It’s kind of sobering. Reality has that effect, after a drunken binge.
By Wolf Richter. This is the transcript of my podcast recorded last Sunday, THE WOLF STREET REPORT.
So here are a few of the biggest names, but this is now happening all over the place.
Amazon is halting construction on five office towers in downtown Bellevue, Washington. In addition, it will not even start construction on a sixth tower in Bellevue.
Amazon told GeekWire that it wants to re-evaluate floorplans to see how they would need to change to accommodate remote work and the hybrid model of working from home some days and coming to the office on other days. Meaning that there will be fewer people to spend time in these offices, and it may need less office space, and those offices will need to be different.
Amazon, which has about 10,000 corporate and tech workers in Bellevue, said that it still intends to have 25,000 employees in the city. I guess, sometime in the future maybe. To be re-evaluated in due time.
In addition, Amazon is halting construction on its office tower in Nashville, Tennessee, where Amazon already has a tower. It told the Nashville Business Journal that it wants to re-evaluate floorplans with an eye on the hybrid model of remote work and office work.
Last week, it was reported that Amazon slashed the amount of office space it had planned on leasing at Hudson Yards, in Manhattan. This would be for additional space. It already has been leasing space at Hudson Yards since 2019.
In its Q1 earnings report, Amazon disclosed its first loss in many years and its weakest sales growth since dirt was young. During the earnings call, the CFO said that for its consumer business – so that’s the ecommerce side of what Amazon does – there was quote “excess capacity in the network that we need to grow into.” He said that many of the decisions to add capacity were made 18 to 24 months ago.
These decisions to build out capacity to meet the boom in sales have been made obsolete by reality, and they are being unwound as that boom has fizzled. And it’s time to cut costs and contain future expenditures.
In May, it emerged that Amazon will shed somewhere between 10 million square feet to 30 million square feet of excess warehouse space that it took on during the stimulus-fueled boom in online sales during the pandemic, but that it now figures it won’t need. It is leasing these warehouses and will try to sublease them to some other companies.
In late June, it emerged that Amazon has delayed or cancelled plans for 13 warehouses around the country.
Salesforce.com, the huge software company headquartered at the largest office tower in San Francisco, the Salesforce Tower, has put half its office space on the market as sublease. That’s over 400,000 square feet of office space that Salesforce has put on the market. Most of it will be available August 1st, so essentially now. The rest will be available December 1st.
That’s kind of a stunner: that a company had twice as much office space at its headquarters than it now thinks it needs in the future.
In an internal memo, Salesforce said that it would slow hiring, cut some roles, and put a hiring freeze on some areas. Unlike a slew of other tech companies, it has not yet announced outright layoffs.
So this was in July, and this is not yet included in the vast glut of vacant office space in San Francisco as of the end of the second quarter. So even without it, at the end of June, the total office vacancy rate in San Francisco was already 26%, which is a huge glut of office space.
In 2018 still, San Francisco had the hottest office market in the US, and “office shortage” was the term being bandied about by the industry.
There are major office markets in the US that have even bigger gluts of office space, including Dallas and Houston, were vacancy rates are over 30%, which is catastrophic – especially now when office demand is declining. No one is going to, as they say, “grow into” this massive amount of vacant office space.
Last week it emerged that Facebook’s parent Meta – which shifted to flexible work and allows most of its employees to work from home – cancelled plans to take the additional 300,000 square feet of office space at an office building near Astor Place in Manhattan, where it already occupies space. And it halted plans to build out its new offices at Hudson Yards in order to evaluate what to do with it.
CEO Mark Zuckerberg issued a hiring freeze for some roles and warned employees of “serious times” and a big downturn.
It seems Meta’s real-estate department only belatedly got the memo, and they kept adding new space during the pandemic, even after the company had switched to permanent remote work, and now they’re scrambling to figure out what to do with all this unused office space that was designed for the company to grow into, but that, it turns out, it will never grow into.
Delivery startup Gopuff, which had been on a huge binge of hiring and footprint expansion, is now planning to close 76 warehouses in the US, which represent about 12% of its network, according to a memo to investors, seen by Bloomberg.
The memo also said that Gopuff would lay off about 10% of its workforce in the US, or about 1,500 corporate and warehouse employees, after having already laid off 3% of its workforce in March, when it also scuttled its plans for an IPO because the stock market had turned ugly for startup companies, and had already crushed many high-flyer stocks by 80% or 90%.
Hiring freezes and layoffs are now nearly daily in the news. These are mostly in office jobs, not production jobs in factories.
Tesla made that clear: It would be laying off people, but it would still be hiring factory workers. Over the past few weeks since Musk’s brash announcement of a 10% cut in the non-factory workforce, which has since been walked back somewhat, Tesla has actually started laying people off in waves. Most of them were office workers, but reportedly this included some workers that delivered vehicles and some sales staff.
Also this month, Tesla laid off a couple of hundred people at its San Mateo office, in Silicon Valley, and is shutting down the entire office.
Alphabet’s CEO said in an email to employees that Google would slow hiring for the rest of the year due to “a potential economic recession.” This could include outright staff reductions.
Earlier this month, Microsoft said that it laid off some people and eliminated some roles in a variety of groups. It said, “Like all companies, we evaluate our business priorities on a regular basis, and make structural adjustments accordingly.” In May, it had already slowed hiring in its Windows and Office groups.
Apple wants to slow hiring in 2023 on some teams, according to Bloomberg, citing sources.
Vimeo announced that it would be laying off 6% of its staff, after having already slowed hiring. Netflix, Twitter, Substack, and many others have announced layoffs. They all had gone on huge hiring binges.
Rivian, the EV maker that is now actually producing and selling electric pickup trucks, said that it plans to rethink some operations and trim jobs, but not at its factory. It was reported, based on sources, that Rivian planned to cut up to 5% of its non-manufacturing jobs.
These are companies that have been on huge hiring binges, trying to grab people and poach people from other companies, and they expected that they would somehow need those people, and since there was this huge labor shortage, they would have to make extra efforts to try to grab workers, because if you waited too long, someone else would grab them, or whatever.
They were reacting to the perceived shortages in a typical human way: They tried to hoard employees, like people hoarded toilet paper when the word “shortage” started circulating, and so these companies made the labor shortages much worse, and they contributed to this immense overhang of job openings.
But now there is a sense of reality returning, and they’re taking down some of those job openings, and they’re looking at places where this hiring binge might have led to overstaffing, and they’re looking at their future office needs, and they’re discovering that their real estate departments went haywire, and that there is no way in heck they will ever grow into this office space, but that they would more likely need a whole lot less.
Other industries aren’t so lucky. They’ve gotten hit hard. For example, the mortgage lenders are now getting slammed by higher mortgage rates. Mortgage refinancing, which was a big and profitable part of the business of mortgage lenders, well, that collapsed when mortgage rates spiked because people aren’t going to refinance a 3% mortgage with a 6% mortgage. And that started late last year.
Every major mortgage lender has started laying off people, many thousands of people, including the biggest such as Rocket Mortgage, which includes the former Quicken Loans, Lending Tree, Loan Depot, Wells Fargo, PennyMac, and many others.
And the crypto platforms fell on their own sword, namely the combination of leverage, scams, lies, and inter-connections, borrowing from each other and lending to each other to gamble on cryptos. And when cryptos plunged, several of these companies collapsed and froze deposits of their customers and some filed for bankruptcy. And throughout the crypto and blockchain space, there have been waves of layoffs.
There are gobs of startup companies that got funded by investors, and those companies went on a hiring binge while burning large amounts of cash, and now investors are getting skittish, and those startups are laying off people to keep going for a while longer, hoping that new investors will materialize by then and fund their cash-burn before they run out of cash to burn.
And there are companies that went public via IPO or via merger with a SPAC that are losing a running ton of money, and that have no visible path to profitability, and they’re laying off people because they have to, and some of them have already filed for bankruptcy in June and July, and others will this year and next year.
What all these companies had in common – from Amazon on down to the startup – is that they perceived a shortage of office space and a shortage of warehouse space, and they tried to grab what they could, in the hopes of somehow growing into this space. And they all perceived a labor shortage, and they grabbed workers however they could.
But now, that they’re coming to grips with reality, they’re seeing that they’ll need neither all that space nor all these workers.
These companies were intoxicated by the trillions of dollars in stimulus money for consumers, companies, and state and local governments, and by the money-printing and the interest rate repression, and by the huge bubble in asset prices, including the ridiculous bubble in stock prices that made everything possible, including their models of endless explosive-growth.
Now all that is over. Money printing has turned into quantitative tightening. Interest rate repression has turned into rate hikes. The stock market bubble is deflating. Cryptos have imploded. CPI inflation is over 9%. There is suddenly a huge massive glut of office space that no one knows what to do with, and lots of warehouse space is coming on the market, and the equations of explosive growth turned out to have been mind games.
We still haven’t seen the mass-layoffs that we see during a real recession, where big companies each laid off tens of thousands of people, and where weekly claims for unemployment insurance suddenly spiked. These weekly unemployment claims have risen, but just a little, and from historic lows, and they remain historically low.
What we’re seeing now is a recognition that many of the prior assumptions by these companies of red-hot growth were based on distortions associated with years of money printing and interest rate repression which caused stock prices to skyrocket no matter what, and that excused everything. For startups, it meant that those skyrocketing stock prices pumped cash to them to burn. And now there’s the recognition that this binge is over.
What we’re seeing is a sense of reality returning to the business world. And it’s kind of sobering. Reality has that effect, after a drunken binge.
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“…including their models of endless explosive-growth.”
But no profit!
Thanks again Wolf for putting into print form your podcast. Helps us hard-of-hearing folks.
2nd the hard of hearing thanks…I’m great at lip reading, unless you are wearing a mask
Markets always pop on days of Fed rate hikes. Are they celebrating continuation of Negative rates (2.4% – 9.1%) = 6.7%
Stocks jump in anticipation of the recession that will slow the pace of rate hikes. It’s only logical. In bizarro world!
That’s the J-Pow trade I described last time. It already happened twice in a row:
1. go long at the end of the day before the FOMC meeting
2. sell during the press conference
3. go short at the end of the press conference for the drop at drop at the end of the day and for the big dive the next day.
Happened exactly that way the last two times. Waiting for confirmation tomorrow. It would be a hoot to have this confirmed.
Looks like you got it right Wolf. If anything else in the market can be this predictable…
On a different note, with this kind of sentiment, I just have to laugh at all the jokers calling this market nearing a bottom. In a bottom market, this JPow trade likely won’t be a thing..people are still chopping at the bit to buy the dip. Maybe these bottom callers are they same group telling you we have a housing shortage.
Investors are front running in anticipation of supposedly peaked inflation, probably pause in rate increase, early pivot by Fed soon (When?) Fear of missing out has gripped the mkt. Any bad news is good b/c Fed may pivot sooner than they think.
Perception hopium is stronger than reality.
It is just Traders’ mkt.
It makes sense if you consider Wall Street businesses are being squeezed by inflation. Margins are being squeezed.
As long as inflation is high this will continue and the WalMarts will feel the pinch.
The Fed is riding in a white horse as a hero to end this awful inflation. It’s as if the evil villain changed his clothes and horse color and is now a hero.
I think Stockholm Syndrome is an appropriate diagnosis.
This is an awesome dramedy. Much better than anything I have seen recently on Netflix.
Thanks again Wolf, for publishing this in print so some of the folks who don’t hear well, etc., can get it…
”You de man!!”
Spooky that we haven’t seen big layoffs yet. Seems like the mood is recession feels inevitable. Too many losers caused by rate increases and inflation.
Best guess is that the pandemic taught companies that if you pull the trigger or firing too soon, you may not be able to get those workers back.
Unemployment is still very low, 3.6% as of last month.
Unemployment only measures those that WANT to work.
Labor participation rate is 62.2%.
Employment population ratio is 59.9%.
Both of these are very low and take into consideration a bigger picture of the economy. No one wants to see the ugly truth.
Those number reflect the biggest ever cohort of workers hitting retirement age.
Retirement isn’t determined by age, but by the person’s financial situation.
Many people aren’t working now because of gains in fake wealth from the asset mania, maybe they started their own business, or maybe they are living off someone else.
When the economy deteriorates sufficiently, many who have retired will find the need to unretire. Most Americans are actually broke.
How long will unemployment remain low under stagnant or declining GDP? Won’t companies at some point, especially under inflationary and supply chain pressures, decide they can or must shed employees?
Corporate earnings are still very high, outside of the silly tech companies.
Companies don’t subsidize unnecessary employment just because they are making a lot of money. That’s ridiculous.
Part of it is what Wolf wrote in the article, labor hoarding and cash flow.
The other “shoe to drop” will be layoffs to but costs in an attempt to meet or beat Wall Street EPS estimates and support the stock price.
When the stock market falls far and/or long enough, there will be a lot of layoffs from that, as in millions.
Actually for AF:
Sure the companies subsidize tons of personnel these days AF; starting with the VP of DEI and going from there up and down in all directions to make sure they comply with the tons of rules for DEI in each and every aspect of biz these days.
And WE, in this case the average tax payer WE, don’t even want to think about the extent of DEI results/personnel being MANDATED in almost every municipality of USA,,, IF they want Federal grants, etc.
Certainly NOT all municipalities, as our former county in flyoverstan would fire any appointed person who even whispered ”let’s raise taxes” and vote out anyone elected similarly.
Saw the ”county executive” fired twice in 16 years there for asking the commission for more money.
Between 2010 and 2021 Population change
Below 55y +1.4M
Above 55Y +21. 2 M dominant segment is between 65 & 75
4.5M unemployed and looking for jobs vs 11 Trillion job openings
Blue collar workers don’t have to worry
But white collar workers are at more risk losing their jobs.
Hence UNEMPLOYMENT figures may NOT go up, as Fed expects!
(h/t CH Smith)
sunny129 – Quickly becoming Europe!
Throughout most of history, practically everyone worked until they literally could not. There was no retirement. It wasn’t affordable.
The US and other countries with mass retirement are destined to become a lot poorer indefinitely into the future.
The proportion of the population retiring in the future will occur at a later age and at a (much) lower rate over the next several decades as the asset and credit mania end.
It’s only been fake wealth and the loosest credit standards in history that appeared to make current levels of mass retirement
affordable. The country isn’t actually that much richer.
It is only FAKE wealth if one stays invested all the way to trough. NOT if they were taking chips off the table, going into cash and or into the hedges against the mkt.
Of course there will be strong bounces like today based on perception, bad new is good and the constant positive spin from the financial media.
Reversion to the mean is as natural as 4 seasons. It may be delayed but cannot be banned. Inflation will be more sticker than many assume. The transient ‘recession’ will become permanent by the end of the year.
Blue collar = workers
White collar = management
There are no “white collar workers”. Playing grab ass at the water cooler is not working.
Well done. Thank you. Today at 2pm the Fed announcement should be interesting 🤔
I will make a “Gentleman’s” bet and predict that the Fed will raise interest by 100 basis points.
and I will bet that market will rally hard if it’s .75pts and still close up higher if it’s 100 basis points, follow by a pullback tomorrow
Phoenix_Ikki – Right again!
0.75pts and Nasdaq up 4%. All layoffs on hold!
We’ll have to check back tomorrow.
I think it’s 50.
I just got through listening to the presser. Powell put another 75-basis point hike on the table for the next meeting in September — which was when the “pause” was supposed to happen. Most hawkish presser I’ve ever listened to. Getting inflation down is #1 priority, come hell or high water. I’ll have more on that in a few hours.
Interesting, yeah and market cheers, not reading into it much but sure it’s head scratcher the last couple of times with rate hike and the more hawkish tone…weird world we live in, must be a version of we only hear what we want to hear in our head for traders..
Thanks Wolf. I have zero trust in anything CNBC reports.
Looking forward to your read of the tea leaves! A lot of folks are suggesting Fed will punk out if inflation turns a corner, so I’d love to read your views championing the hawkish thesis.
My guess is how goes inflation is how goes markets in the near term. Things might be volatile depending on the inflation case the bears and bulls make in the immediate term.
Funny how the market interpreted his statement as dovish hat “rate hikes will slow at some point in the future.”
Well, of course they will! Some point in the future may be 3 years from now.
I didn’t see it as dovish at all.
Go check the comments about this on the Fed article.
I keep seeing stories referring to a dovish presser … I saw the whole thing and it sure didn’t look dovish to me. Nice to know it’s not just me … Thanks Wolf!
Were is WeWork when we need them??
They changed their name to “WeDontwork” and still made billions.
Thank you Wolf. The algos have studied the key strokes of work from home folks. Time to fire the posers.
Make sure your second computer has a vpn.
This runs contrary to my anecdotal and personal observations. Evidence please?
If all you gonna do is just print up free money,, we probably should have done like China and just diverted most of it to build housing. At least when you build something it’s still gonna be there unlike these 2020 offsprings of the 2000 dotcom bust. All these wasted trillions going into these nothing companies who never were gonna do anything but put up a pretty website, burn thru cash, and leave pitiful retail investors holding the bag. It made no sense. Now we’re back to the real world – business plans/ideas need to hit the ground running & start making money ASAP.
IMHO avg it, it being the run up of the billions of dollars in the ”tech” industry has made tons and tons of sense for those folks who are now gazillionaires paying cash for multi million dollar — as in asking $68 MM for a condo in Miami or your ami as the case may bee…
Have heard that there is a 3 year waiting list for folks wanting to build a multi million dollar house in some of of our more desirable locations — ocean front or close enough to walk to nice beaches, etc.
And you get on that list with half the money up front in escrow, subject to ”builders control” or similar…
It will certainly be interesting to see if the massive distortions of the last few years get any resolution at all before the ”mass of men living lives of quiet desperation” decide to have another go at actual democracy/meritocracy and that sort of thingy, eh?
I have a feeling Powell won’t stop tightening despite Democrats screams before the election. He’s a republican and he doesn’t care about another term. He cares about his ‘legacy’, like other deluded fools. However tightening won’t stop inflation because blue collar workers have figured out they are ‘essential’.
Speaking of reality, some people really just don’t know what that is, just read Cathie Woodshed loaded up on Shopify, once a dip believer, now a dip cultist. Even seeing all these companies now coming back down to earth, she must think the next rocket ship to the moon is right around the corner..
70% of people are poor not a good time for speculation
“These decisions to build out capacity to meet the boom in sales have been made obsolete by reality, and they are being unwound as that boom has fizzled. And it’s time to cut costs and contain future expenditures.”
I’m just stunned that Amazon could make such a mistake! You would think that some of their business analysts would have said this is just a temporary effect due to the stimulus. But, there I go again assuming that these companies are smarter than they really are.
This is a great article!
“But, there I go again assuming that these companies are smarter than they really are.”
Aint that the fact? The so called ‘captains of industry’…when I listen to any of ‘them’…I always walk away more than underwhelmed….I am sure they are saving their best for private conversations…not for public consumption. LOL
What amazes me is the Advertisers that blissfully pay to get random, idiotic ads placed to irritate prospective customers.
I have been a customer of a large industrial Auction company for decades. I bought an item last week, and they are still bombarding me with ads for something that has expired. Gooble and Facefoot have algorithms written by idiots.
“and they are still bombarding me with ads for something that has expired. Gooble and Facefoot have algorithms written by idiots.”
It’s by design. Any click from you, they will count you as a DAU or MAU…oh what a racket that DAU/MAU is…but that’s for another day.
The key here is that Amazon executives expected employees to come back to the office full time. It took a long time for them to move to start thinking about a hybrid model. It will take more time for them to get to a remote model. I’ve talked to several engineering leaders there and they all say there is a split between what developers want (remote) and what executives want (in the office). This may be the start of continued downsizing by Amazon.
Nothing beats boots on the ground. The further removed from the front line engineers and executives are the further they are removed from reality.
Rio reported China has reduced orders for their iron ore. China may not need to build empty skyscrapers for awhile. Their one child rule left them with an aging population. Europe is facing energy shortages that may result in reduced industrial output. There is a way to convert coal to natural gas. That takes time. Russia complained about sanctions. They can not get parts for the leased Boeing and Airbus planes they seized. They are have difficulty getting imported car parts. Russian mechanics had to go to the junk yards to get plane and auto parts. Food and fertilizer shortages may be transitory, but have not gone away yet.
Europe need Russia energy and metals. Now Europe has shot off their foot and gangrene is setting in.
The green economy in Germany will be moving the clock back to Neanderthal times.
That’s OK, climate trends unfixed will lead us back to pre-Cambrian times. With burnt plastics. More fun that way.
We won’t need electric cars if we go back that far. Maybe we will see another Great Dying along the way back?
I have been following the msm, Yellen, and the WH site and they’ve told me there will be no recession. The program has been canceled until further notice. Then they sent us home.
So the layoffs mentioned here must be, pardon the pun, virtual.
Mr. Richter, how much effect do you think this will have on the current 3.6% national unemployment rate?
close to zero. The layoff numbers are really small, as I mentioned, and there are still so many tech companies looking to hire that many of the laid-off people may already have a job lined up by the time they’re escorted out the door of the their 2nd bedroom.
Most of them are temps anyway, so it’s not as if much has changed.
All jobs are temp now. Very temp.
I wouldn’t count on the tech companies bailing out the unemployment numbers. While I agree that the layoff numbers haven’t been too big so far, almost all the major tech companies have introduced hiring freezes. There is an anonymous site named Team Blind used by a lot of tech workers and people that have been laid off are freaking out. Amazon is the only major company hiring right now but they have a high bar and most people don’t pass the interviews.
A good friend of mine in tech quit his job about 6 weeks ago just before things turned. He thought he would get a new job in a couple weeks but companies have closed roles after the interviews and cancelled the interviews altogether. His timing could not have been worse. I like this to people who held on to their house a few weeks too long and have found the market completely turned.
Unemployment was 3.9% at the end 2000, and it topped out at 6.3% in June 2003 following the pop of the last tech bubble. It’s not a perfect analog at all since it’s hard to get a sense of scale between this bubble and the last in real terms… Years of flagrant money printing has skewed everything. Not to mention, there are potentially so many other bubbles to contend with. But it could paint a reasonable picture showing what to expect out of a collapse specific to tech.
I see it in my tech niche, starting a couple months ago. I’m diversifying my work into some non-tech work. Mainly because tech has driven me nearly insane but I don’t think it will hurt not having both feet squarely in an industry that has massive ups (and therefore massive downs can be expected at some point). Dot com two point oh my goodness gracious?
I thought tech would drive me insane, but it didn’t. Agile did.
What’s wrong with your Scum Master?
Agile turned software engineering into sweat shop labor.
There are dozens of software development methodologies, most of which are gimmicks designed to impress ignorant managers for fun and profit, but the dominant one these days is the ‘get it done, fix it later’ paradigm, which generates most of the junk you’ve had to suffer with ever since computing turned into something to be optimized for profitability instead of usability or reliability.
Well, for starters, they won’t visit me in the asylum. They never take me to Walmart. Is there a funny smell in the room?
Fact: Mental health is a big deal among developers right now.
Pretty sure all the new software development methodologies are padding the pockets of SSRI pharmaceutical companies.
Right, so I just Googled advice for dealing with all the stress: “It is important to take short breaks and incorporate quick workouts every hour or so. If the mere thought of push-ups makes you sick, at least…”
I’m starting to do work with my hands and it feels great. Tangible, creative work. It won’t scale as well but I have strategies. I don’t see myself as a developer for 20 more years except for my own personal projects where I can get away with some good old fashioned cowboy coding! My eyes only! :)
Actually, Europe is imploding. Russia? Not so much.
kam – Truth spoken. Europe is done. All they have left is their sanctimonious attitudes and they want to charge tariffs on those!
And the down in Europe may propagate to the US.
American exports are flooding the market, depressing sanctimony prices and prompting a dumping complaint.
Well said, comrade kam. Now keep repeating that on OAN until people believe you.
Russia is doing a lot better than Europe. Their Debt to GDP is just around 13% compared to over 130% in USA and probably more than 150% in Europe. European Banks are virtually insolvent. Ruble has been stronger than ever before. Russia even subsidizes their Citizens for energy. Global South including India, Latin America and ME Countries are more aligned by their domestic interests with Russia and are OK with multi-polar world.
The Western Media ( controlled by Warmongers and the Military Industrial Complex) narrative is always negative on Russia. If one reads outside MSM, the truth is otherwise.
I’m not seeing much pain in the tech sector at all. Microsoft just missed earnings and its stock skyrocketed; it’s now trading back above a $2T valuation at 30 times earnings. Google missed earnings and its stock went up as well. Tesla is trading at 100 times earnings.
Maybe the most speculative of speculative names, some of which arguably should never have been considered tech, are feeling some financial pain, but this is nowhere like the 2001 situation needed to really deflate a bubble. Many investors are already looking ahead towards a possible Federal Reserve policy pivot in the coming quarters to pump the next big bubble.
Also, those unfortunate enough to be laid off are landing new jobs quickly.
The industry of rainbows & unicorns hasn’t experienced a real downturn in 20 years.
“Many investors are already looking ahead towards a possible Federal Reserve policy pivot in the coming quarters to pump the next big bubble.”
Powell just put another 75 basis point hike on the table for September. Pivot in the wrong direction? Most hawkish presser I’ve listened to so far.
What I heard was “we’ll look at the data” in September. So that signal was wishy washy to me.
However, I did notice he’s still targeting inflation as enemy #1 in every single sentence he utters.
So, that ain’t sending any pivot signal to me. 75bp again in September sounds about right.
Nasdaq, QQQ up 4+ percent today. Very curious about tomorrow. But the buoyancy in sentiment has not been wrung out, not even close. What puzzles me is, QQQ (up more than the whole Nasdaq) must still have a few constituents that will be shaken by interest rate hikes. But folks bought the index, bigtime.
Jawboning works the other way too apparently
The term “looking at the data” cuts both ways. That’s why we got 2x 75 because they finally looked at the data. So if the inflation data knocks their socks off again, they “wouldn’t hesitate” do to more than 75 basis points, Powell said today.
Fed did not buckle . Raised by 75 basis points ( not 100 though) till unemployment raises & oil
+ Inflation moderates fed saying they will i crease rates !😌
Yup and pretty predictably the market now up 380pts, if only everything else is as predictable, wonder if we will end up getting 500pts+ close today. Tomorrow will be anyone’s guess.
Based upon the FED talk today looks like the punchbowl is back, lets pass around the cups and enjoy the long-term inflation. Market looks happy with the news and that 75 bp hikes may be in the rear view window. Maybe the job losses these next few months are just a hiccup.
Inflation is wild card here.
Fed’s benchmark rate is 2%. If inflation stays above say 4% or so, Fed won’t have any option but to hike and tight.
Ideally, 75 bp is OK, 100 bp would have been better but better than 50 bp.
So what people are not really talking about is that the Fed has hardly liquidated any of the massive balance of treasuries yet. Their tepid pace of allowing them to roll off is a joke.
By September, they are supposed to be selling 90 billion a month (or something in that range). I really question whether they will even get to that point.
My thought is that these massive Fed balances are now structural and cannot possibly be liquidated without throwing the economy into a deep slump. But those same balances will make our economic system very volatile.
So what we really need is a to have the Fed sell off the balances – no matter what happens to the economy. That would force the Fed government to start living within its means.
We need alot of pain to bring back some reality to our country.
I too was surprised by the small drop in Fed Balance Sheet. I read 16 billion down. The 20 year did start to move up towards the market close.
This takes time and with instant information and reaction I always feel things must happen vs reality. On off switch vs a dimmer
RTGDFA linked below… Treasuries come off mid-month and end-of-month. The balance sheet is weekly, and you have to go to the balance sheet that has the last day of the month on it to get the Treasury roll-off. Only the clueless don’t know this by now because I’ve explained this a million times. I will crush QT-deniers once a month, every month, with my QT update, until you finally read my articles so you know what’s going on, rather than believing this braindead clickbait BS that is polluting the internet.
READ THIS so you don’t have to make a fool of yourself in public:
Then why am I losing money shorting the NDX?
You are losing b/c you are ignoring the power of perception over reality in the short term. Being logical and rational is a losing game, since Fed rigged the rules of game since March of ’09.
I have adopted swing trading of major indexes using leveraged ETFs in both directions. Possible only in tax deferred accounts for nimble traders.
TECL vs TECS on Nasdaq. Kept accumulating TEC, very SLOWLY, as it climbed starting early and kept going until almost 3.55PM. sold 80% of TECL but kept the TECS bought earlier. Same thing with DIA and SPY. NOT for the novice b/c one has to watch like hawk. Next day same thing if perception remains stronger than reality. I wish I had realized this a lot earlier ( late ’09!)
But I am firm believer in REVERSION to the mean, in the long run. Been in the mkt since ’82.
Now that The Fed has handily taken care of inflation the equity markets are set to soar into orbit. Hapless days are here again.
unamused – Did you see the crypto market! The crazies are back!
Indeed. Eth is up 60% in a few weeks. Yeah, crypto is dead. Yes it’s down a ton from it’s highs but those dollar cost average trades are sure looking smart right about now.
“Yeah, crypto is dead.”
Undead, actually, as implied in the name. Zombies eat brains, so a lot of people have immunity.
Yep. I feel sorry for those people who missed buying PancakeSwap crypto at the bottom.
AAPL bear market rally : not good enough.
Shorts covering due to earnings beats. The U.S. is pumping more oil than Saudi Arabia. Huge orders for military jets. America is the largest exporter of food in the world. I remember the Merrill Lynch commercials of the 70’s: “Bullish on America.”
“Huge orders for military jets.”
That and automotive and there’s your durable goods. Call it Military Keynesianism.
How many chips go into a fighter plane anyway?
Saudi Arabia (Egypt) is buying discounted oil from Russia, mark it up and sell it back to Europe. What a deal!
We need more jets and other military hardware b/c Ukraine is ‘losing’ by using against Russians, besides selling them on the black mkt. Prez Zelensky is media savy and super crook, whom worships!
There are at least 3 ETFs favoring weapons/air space industry.
The Fed really did a great job lowering inflation today by making sure asset prices soared and interest rates came down. Please don’t tell me market moves don’t matter. They do. Everyone feels richer today. This has been going on for 12 years. To think it ends now is just foolish.
I don’t feel richer today.
You lack irrational exuberance. There’s a pill for that.
You can pretend.
You didn’t go along with the power of ‘perception’ but relied on the reality.Fed rigged the rules of the game, since ’09!
I go along ‘long’ with the PERCEPTION, with some hedges to prevent whiplash, sell most of the long (leveraged ETFs) at the end of the day. Same ‘rinse n repeat’ next if perception force remains strong. (possible only in IRA accts for nimble traders)
The Fed should have just cut rates rather than go through a nonsense press conferences to pretend they care about inflation.
The Fed uses words that are ‘code’ to most people. By dropping guidance Powell declared they were not on a strict schedule of rate hikes. That means they could cut or do nothing. Peak hawkishness is in!
Many predicted prior to meeting that Powell would take the drop in commodities to dove-up. Next stop is 4200 on the S&P, unless GDP tanks.
I have no doubt Powell has been communicating his thoughts to his buddies on Wall Street for weeks.
I didn’t see the press conference, but if Powell dropped “guidance” that’s actually hawkish. In the 1990s and before the FED didn’t provide guidance so the FED wouldn’t be locked into a position in case the data changed prior to the next meeting, and risk upsetting the market by deviating from the previous guidance. Guidance only became a policy tool after rates went to zero and further cuts weren’t possible, so guidance was used to try and let markets know how long it was anticipated rates would stay at zero. Dropping guidance sounds like the FED is finally normalizing monetary policy. I sure hope that’s the case.
We have a problem with politicians in this country in that politicians say one thing and do another. Watch actions not words. Inflation is at least 9% and rents are throught the roof. They should have done at least 1% and then hinted at further hikes. They should be targeting market psychology as much as anything, not trying to thread a needle to keep Wall Street happy.
Commodity and stock prices are in part set by speculators. Look at the recent drop in copper and softs such as food. Copper dropped 25% because this was the speculative 10-1 margin crowd getting out. Real supply and demand had little to do with it. That is a tax on the productive. Now Powell just gave speculators the green light to go in hard. He looked like a broken man in that press confrerence. He knows what he’s doing is the wrong thing. Obviously the last taper tantrum broke him. We need a new Fed Chairman.
From Wolf’s comments above it doesn’t sound like you and him watched the same press conference. I guess I’ll wait to see his comments later. I’ll also try to find a video of it myself.
I feel more nervous.
I have been looking to buy some of the big REITs on the assumption they will handle inflation well. On the other hand I see over-building all around me. I live at the midpoint between Philadelphia and NYC. Warehouses sprouting like mushrooms. There was a huge surge over the past couple of years. If the big techs have too much space, these new warehouses might be vacant for awhile. So I think now the REIT theory doesn’t look so good. Any REIT people seeing this ?
Did you read the article Wolf posted here (above)? Big tech is shedding warehouses nationwide.
Check out Premium Yield Equity REIT ETF (KBWY), still down 8% YTD but promising with yield of 7.3%. The trick is to nimble them in small shares, when and if it starts going down. Same with RWX, XLRE or IFGL.
Warning – Do your own due diligence
One thing that many people get wrong is that the stock market is not the economy. The economy stinks, but the market bottom likely is in (as I said over 2 weeks ago). Don’t look now, but we are on the way to test S&P 5,000 next year.
Totally disagree. The market IS the economy for the top 20% which is the only part of the economy that matters anymore. That’s a
Where 99.9% of the assets reside and for the last 12 years the policy has been to make damn sure those assets keep growing. If it pops so does the entire edifice.
Betting against the rich has been and will be a losing bet.
“he market IS the economy for the top 20% which is the only part of the economy that matters anymore.”
That is my sentiment as well. All we have left is this make belief “markets” which is the “economy”. And I also believe this is what’s driving the inflation. Top 20% are feeling so “rich” that they are driving up the prices of everything, which is the inflation for 80%.
If that’s the case, then there is no way to get inflation under control without crashing asset prices.
So if the market is betting on a “soft landing” meaning that inflation drops to 2% but obscenely overvalued assets stay that way, I don’t see how that’s possible.
Correct. This country will look a lot like Hunger Games before you know it. Spare me on the revolt theory. This country has been neutered a long time ago. Nobody will rebel.
“inflation under control without crashing asset prices.”
Yes IMO that’s the only way to lower inflation but I doubt this will happen as the rich and powerful people will have to suffer the most. And these are Powell’s buddies.
Correct again @Arya
Don’t be greedy. Don’t over-leverage….buy popcorn…enjoy the movie. The days of reckoning will come…is it 2 months, 2 yrs or 20 yrs…that’s the only question.
I disagree but I am not a pundit.
Stock market can detach from economy only for so long.
Bear market rallies are the most ferocious ones.
Look at the general trend not day today up/down. The general channel is down at this time.
The wild card is inflation. If inflation is not tamed, FED would be forced to hike and tight which basically is not good news for stock market.
So far, stock market has been great for the last 12 years only because of cheap money.
Let the cheap money go away and then we see how does the market do.
Your premise that cheap money will go away is where you are at fault. If they were going to do away with it, they would have done it already. All bark, no bite little doggy.
Unless the Fed starts lowering rates and starts printing again, I’ll take that bet!
Reality is for people who can’t handle ZIRPs.
“No one is going to, as they say, “grow into” this massive amount of vacant office space.”
We have seen it all before in 2008.
Churches, libraries, DMVs, other government buildings, and a few startups will move into these cheap vacant office buildings.
The cycle will repeat.
The real question is exactly why was Powell give a 2nd term by a Democratically controlled government? If the stock answer is so the can blame the economic implosion on him that won’t work.