US economy returned to growth last quarter, expanding 2.6%

I'll be honest - I didn't use to think the rich/powerful thought like this. I thought it was just the tragedies of capitalism and the invisible hand needing more protection from market failures.

Then I worked for a billionaire's small company for five years right out of college.

Now I recommend "Wage Labor and Capital" to anyone who I think will be able to manage it's low-two-digit number of pages.

I’d be willing to bet the distinction is how much labor you employ and what kind (pay bands as proxy). Hospitals for example are in a world of hurt post Covid. Labor is their main cost. Rates are down but remain high. Employee satisfaction is low. Revenues do not keep pace with costs and largely uncontrollable.

I think money supply inflation reflects more the reality and explain the current bearish sentiment.

Business leaders know the financial structure of their company, and many of them know that they can't survive at 2% rates, let alone 5 or 10% rates. The gloom from business leaders is forward-looking. They're fine for now, while consumer spending holds up and they can run on old debt. But as soon as they need to roll over their debt, everything collapses. They'd need to increase revenues by 2-5x, and they can't.

My prediction is that we drive off a cliff. CEOs know their companies can't survive high rates, so they manage as if a Fed pivot is coming. If the expected Fed pivot happens, they bank windfall profits and get huge stock bonuses. If it doesn't, they go bankrupt, everybody is out of work, and it is not their problem anymore.

You may find a clue in the results on Nov 8th.

Strange times. Really hard to capture in data. Only increases possibilities of a major economic catastrophe because the tea leaves are just too hard to read right now.

But on the flipside you have things like housing taking a downturn (not just home prices, but actual housing construction) which negatively impacts all of their suppliers (HVAC equipment, lumber, contracting companies, etc etc).

So there are some of those leaders who have a likely justified negative outlook.

Many tech companies are down 80-95%. So if you used to pay employees 100 to generate 100, now you are paying 100 to generate 20 or in some cases 5. This only works if you can massively increase productivity or reduce cost.

There is no evil conspiracy, markets are just down

[1] - https://www.npr.org/2022/09/29/1125462240/inflation-1970s-vo...

I think people's sense of timescale is off. Business leaders are talking about things that we likely won't see for months.

This isn't rocket science; we have insane inflation, rising interest rates, a strong USD and tightening monetary policy around the globe. Where do you see the growth coming from? Have you considered that "things aren't that bad" might benefit one or the other party during the upcoming election?

There's also a 'class' of political leaders (primarily the party out of power) that is trying to give the impression that we're in a recession in order to help their party in the mid-term elections.

Its not a recession, which is why it is weird when looked at as a recession.

OTOH, there is still substantial risk of inflation control measures creating a recession. (And there is a bigger risk of business actions anticipating and avoiding being overextended in case of a recession caused by inflation control measures themselves causing a recession.)

When inflation starts to hit salaries and debt needs to be rolled, we will start to see more business contraction. That is what business leaders are planning for.

Pent-up consumer demand shifted much activity from 2020 into 2021. This is the source of all the apparent weirdness. Every yearly number in 2021 looked great thanks to comparing an artificially high number to an artificially low 2020 baseline. Then every yearly number from 2022 looks terrible, because it's comparing to 2021's number that was artificially high from time-shifted demand.

Remember the "great resignation"? That was an illusion - it was just normal pent-up demand for job switching that didn't happen during the pandemic. The inflation of 2022 is also largely an illusion - it's really just that a few percentage points of what should have been normal inflation in 2020 and first-half 2021 was time-shifted into 2022. (The inflation is real, but the timing is an illusion - it's not really 8% per year, it's a fairly normal 12% over three years.)

If you believe any year-over-year number from 2021 or 2022, you're falling for headline click-bait without considering the underlying irregularities.

While it may not be here now, we probably have more foresight into the fact that there will be a recession than ever before.

The Fed will intentionally create one to stop inflation, despite their talk of soft landing. The only hope otherwise is that inflation subsides on its own, which, given labor dynamics, is looking increasingly unlikely.

So the Fed has to choose between spiking unemployment to contain inflation, or letting inflation run wild. Powell doesn’t intend to be remembered as an Arthur Burns, so it seems most likely he will keep pressing until the recession comes.

Eventually stock prices will come down enough, and debt costs rise enough to actually cause the layoffs they need to pivot.

Final note that, due to public sector debt levels, we cannot choose a path of allowing moderately high inflation for a long period of time. The government budget will become insolvent without a mechanism to fund it, either at the short or long end of the yield curve. Or in short, either we need a quick and sharp recession, or the Fed to give up on the inflation fight so they can drop short end rates and let govt debt inflate away.

Otherwise the US govt will default within a few years.

Those W2 employees are expensive recurring liabilities to the companies employing them. This expense can be offset in various ways (R&D credits, cheap money, endless VS cash, public statements about "always growing", other stuff I don't know about I'm sure). However, when the cracks in the system begin to show companies need to accomplish at least a couple of things: reduce recurring expenses and maintain an image of success (publicly traded or not!) despite the headwinds.

Now, one way to accomplish those goals might be to join in with your fellow "biz leaders" and make statements about an upcoming recession and hard times, etc. This allows you to blend in with the crowd rather than be "that one company that is maybe failing". Once the blending in step is accomplished it leads into being able to start reducing headcount without freaking out too many people (it's not just Meta, it's everyone!).

> ...I can't figure out why other than maybe they think it would allow them to reestablish power in the labor market.

Also, yeah, I've toyed with this idea too. After many years of pay band compression recent years have shown (for at least software engineers) that it's possible to individually negotiate up quite a bit. If you are qualified and can communicate that clearly, then you are in for a big raise or three. Until recently, even if you weren't particularly qualified you could still do this. This knowledge has spread pretty widely. Obviously capital doesn't like it when labor can say "Screw it, I'm out. 'Gonna go get a big raise instead of stick around and deal with X". This could indeed be the opportunity that capital was waiting for to readjust those dynamics again.

"The Recession" was a convenient reason for them to trim ineffective or unnecessary staff.

It's exactly this and actions/comments from CEOs and the Fed pretty much confirm it. When Powell said "economic pain" was necessary, he meant that mostly for the working class. Look at all the layoffs going on...

By driving up unemployment, the Fed expected “supply and demand conditions in the labor market to come into better balance over time, easing the upward pressure on wages

https://www.wsws.org/en/articles/2022/09/23/izio-s23.html

That's not what I'm seeing. There's a good summary from earlier this week at https://seekingalpha.com/article/4548245-weekly-indicators-s...

Employment is the only indicator that is still positive, everything else is either neutral or pointing to a recession.

There's no crystal ball, but it sure looks like our investment will go down in value in the next few years, perhaps precipitously.

I think of it this way: We bought the house we want for the price we can afford, and will happily enjoy it for two decades without price inflation, even though our salaries will likely go up. So, it's a win, even though we bought at what looks like peak market.

Not sure why you used that word. I don't think it applies in this circumstance. Not trying to be pedantic/snarky, I just wonder why you characterize only 18 months or so of higher than has been seen in quite some time inflation as "chronic."

Chronic (adj.):[0]

   1a : continuing or occurring again and again for a long 
        time
   2a : always present or encountered 
    b : being such habitually

Edit: I note (after the fact) that the parent poster was quoting TFA and not making that statement themselves. My apologies for attributing that to alexb and not the AP article. That said, I still think it's odd that they'd use the term "chronic."

IMO, there’s too many people making this bet for it to actually manifest. Not sure exactly how it’ll happen, but I can’t help but think banks are eyeballing those war chests people have saved up for crash. They’d much rather those as rent payments than interest payments.

Speculation is that people were buying cars they couldn't afford using the stimulus checks as the downpayment and then immediately asking for a halt on payments due to COVID. With both factors no longer in play people can't afford their cars and are defaulting. This should cause a massive wave of repos and a flood in the used car market.

That said, the market can stay irrational longer than you can stay solvent. Car lot managers will be in denial for some time before they actually lower prices to where they should be.

I suspect there is some chunk of the economic doomsaying that is literally political propaganda. A recession is bad for the party in power and a lot of the economic catastrophe drumbeat started around the time early polls opened up.

The best outcome is probably just nominal value stays relatively steady while real value declines after factoring in inflation.

You don't want people massively underwater on their mortgages.

My personal opinion is that once you've bought in you're locked in and along for the ride. If your house is down 20%, so is most likely the house you consider moving to. Unfortunately housing is often seen as an "investment".

[1] https://wolfstreet.com/wp-content/uploads/2022/10/US-Housing... [2]

An increase in supply so large that it would cause prices to crash would take years to build. In fact, inventory is lower than normal in some areas because people who might otherwise sell are holding out for better times, sometimes by renting out their properties and capturing today's unusually high rent prices instead.

A drastic decrease in demand is not going to happen because of mortgage rates. High mortgage rates have already taken a chunk out of demand yet housing has not crashed. The only way I can see demand dropping so much that prices crash is a major recession with mass unemployment, which knocks a large number of potential buyers out of the market entirely because they lost their incomes.

They either need to engineer a quick and sharp recession, or give up the inflation fight and drop short term rates.

With option one the US can fund debt liabilities on the long end. With option two, the short end.

Otherwise the US government will become insolvent within a few years. To me it’s clear they’re choosing option one.

The S&P is still up 13% from pre-pandemic. That's slightly below historic the historic average, but nothing to be alarmed about.

Home prices are still WAAAAAAY above historic averages. Even if they drop 20%, they'll still be way up.

The only people that will get hosed are speculators.

You didn't "lose" money if you lost "unrealized gains".

The same doesn’t exist in Europe AFAICT. I don’t believe anybody is hoping that Putin would shut down the gas pipes for good so that their favorite politician could win an election next year.

[0] https://www.bea.gov/news/2022/gross-domestic-product-third-q...