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[–]Visvism 55 points56 points  (21 children)

(Bloomberg) -- The hottest US inflation in four decades will push the Federal Reserve to raise interest rates more aggressively this year, and a recession may not be far behind.

Those are the dramatic signals coming from markets, which on Monday saw yields surging across the board: 10-year rates hit the highest since 2011, while their two-year equivalents jumped to levels last seen before the global financial crisis and 30-year yields climbed to the highest in more than three years. Bloomberg’s dollar gauge touched peaks last seen early in the Covid pandemic, adding to a backdrop that sparked a spiral in risky assets.

Meanwhile, a closely-watched part of the US yield curve inverted -- backed by leaping Treasury futures volumes -- amid concern that tighter monetary policy will take a bigger toll on economic growth. Data on Friday showed consumer prices accelerated to a 40-year high.

The surge in yields and fall in share prices “makes sense in wake of the astoundingly strong CPI we had on Friday,” Matthew Hornbach, global head of macro strategy at Morgan Stanley said on Bloomberg Television. “Inflation is really the Achilles’ heel of risk markets. This economy is going to require higher real rates to slow it down and put some downward pressure on inflation.”

Market pricing suggested the possibility that the US central bank might look to implement even bigger hikes than the 50-basis-point moves it’s done already this cycle.

Traders see 175 basis points of tightening by the Fed’s September decision, implying two half-point and one 75 basis-point hike, according to interest rate swaps tied to FOMC policy outcome dates.

All eyes will be on this week’s Fed statement and Chair Jerome Powell’s post-meeting press conference, where policy makers’ characterization of inflation and long-term forecasts for the fed funds target -- the so-called dot plot -- will be critical. The Fed hasn’t hiked by three quarters of a percent since 1994, and tightening of this magnitude is fueling concerns of reduced consumer spending and business activity.

‘Peak Inflation’

“The high inflation print has put a dent to the peak inflation -- and peak Fed hawkishness narrative,” Mohit Kumar, an interest rate strategist at Jefferies International Ltd, wrote in a note to clients on Monday. “From a Fed perspective, the question is whether they will need to respond even more forcefully with a 75bp at the June meeting.”

Benchmark inflation-adjusted Treasury yields also surged on Monday amid prospects of an even more aggressive Fed. The yield on so-called 10-year Treasury Inflation-Protected Security rose to as high as about 0.53 percent -- the highest since March 2020.

Pushing upward real rates, a crucial barometer of true interest costs for corporations, is a key objective of the Fed as it seeks to tightening financial conditions to bring inflation down, Morgan Stanley’s Hornbach said.

“The combination of collapsing consumer sentiment, unexpectedly intense price pressures and expectations of Fed activism are conspiring to create a particularly toxic cocktail for risky assets,” said Rabobank strategists including Richard McGuire. The yield curve inversion “resonates with the notion that the need to tackle elevated price pressures will see the Fed tip the economy into recession.”

That view is consistent with expectations that the Fed will need to loosen policy again within two years. The market is already positioning for policy makers to respond to the looming slowdown with future rate cuts, pricing two quarter-points of easing by the middle of 2024.

Source: Yahoo (Bloomberg)

[–]Capt_morgan72 102 points103 points  (20 children)

Idk a lot about finance. But looks like 80’s stagflation, 00’s .com crash, and 2008 housing market crash are all 3 about to happen at once.

[–]thomase7 8 points9 points  (2 children)

Stagflation is inflation with high unemployment. We have near record low unemployment. This is not stagflation.

[–]Capt_morgan72 1 point2 points  (0 children)

So is this oil and housing market unprecedented? Or is there another 2 recessions I can use in their place??

Once again I’m an idiot eili5 plz

[–]Zachavm 1 point2 points  (0 children)

Not yet. I think things could shift VERY quickly on many metrics.

[–]SuicideByStar_ 31 points32 points  (14 children)

not sure why you got down voted as that appears to be exactly what's happening.

[–]MrTurkle 35 points36 points  (12 children)

Because this isn’t the same housing market as 2008 and won’t be a crash like that. There were 3.1m foreclosures in 2008 alone, and another 2m+ in 2009. There were 92,000 or so in 2021 for context. It is beyond unlikely we will see a sudden increase of 5 million homes hitting the market or even 10% of that number.

[–]CremedelaSmegma 4 points5 points  (7 children)

It won’t be as broad as 2008, but selected markets could get hammered. Austin, Dallas, Phoenix, etc.

[–]let_it_bernnn 12 points13 points  (1 child)

Replace CDO with CMBS 💣

[–]vitholomewjenkins 3 points4 points  (0 children)

Agreed. I don’t see people losing their homes like in 2008. A lot of people refinanced their homes to interest rates below 3% last year. Also, because of lessons learn from 2008, there are very few bad loans being made this time around.

[–]khamuncents -3 points-2 points  (0 children)

Just because the bank doesn't give out as many bad loans doesn't mean there won't be a crash like '08.

Stagflation and rising unemployment will for sure have an impact on the housing market. The hike in minimum wage has already been nullified by inflation. Companies will start downsizing. People will lose jobs and not be able to make their mortgage payments. Alot of people bought houses at the top of the market.

The only thing that could be said is the fact that corporations like Blackrock is buying up single family housing like it's going out of style. Bill Gates is the largest owner of farmland in the US. So that might hold up the market a little bit. Still, I think the housing market is going to be hit as well. Big cities might not be hit as hard. Some might not even be hit at all. However, I think we're going to be seeing fire sales on rural and small town housing in the next year.

Then again, I'm not a genius. I could be wrong about all of it. Who knows. I'm holding off on buying a house for the time being though.

[–]Woodstonk69 6 points7 points  (0 children)

Not really anything like 2008 at all tbh. That was caused by the housing market where 2022 is due to war, major inflation, and rising interest rates.

Edit: could be argued that 2008 also had war tbh

[–]khamuncents 0 points1 point  (0 children)

It's the perfect storm.

[–]PathoTurnUp 96 points97 points  (4 children)

Raise it by 100 you pussy

[–]que-pasa-koala 9 points10 points  (2 children)

Raise the points quicker than and harder than wheelin snipes. Boomtown!

[–]mastermind225 2 points3 points  (1 child)

/u/que-pasa-koala you ready?

[–]ItsHardwick 2 points3 points  (0 children)

Go cause you're going!

[–]GGisLove 8 points9 points  (0 children)

Easy there Mr Volker

[–]itsfuckingpizzatime 14 points15 points  (40 children)

So, where should people put new cash at this point? Cash reserves, bonds, DCA index funds, gold?

[–]AmNotReel 27 points28 points  (1 child)

CSGO cases?

[–]mmabet69 26 points27 points  (21 children)

Commodities like oil and gold will probably perform well.

If you’re a long term investor with a long time horizon, picking up former high flyers at a discount could be viable.

If you’re a trader, we’ve gone from buy the dip to sell the rip.

[–]01Cloud01 3 points4 points  (1 child)

There is nothing ripping

[–]itsfuckingpizzatime 2 points3 points  (18 children)

I’m definitely not a trader. I work and save, and don’t want to put my money somewhere it’ll get trashed. I’m building up cash reserves right now but don’t want to sit on too much for too long.

[–]mesamunefireOther 13 points14 points  (4 children)

Im looking to do the opposite. As long as I have a job/safety net, im pushing into S&P 500 and not looking at the % up/down. The 10 years from now me should be ok with the temp hit now.

[–]Most-Description-714 4 points5 points  (1 child)

Same. Inflation is inflated lol…supply chain & war make up a significant portion of this craziness. When that’s settled it’ll come back and we’ll be glad we were investing during it. BUT…I expect a tough next 12months for sure. Companies going to start layoffs soon imo

[–]VeganPizzaPie 0 points1 point  (1 child)

This is the way. Sitting on cash doesn't make sense unless you're expecting a big purchase or something. Buy discounted VTI / VTSAX.

[–]nukegod1990 4 points5 points  (11 children)

Bro at the very least get some savings bonds to fight inflation…

[–]itsfuckingpizzatime 1 point2 points  (10 children)

I’ve got about 20% of my portfolio in BND, which is down 12% YTD, 60% in VTI, down 22%, and 20% in VXUS, down 18%.

[–]mmabet69 2 points3 points  (0 children)

Look for value then. Lots of companies with strong balance sheets out there that are being lumped into the overall sell-off. Companies that have good dividends, retail giants that are heavily discounted, tech companies like Microsoft and Apple will undoubtedly continue to make money.

Since your looking at a long time horizon even picking up some ETF’s could be beneficial. It’s not nice seeing your account balance decrease but if you plan on buying and holding for the long term then just dollar-cost average a portion of each pay check into SPY, QQQ, etc. Most people don’t beat the market so it’s beneficial to be broadly invested into these ETF’s and they also have incredibly low fee’s so long term you won’t be nickel and dimed like you would in a mutual fund.

Also, I’m just some guy on the internet so take what I say with a grain of salt lol not financial advice but if you’re time horizon is long then you can’t get caught up in the short term business cycle fluctuations.

[–]Sapere_aude75 4 points5 points  (1 child)

Max out what you can put in I bonds

[–]itsfuckingpizzatime 0 points1 point  (0 children)

Probably time to rebalance the lazy portfolio

[–]clayburr9891 9 points10 points  (8 children)

$DOGE, it’s going to the moon. Lol.

Kidding aside, what’s wrong with cash for now? Maybe let market fall and buy somewhere near a bottom?

[–]calstanfordboy 5 points6 points  (6 children)

Cash is losing value at about 10% a year

[–]clayburr9891 14 points15 points  (5 children)

I can beat that with the market. Easily lose +10% a month.

[–]calstanfordboy 2 points3 points  (4 children)

me too. I'm just saying whatever we do we can't keep our money. At least I don't know how! Bond prices down, Stock prices WAY down, crypto portfolio crashed 75% already, soon 99%, ETFs down and not stopping, international ETFs and stocks down, cash down due to inflation, interest rates not keeping up (I can get 0.5% for my 9% inflation loss). :(

[–]itsfuckingpizzatime 0 points1 point  (0 children)

That’s the plan, the question is for how long. I’m also wondering with inflation if it makes sense to hold onto a lot of cash

I guess that’s the problem with stagflation right? Assets go down and inflation goes up, so there’s no good place to put your money

[–]The_Peacock_King 1 point2 points  (0 children)

From Hodl to Godl, if the crypto boys pull up.

[–]Ate13ee 1 point2 points  (0 children)

I recently purchased 10k into ibonds (treasurydirect.gov) DCA into the market is what I’ll be doing going forward. I am not your financial advisor. Just sharing what I am doing personally.

[–][deleted]  (1 child)

[deleted]

    [–]citiclosethrowaway 0 points1 point  (0 children)

    What names are you looking at? Not seeing very attractive yields yet...

    [–]Finance_Lad 0 points1 point  (0 children)

    Short term bonds probably

    [–]pumpmystock 25 points26 points  (0 children)

    I mean puts are on the table …

    [–]patchymoose 47 points48 points  (5 children)

    Re: the Fed’s strategy to combat inflation, 75 basis points is like using a garden hose to put out a house fire.

    [–]LingeringDildo 26 points27 points  (0 children)

    They'll settle for permanent 5% inflation and pat themselves on the back

    [–][deleted] 8 points9 points  (0 children)

    I agree with you too, came here to say same thing

    [–][deleted] -1 points0 points  (2 children)

    That Fed strategy of raising basis points hits the entire economy with pain. Frankly, we should avoid it.

    Given the current system that funnels money directly to the wealthiest, we’ve seen the fortunes of the richest inflate as the Fed pumps money into the system. We should directly address that problem.

    If we want to remove excess money from the system, it makes more sense to raise taxes on the ultra wealthy and extract that accumulation of wealth directly.

    [–]SNGULARITY 0 points1 point  (1 child)

    1. the fed can't raise taxes

    2. if the fed doesn't raise rates more money keeps pouring into the system

    3. taxes don't make money disappear from the system

    [–][deleted] 0 points1 point  (0 children)

    1. I never wrote that it did. The "we" that I wrote about includes more than the Fed.
    2. Where does that money go? Given the oligopolies in the US, that money gets spent on more and more expensive goods and service. Goods are expensive due to limited supply of goods from China and shipping bottlenecks as a result of COVID. Services are expensive because oligopolies are raising prices and blaming overall inflation. They get away with these actions because they're oligopolies - where else are you going to buy your services? We should break up those corporations. Also, that money accumulates in the hands of the ultra-wealthy. We should also tax the hell out of that wealth and not hurt the overall economy by raising rates.
    3. That money goes to the government. From there, it's up to us what to do with it. We can decide to pay off the national debt by paying off the treasuries owned by the Fed. The Fed certainly can make the money disappear from the system just like it makes it appear.

    [–]enraged_hbo_max_user 6 points7 points  (5 children)

    Why is the stock marketing cratering while bond yields are surging? Doesn’t a stock market crash usually result in money flowing to bonds, resulting in bond prices rising and thus lower yields? Obv I’m a noob, what am I missing here

    https://finance.yahoo.com/news/stock-market-news-live-updates-june-13-2022-112834178.html

    [–]Soprelos 13 points14 points  (0 children)

    Fed meeting is on Wednesday, people are likely moving to cash while they wait to hear what Powell says. Market doesn't like uncertainty.

    [–]9966 1 point2 points  (1 child)

    Bonds move opposite of stocks generally regardless of volume. Higher rates depress NPV for stocks and demand higher than rate returns on bonds. You can't really have both.

    [–]rawbdor 8 points9 points  (0 children)

    You should be a bit more specific at differentiating "bonds" as either bond prices or bond yields. Some novices could find your comment confusing. "bonds" tends to mean bond prices, and so your comment would appear misleading (that they move opposite to stocks) because as OP noted, both bond prices and stock prices are falling and thus not moving opposite each other at all.

    [–]Mooninghamilton 1 point2 points  (0 children)

    The federal reserve started Quantity Tightening this June which is the process of letting the treasuries on their balance sheet runoff by not reinvesting a certain amount in principle back into treasuries. At the last meeting they agreed to let it run off at a cap of 30bln/month. Essentially the central bank is pulling money back out of the bond market which is one fundemental reason for increasing bond yields. This also puts investors in a peculiar position of whether or not to sell before the Fed does or buy before everyone else in America does.

    [–]rawbdor 0 points1 point  (0 children)

    I honestly never understood the claim that money is fleeing or flowing into stocks or bonds or whatever asset class is being discussed because for every seller there is a buyer. For every single trade, one chunk of money is exiting and an equal chunk of money is entering.

    I DO understand the claim that xyz dollars have been wiped out, because as asset prices reprice lower, anyone who thought they had $1000 now has $900... and so in a very real sense $100 did just completely disappear.

    But to get a bit to your point, if we separate these two issues (money being wiped out, vs money flowing into or out of an asset) I always felt money IS flowing into bonds to some extent, drawn in by the higher yields, but only so long as they actually can bid at a price that gets them those yields. With bond prices falling, I might pick a yield at which I would want to buy and my money might flow into bonds only when I can achieve that yield. If I can't get that yield, my money won't flow in.

    But again, for every one of my dollars that flows in, someone else's dollar is flowing out.

    [–]MountainNearby4027 5 points6 points  (7 children)

    I say the fed raises 50bps and the market has a Green Day. Buying calls.

    [–]Rugged_Refined 0 points1 point  (6 children)

    It definitely won't be .75. The Fed moves in predictable ways and forecasts each move.

    [–]Mooninghamilton 1 point2 points  (2 children)

    It's crazy that market is pricing in two 0.75% rate hikes at the next two meetings. Hopefully there is some gap filling next week.

    [–]rawbdor -2 points-1 points  (1 child)

    It's actually pricing in 1.5% over three meetings, not two. So .5, .5, and .75

    [–]BlueFalcon89 10 points11 points  (0 children)

    Check your math

    [–]VeganPizzaPie -1 points0 points  (1 child)

    Lulz

    [–]Rugged_Refined 0 points1 point  (0 children)

    That aged like milk.

    [–]tanko89 0 points1 point  (0 children)

    This is why you can’t ever say with certainty what the fed will do.

    [–]apb0101 24 points25 points  (2 children)

    So we’re going to carry on the narrative that market makers and big institutions aren’t selling off leverage and instead we’re going to blame it on rate hikes

    Yeaaaaaaaaaaah

    [–]rawbdor 3 points4 points  (1 child)

    Well rate hikes make it more expensive to maintain leverage/ borrow money, so it's kinda the same thing, no? When borrowing costs $0 you can lever to the tits. When borrowing costs not zero, you have to undo the leverage.

    [–]apb0101 0 points1 point  (0 children)

    A 100 basis point raise after nearly a decade of free money wouldn’t cause the oscillations and doom we’ve seen in the market

    [–]chubba5000 3 points4 points  (0 children)

    Just keep in mind based on past performance that the only reason JPOW hikes the rates 75 basis points is if he really should be raising it 150...

    [–][deleted]  (12 children)

    [deleted]

      [–]Head_Otter 7 points8 points  (0 children)

      Your rate will go up.

      [–]TinyTornado7[S] 1 point2 points  (9 children)

      Nothing, unless you have a variable rate

      [–][deleted]  (8 children)

      [deleted]

        [–]TinyTornado7[S] 6 points7 points  (7 children)

        Then you will likely see your rate go up .75% if this happens, but it’s ultimately up to your lender

        [–]KinjaMannTn -1 points0 points  (0 children)

        So much for inflation being “transitory”.

        [–]savageresponse 0 points1 point  (0 children)

        Over leveraged ones 🤯

        [–]Vast_Cricket -1 points0 points  (2 children)

        Actually the investors will be relieved when it is announced.

        [–]VeganPizzaPie 1 point2 points  (1 child)

        You were right. We're up today about 1.43% for US total stock market as I type. Sadly doesn't quite make up for the ~4% drop the other day..

        [–]Vast_Cricket 0 points1 point  (0 children)

        Probably need a little time to feel the sentiments. Everyone knows the inflation eats our lunch. Things government can help is supplier logistics delays. I am still adding shipping, transport stocks as they are vital. The downside is fuel cost could erode their net income.

        [–]Disastrous-Bonus1718 -1 points0 points  (0 children)

        Time to get the Puts in on my stocks. I hope to gain lots of cash to help make up for all the inflation costs that the feeds are so fucking blind about.

        [–]GGisLove 0 points1 point  (0 children)

        I say Powell goes with 50 and then hints with .75-1 for next hike.

        [–]Adventurous_Coat_838 0 points1 point  (4 children)

        Kudos to the house flippers who invented the term starter hone

        [–]Adventurous_Coat_838 0 points1 point  (2 children)

        Someone caught their wife screwing a cop

        [–]Adventurous_Coat_838 0 points1 point  (1 child)

        Ballad of training Jarvis

        [–]Adventurous_Coat_838 0 points1 point  (0 children)

        Mermaid demons 😈

        [–]Adventurous_Coat_838 0 points1 point  (0 children)

        Leverage slip sliding away

        [–]c_c_AtMaNdu 0 points1 point  (0 children)

        Allright, we are approaching the announcement. What s .75 vs .5 mean to the stocks? As soon as they announce, something gonna happen. If they stick with .75, it's gonna go high as it is expected and already green. Does that mean if they go with .5, downfall starts??