1/2% this week, and will keep raising them in coming months.  What this means is that you can afford less house right now, and a lot less by the end of 2022, as rates go higher. 

By the end of  2022, 30 year fixed interest rates will be 6 1/2% to 8%, at least, and 9% to 10% would not surprise me.  I'm fucking serious.  Simply put, it is going to get a lot harder to get loans, and you will pay a lot more interest if you do qualify for one.  The Fed will have to do another bail out next year, at some point, and lower rates a little, but mortgage rates won't get back down to where they were last year.  

The Spring of 2020 was actually an acute, deep but quick, financial depression.  What we're headed into right now is more like 2008 in the Great Recession, and the long stagnant double dip recession of the early 1990's, put together.  Debt is going to be the killer for most people, businesses, and governments.  Most people who are actually paying their student loans now, will stop paying them, out of necessity.  That will be a hit to colleges and universities' bottom lines.  More important, mortgage, consumer, and auto loan debt will get harder to pay, especially for people who get laid off from their jobs.  

For people who own rental real estate though, where your renters pay off the mortgage, debt will be awesome, as long as you have solid renters.  High inflation means your renters are paying down the rental property mortgages in dollars that are worth less every month.  This will be a great period for savvy real estate investors with solid renters.  Of course, eventually, real estate prices will rise again, though it may be years down the line.  

The layoffs have already started, and we'll see a lot more of those coming, as well.  Like I said, this is the 2nd recessionary wave of the 2020's, and it will be a long, slow sticky one.  From my point of view, as a geek on futurist thinking and economics, this is what I like to do.  Not give people bad news, but give all of you a heads up on what's coming, so you can make better decisions for your own life.  

If you want to listen to the blues after reading this, may I suggest this video of Popa Chubby, live at Daryl's House.  This is what I was listening to while writing this blog post.  Epic blues show.  

If you don't think a homeless guy can shed any light on the economy, here are a few of my other blog posts from the past couple of years.  

"Update: July 16th 2021," July 16th, 2021.

"Predictions: As we head blindly into 2020," January 26, 2020

"The economic collapse of our lifetimes will happen this month.. it's phoenix time," Oct. 1, 2019

"A beginner's guide to the next great recession," - August 9, 2019 

Remember:  Recessions and depressions are when the whole world goes on sale, and almost nobody wants to buy