The Pandemic Boom Goes Bust

This is missing a very important graph, unemployment. Here&#x27;s an example: <a href="https:&#x2F;&#x2F;www.bbc.co.uk&#x2F;news&#x2F;business-52938993" rel="nofollow">https:&#x2F;&#x2F;www.bbc.co.uk&#x2F;news&#x2F;business-52938993</a><p>And its not-quite-mirror, labor force participation: <a href="https:&#x2F;&#x2F;www.bls.gov&#x2F;charts&#x2F;employment-situation&#x2F;civilian-labor-force-participation-rate.htm" rel="nofollow">https:&#x2F;&#x2F;www.bls.gov&#x2F;charts&#x2F;employment-situation&#x2F;civilian-lab...</a><p>The purpose of stimulus was to prevent those from looking even worse and causing more permanent damage to the economy. In that regard it&#x27;s been a huge success; somewhere above, Keynes is smiling. In exchange for that we&#x27;ve got <i>only</i> 5%ish inflation, driven partly by a newly-tight labour market in which people can actually negotiate incomes upward, and partly by a big spike in natural gas prices? I would absolutely take it. (Roughly the same pattern is seen in the UK, and most of Europe; I&#x27;m not sure how well it applies to emerging economies)<p>There are two standard remedies for inflation: monetary tightening (raise interest rates) and fiscal tightening (raise taxes). Both of those operate on inflation by pushing unemployment back up and reducing the amount of money chasing goods. Both are eminently feasible if action is needed against inflation.

Interesting, everyone is seeing different reasons here. The link doesn&#x27;t mention it, now the guardian says, that it&#x27;s the looming danger of war in Europe: &quot;“Dealers are worried about the prospect of a war in eastern Europe, as the human and economic cost would be huge. Some central European economies, like Germany, are heavily dependent on energy from Russia, and should a war break out, it’s a possibility those energy supply lines would be cut, which would cripple economic output in the EU,” David Madden, a market analyst at Equiti Capital, told Reuters.&quot;<p><a href="https:&#x2F;&#x2F;www.theguardian.com&#x2F;business&#x2F;2022&#x2F;jan&#x2F;24&#x2F;us-stock-markets-close-nasdaq-dow-jones" rel="nofollow">https:&#x2F;&#x2F;www.theguardian.com&#x2F;business&#x2F;2022&#x2F;jan&#x2F;24&#x2F;us-stock-ma...</a><p>It seems as if it is hard to trust any one source, when it comes to macroeconomics; i mean there are a lot of biases, and everyone seems to be looking for confirmation of his own world view.

I am as far from an inflation hawk as you can get. I basically think that any government can both print money and avoid inflation bar external shocks with a modicum of common sense, e.g. don&#x27;t pay people not working to piss off the French and Belgians: <a href="https:&#x2F;&#x2F;www.theholocaustexplained.org&#x2F;the-nazi-rise-to-power&#x2F;the-weimar-republic&#x2F;invasion-of-the-ruhr&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.theholocaustexplained.org&#x2F;the-nazi-rise-to-power...</a><p>Yet we did just that. People not working being paid for existing at a time when the real economy went into cardiac arrest by every measure of actual productivity. Instead of giving people money to chase goods stuck in ports the government should have spent that money on building up infrastructure and have people out doors away from covid.<p>Were I a betting man I&#x27;d say that the reason for doing this was to discredit left leaning economic policy for another 40 years, like happened after the stagflation of the 70s.

This started out interesting but strayed into rant territory pretty quickly.<p>&quot;Tesla will be reporting earnings just as this article goes to publication today. But in my view, any “fundamental” news coming from Tesla’s earnings is rather meaningless. Why? Because we’re talking about a company completely divorced from any semblance of fundamental value.&quot;<p>Author: complains that investors are ignoring fundamentals<p>Also Author: ignores fundamentals

We&#x27;ve been here before... printing of significant amounts of money to solve big problems can work well to get through the problem, but the after effects can be painful.<p>&gt;&gt;[1]People in Paris were getting rich — and they were getting rich fast. In fact, it was so hard to describe how rich everyone was becoming that a new word was needed and the term “millionaire” was coined in 1719.<p>&gt;&gt;[1]The people of France could thank a Scotsman with a penchant for gambling, the printing of new paper money, and all the vast riches that surely would be found in the New World for their sudden wealth<p>&gt;&gt;[1]Realizing that the paper money was only going to continue being a problem, over a few months France again allowed transactions to be conducted in metal currency. Further, it limited the uses for paper money to buying government debt issuances, in this way, taking on debt from its citizens in order to prevent the financial system from collapsing completely. Through these actions, by the end of 1720, Law’s original money-printing bank shut its doors, with the Mississippi Company dwindling towards the same by the end of 1721.<p>Or fun stuff like the tulip mania, when supply and a little bit of euphoria made things silly:<p>&gt;&gt;[2]The Dutch Tulip Bulb Market Bubble was one of the most famous asset bubbles and crashes of all time. At the height of the bubble, tulips sold for approximately 10,000 guilders, equal to the value of a mansion on the Amsterdam Grand Canal.<p>&gt;&gt;[2]Additionally, because of the timing in tulip cultivation, there was always a few years of lag between demand pressures and supply. Under normal conditions, this wasn&#x27;t an issue since future consumption was contracted for a year or more in advance. Because the 1630&#x27;s rise in prices occurred so rapidly and after bulbs were already planted for the year, growers would not have had an opportunity to increase production in response to price.<p>[1] <a href="https:&#x2F;&#x2F;newsletter.butwhatfor.com&#x2F;p&#x2F;john-law-and-the-mississippi-bubble" rel="nofollow">https:&#x2F;&#x2F;newsletter.butwhatfor.com&#x2F;p&#x2F;john-law-and-the-mississ...</a> [2] <a href="https:&#x2F;&#x2F;www.investopedia.com&#x2F;terms&#x2F;d&#x2F;dutch_tulip_bulb_market_bubble.asp" rel="nofollow">https:&#x2F;&#x2F;www.investopedia.com&#x2F;terms&#x2F;d&#x2F;dutch_tulip_bulb_market...</a>

I think it’s naive to say that a couple stimulus checks and some unemployment is responsible for high consumer spending.

&gt; Mr. Market extrapolated a one-time demand surge into the indefinite future<p>Mr. Market is apparently a total idiot and can&#x27;t distinguish infinity from unity.<p>Somehow all these Zero Hedge wanabee&#x27;s would be more credible if they could <i>predict</i> some event, on the basis of their favorite cumulated &quot;idiocy&quot; metric. Expressed in observable outcomes, that would come to pass within a defined period.<p>Its called falsifiability [0]. Otherwise its a lot of hyperventilation, angst and&#x2F;or hidden political agendas<p>[0] <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Falsifiability" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Falsifiability</a>

Stopped reading at “tesla is a car company”. When I read that, it shows how little research has been done and not trusting anything else. Hate and downvote all you want, anyone who did basic research on the company, IP, and execution knows how bad that narrative will age. Its not about loving or hating Elon, its simple business.<p>While the P&#x2F;E compression during a recession is completely normal, and yes, Tesla is overvalued looking stricly at P&#x2F;E, they will survive a recession blow much better than a lot of companies because of their cash balance, margings, and operationnal excellence. Drops are expected and serious investors will see this as a unique buying opportunity. It could go down 90% for all I care, I would buy more shares.<p>If you are in the market for day trading, get out for a while because at times like this you will mostly get burned unless you really know what you are doing.<p>If you are in the long run, did your research, you shouldn’t sweat at reading all this doomsday material vs. any stocks you own. its as bad as bulls saying tesla will reach 5000 by the end of the year.

Apple just had a very good earnings report a couple days ago, and showed iPhone demand hasn’t slowed down at all.

The author makes a few good points, but I&#x27;m not convinced by the overall thesis, which seems to be supported by a few anecdotes (meme stocks) and speculation. Notably, he went all out with Apple and he was wrong. Apple both reported great sales and guided well for the future.

There is a lot of talk about inflation. But isn’t inflation most of the time a temporary phenomenon, because productivity and innovation catches up. When there is inflation its the perfect time for people and businesses to pivot to disruptive technologies and products.<p>For example, in late 2000s oil went up as high as $150 per barrel, gas was super expensive. People started talking about electric cars and renewable energy, companies like Tesla took advantage of that. Also fracking started coming online after that period and oil became relatively cheaper over a long period.

Serious question: I keep seeing opinions about the inflation and supply chain problems being purely the result of the stimulus, and they feel, well, ideological. To what extent is this simply the effect of the pandemic? In my own family, we’ve spent way less on travel and more on things over the last couple of years.<p>Put another way, isn’t this the product of a combination of factors and not just because of the stimulus? I’m not convinced supporting people out of work through no fault of their own is a bad idea.

Peloton and Docusign are two drastically different companies, on very different trajectories. Before the pandemic, the busiest mall in my town had a Peloton pop up store that was a ghost town EVERY time I walked by it (I couldn’t even count the amount of times I went by it). This narrative about “pandemic stocks” just feels like lazy regurgitation without looking in depth. PS Tesla did fine with earnings.

&gt; At some point, voters will start asking: what’s the point of all this stimulus, if it only ends up making us poorer?<p>Well, not all of us. Just people who work for a living and pay significant taxes, and people who were responsible and saved.<p>There may be enough votes in people who aren&#x27;t in those categories to elect another tax-and-spender.

In the past few weeks, Nasdaq top 100 lost something like $4T in value which is more than what we lost back in 2020. That’s a lot of money. And also consider the money lost in crypto. People are going to be more prudent with their spend and money.

Highly insightful. The pandemic stimulus isn&#x27;t the only cause though, more like the icing on the cake. The experimental QE and ZIRP policies probably won&#x27;t be looked at too kindly 50 years from now when economists are still trying to understand and prevent another &quot;Everything Bubble&quot; from ever forming again.<p>The next 10-15 years for investors are likely to be much more challenging than the last. How do you navigate such a climate with extreme overvaluation in all asset classes? That&#x27;s why I&#x27;m building sophisticated algotrading models at <a href="https:&#x2F;&#x2F;grizzlybulls.com" rel="nofollow">https:&#x2F;&#x2F;grizzlybulls.com</a> to help determine when to hedge and produce positive absolute returns regardless of market environment.

I think it is wrong to generalize from Peleton to Tesla to Apple. These are not at all driven by the same thing. Plus the latest Apple earnings have already proven the author wrong.

I guess the question for many is: is a stock market crash coming? And in this case what is the best defensive strategy?

Maybe. But it could equally just go up again next month. Nobody can predict the future of the stock market reliably.

Hopefully none of his readers immediately went out and shorted Apple stock!

Another welcome sign of the slow grind back to normality that will be 2022 :)<p>Just wish I could just go into my time machine for 2025 onwards

You can&#x27;t generalize speculation or growth stocks with value stocks. Cut out meme stocks or recently IPO companies, for they skew the data for an overall economy analysis.<p>On Apple, if you compare a 1 month (from new year&#x27;s heights) market correction with major direct or indirect competitors (quick sampling) <i>before</i> their earnings: Microsoft, AMD, NVidia, Amazon, Netflix showed 15-30% decline, while Apple was only -10%, S&amp;P500 -9%. This downturn was mainly based on [unfounded] fear sentiment outlook (bear&#x2F;short speculation by media): supply chain disruptions, fed hikes, Ukraine war. More on this below.<p><i>After</i> earnings, Apple was ~+10pts or -5%, while S&amp;P -7.5% on 1 month avg. Because Apple is diversified (and successful) in so many present (and future) industries, you can prob. treat it as a better indicator&#x2F;peg for the US economy - if you don&#x27;t want to be involved with &quot;blood money&quot; stocks inside popular ETFs (Meta, J&amp;J, etc.) No wonder Buffett holds Apple as a majority stake in his portfolio (~49%).<p>If you want to see how unfounded the fears above are and how those newly printed dollars will eventually flow into the system&#x2F;economy (and not just &quot;disappear&quot;), take a look at these sources:<p>[1a] P&#x2F;E ratio: 1st peak caused on 2007 caused by 1st iPhone announcement and later decrease caused by mortgage crises or earnings increase? <a href="https:&#x2F;&#x2F;www.macrotrends.net&#x2F;stocks&#x2F;charts&#x2F;AAPL&#x2F;apple&#x2F;pe-ratio" rel="nofollow">https:&#x2F;&#x2F;www.macrotrends.net&#x2F;stocks&#x2F;charts&#x2F;AAPL&#x2F;apple&#x2F;pe-rati...</a><p>[1b] The fed printed money for the 2008 crisis and lowered int. rates to nearly zero (though less scale), 2nd P&#x2F;E peak now (dejavu?). Notice the marked crisis periods. <a href="https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;M2" rel="nofollow">https:&#x2F;&#x2F;fred.stlouisfed.org&#x2F;series&#x2F;M2</a><p>[2a] Interest hikes: Fed plans 3-4 till 2023, but will not top 2% (media estimates). Gov likely not rise it too much like the 1980s, since we are still recovering from the pandemic.<p>See the 2016-2020 hike? This could have been affected by Trump&#x27;s corporate tax reform, but the stock market went on a parabolic rise since then <a href="https:&#x2F;&#x2F;tradingeconomics.com&#x2F;united-states&#x2F;interest-rate" rel="nofollow">https:&#x2F;&#x2F;tradingeconomics.com&#x2F;united-states&#x2F;interest-rate</a><p>[2b] Historical effect on hikes <a href="https:&#x2F;&#x2F;www.forbes.com&#x2F;sites&#x2F;kristinmckenna&#x2F;2022&#x2F;01&#x2F;24&#x2F;how-do-stocks-perform-when-interest-rates-rise&#x2F;?sh=73411fee6928" rel="nofollow">https:&#x2F;&#x2F;www.forbes.com&#x2F;sites&#x2F;kristinmckenna&#x2F;2022&#x2F;01&#x2F;24&#x2F;how-d...</a><p>[3] Historical effect on wars <a href="https:&#x2F;&#x2F;www.investopedia.com&#x2F;solving-the-war-puzzle-4780889" rel="nofollow">https:&#x2F;&#x2F;www.investopedia.com&#x2F;solving-the-war-puzzle-4780889</a><p>Fearmongering has been used in the last crisis to sell gold, this time is crypto.<p>PS: This was just a quick analysis, would love to hear from experts.