Random Observation/Comment #759: I’m just so tired from thinking this week.
Why this List?
I’ve been learning macroeconomics for the past few years to better understand how different events are correlated to my portfolio distribution. It’s an incredibly complex set of moving pieces, but once you see the factors and think broader, you can connect the dots and basically panic even more than knowing nothing.
This past week has been really bad. The macro worry is that there’s no “safe” asset and not enough capital to “buy the dip” because it has all already been deployed. The cascade of events impacts the consumer directly with the consumer price index, real estate, and possible risk of employment because growth companies need to shrink by 30% to offset the expectations for their valuations. It’s going to be a painful and probably long bear market.
- Global Inflation – As the printer go brrrr with $7T+ dollars printed, quantitative easing, value injected and general dollar dilution since 2020, the Consumer Price Index continues to climb to all time highs. This means regular purchases are just more expensive. There’s even price gauging (artificial raising of prices) happening and cutting of costs if the larger companies have shed value.
- Wages not keeping up with inflation leads to reduced spending power – Workers in the lower/middle class are taking the biggest hit as they see the need to take multiple jobs just to squeeze by. If wage increases is 7% and inflation is 8%, then you’re bleeding money.
- Surging consumer debt through credit cards – Credit cards being opened and the “plastic” temporary relief will lead to a consumer credit bubble in the next few months. A mortgage bubble happened when expensive homes were foreclosed when people weren’t able to keep up with mortgage payments. We have that problem plus all the credit card spending and compounding.
- Long period of high interest rates – The FED rate hikes puts the brakes on spending (too expensive to buy houses with high mortgages) and growth (companies can’t find cheap capital and create more jobs). It’s the main weapon to control inflation so we don’t start burning our paper money for fire.
- Retail puts tanking the market similar to retail calls pumping – Options traders have been making good money through the high volatility in the market. I think the retail traders buying puts and providing negative sentiment is leading to further dump and liquidations. The major companies I’m monitoring are Microsoft, Alphabet, and Apple. If these companies crash then our last defense is crushed.
- Risk of nuclear war – The Ukraine war hasn’t gone well for Russia and there’s a higher and higher risk of a nuclear option to kick off a broader world war with Russia, North Korea, China, Pakistan, etc.
- Wheat and Fertilizer shortage – We don’t know how bad the crop season will be, but we do know that wheat-based products (which is a lot of gluten goods) is going to increase in price over the next few months. It’s especially worrying long term because agriculture needs to keep up with yearly production just to scrape by. There could be a food shortage that just devastates lower income households. I also think rice production and feeding is more efficient than wheat.
- Goodbye middle class – All of these economic factors lead to the 1% having a large wealth loss (stock market crash where big players can’t move their assets fast enough without further causing panic) and lower class wealth impact (need to take on more jobs to pay for the now more expensive things). It doesn’t help that Robinhood directly helps gambling and higher losses for retail traders who put their saved funds from the pandemic lockdown or stimulus checks.
- China’s covid lockdown – There’s heavy reduced spending and stagflation in China due to covid. If the workers aren’t able to support the supply chain from the in-person factory side, then there’s a lot more pressure and price hikes for the manufacturers. Physical goods and cars will go through another cycle of a delayed releases.
- Buy now pay later bubble – There are these buy-now-pay-later options with 0% interest like Afterpay that is being used by consumers because regular people always fall for the “4 easy payments of $39.99” (but now available across any internet purchase). This isn’t as bad as payday loans, but just as deadly if you start going on a shopping spree and the companies can directly withdraw from your debit cards.
- Dried up VC funding – The days of 0% interest are over and investors who normally would deploy capital on different funds are now being much more selective and ask for more proof of customer interviews. The deliberation of the space means fundraising cycles are going to get drawn out and valuations will be significantly lower.
- Unemployment going up due to stock price crashes – Most growth tech stocks in the NASDAQ are down 70%+ and these companies will need to consolidate their Operational Expenses (Opex), which usually means shrinking their workforce by 30%.
- B2B cost cutting with software vendors (SaaS) – If your company needs to further save money, they will scrutinize a lot of recurring subscription spending. Companies pausing or canceling SaaS products will mean worse valuations for earnings on SaaS companies that make up the NASDAQ.
- Reduced conference attendance and sponsorships – Just when we thought conferences were coming back, I guarantee the different industries will cut marketing budgets and events hosting. Fewer conference attendance means less cross industry collaboration and connections to build useful tools and release projects.
- Risk of currency war – I’ve always thought the underlying reason for China to stir things up through their Russian allies was to replace the USD with the digital yuan for general acceptance and exchange value. China using their technology for bailing out Russia and supporting African real estate growth means their monitoring of spending and ability to richly mine that data is to a big advantage. PBOC is not owned or lobbied by banks like the FED.
- Brand and faith in cryptocurrency – The latest Terra/Luna/UST craze has really shaken some institutional investors and market maker traders. A lot of people believed that hedged strategies with stablecoins through Anchor would provide solid returns. No one expected an entire chain to lose 99.9% of its value in a week with a depeg of the stablecoin.
- Extended crypto winter correlated to the market crash and regulations – There will be a lot more scrutiny and possible regulatory action in this space that will echo for the coming years. Older generations will say “I told you this was gambling with fake money.” I still believe in the technology and the growth potential of Web3 projects.
- Depegging stablecoins because broader market crash reduces collateral backing value – Outside of the poor design in double dipping value with UST, there are other custodial-based stablecoins like USDT that are highly correlated with the traditional financial instruments backing the value. It’s possible that the further decline of the traditional bond markets may cause instability in cryptocurrency markets.
- Decline in Startups – Smaller companies will have a hard time raising capital and exploring the fringes of these new industries with lean teams. I suspect the new number of companies to plummet.
- Rampant Bankruptcy – Both companies and individuals will look for bankruptcy options, which in the long term forces a large burden of debt to the new generation. The future is already screwed with climate change and now they’ll also have all our debt.
- Accelerated climate change – Permafrost in the mountains were completely gone by early March and the wildfires have started months in advance. Glacial melting has led to sea level rises and decreased protection. It’s hard to say what becomes the most “viable” place to live. Probably not near a coast because of flooding and hurricanes. Probably not near forests because of wildfires. Probably not in flat regions due to droughts and higher temperatures. Anyone want to just do nothing in Wyoming?
- Lithium shortages – Electric Vehicles are definitely better for the planet once in the hands of the consumer for daily use, but the required mining and processes around supporting batteries may also be devastating for the environment. Demand for batteries have just continued to skyrocket with all the “untethered” devices out there.
- Oil and natural gas reserves – We’re still dependent on this energy source even though research around nuclear fusion and fission have made some leaps and bounds. If we solve for unlimited clean energy then maybe we’ll get out of this mess in the next 100 years.
- Slowdown of retail electronic consumerism – Phones should last at least 5 years and if we’re reducing spending across the board, I think retail electronics like smart phones will be the first to see the reduced demand.
- Housing market standstill leading to rise in rents – Rents have gone up as high as 30% in NY. I think the housing market sales will decrease heavily because people are already living in their homes for the next 15 years and have low fixed interest.
- Rise in evictions – With the rise in rents and pressure from higher costs at the gas tank and with food, lower income families will look for smaller living spaces and move to more remote areas.
- Rise in supplies costs leading to a lack of new houses being built – It’s impossible to get glass and affordable labor for home improvement projects. It’s interesting that all of the major “trade jobs” are currently at the highest demand. We’re all still stuck at home and trying to invest money into it.
- Acquisitions by bigger companies making them bigger – There may be a rise in mergers and consolidation of available services. All the high potential growth stocks are on sale at heavy discount right now. I do think that a Peloton acquisition is likely, but people who are looking to cut down on subscription costs will probably first quit their Peloton subscription.
- Shrinking of 401k and pensions leading to a “never retired” millennial generation – It’s looking more and more likely that retirement just isn’t in the cards for people in their 30s-40s right now. A lot of people are starting over with their savings.
- Long covid symptoms and likely shorter life expectancy – 4 out of 5 people I know have gotten covid (myself included). I don’t think I have heavy brain fog, but I do sometimes just feel super tired. Who knows how this virus will impact our lives in 15 years. If there are variants still around then the elderly and those with pre-existing conditions will always be at highest risk. Staying healthy and maintaining relationships are the two most important things right now.
~See Lemons Still Worried