NASDAQ; We Are Going To Find Out If FED Cares About US Consumer
Atualizado
This is going to be an extended post but the material here is important/detailed and likely will be rewarding to understand in the end.
As the United States faces economic challenges not seen in 40 years, how the FED navigates this environment, and their effective policies will be the make or break for the average consumer.
Today, CPI data is currently at 7.9% which is the highest rise we have seen since the 1980s. According to Bloomberg, “compared with February last year, the 7.9% jump was the biggest since 1981”. With the conflict raging in Ukraine, this only applies more pressure to an already struggling economy. The sanctions our country has put on Russia have the potential to have even more of a ripple effect as we wait for the data that will show the impact of these sanctions in April. It's important to note, this recent rise in inflation is not solely from the Russian and Ukraine war.
This environment was building before this conflict ever arose. It's mere beginning just fueled an already steaming freight train. Once Covid hit the US back in 2020, the country quickly fell into a 2-month recession. Just as fast as it entered one, the economy exploded back to all times highs just a few months after. This was brought on by increased stimulus, easy monetary policy, and quantitative easement. With the average American receiving upwards of $3000 in stimulus alone, not to mention a loose unemployment policy, the average American started seeing a steady rise in their bank account. As covid completely changed the landscape of our lives, it also completely shocked supply and demand across all supply chains. With this rapid increase in demand, supply severely struggled to meet this new standard and because of this, prices and difficulty of attainability rose.
More specifically, “on a year-over-year basis, goods inflation rose by 13%, the most since 1980. That included the largest-ever annual increase in prices of new cars and trucks”, according to Bloomberg. This led to another butterfly effect which started the price gauging environment, most notable in anything in the technology sector. Because supply was severely behind demand, it created a market to buy things privately in bulk and sell it out at a marked-up price. This not only was a real problem in 2020 but still is very relevant today 2 years later. Furthermore, because of the Ukraine conflict, there has been a sharp rise in the energy sector. The US sanctioned/banned imports of Russian oil which has pushed oil and gas prices to new highs, with oil hitting a peak of $129 a barrel and gas prices averaging $4.32 a gallon across the country. Bloomberg states, “the retail price of a regular-grade gasoline has increased 19.3% to $4.32 a gallon, according to American Automobile Association data.”
Something significant to note about this rise in oil is that each time oil has significantly deviated from its current trend, it has resulted in a recession within a year of the spike. This has happened 4 times since the 1990s. If these economic conditions are not mitigated in the short or midterm, the challenges Americans are going to face cannot be understated.
Just as fast as Americans were able to save extra money in their bank, it is being drained at an even faster rate. Covid brought very easy policies across the entire economy. From the stock market, low-interest rates, rent payment forgiveness, easy unemployment, and not having to make daily commutes brought a lot of openings to save money. Now as the country has begun to open back up and operate as before, the pressures that were elevated because of Covid are being reapplied at much more elevated heights. With prices being as inflated as they are, Americans are going to burn through everything that they have been able to save.
This is how Capitalism works at its very core. There is always a median in which the economy will reset itself as each economic cycle comes and goes. Right now, it seems the economy is in a transition cycle that is siphoning all the money given to Americans right back into the system it came from. With geopolitical threats and economic conditions we are living in today, it has never been more important to understand how to save and protect capital. The threat of a recession or worse is increasing each day these conditions stay, and if the US is faced with any more unpredictable events there is no telling the result.
It seems like the perfect storm is brewing and the FED is very indecisive on how to handle it correctly. As of March 16, the FED increased interest rates by .25% which was an undercut of the prediction of .50%. To put this into perspective, the last time CPI data was at this level in the 1980s, Volcker (who was the FED chair at the time) had interest rates at 20%. The difference here in policy decisions is very significant and will be detrimental to implemen the correct policies at the correct times. In fact, Powell made a very odd public statement yesterday (Monday, 3/21) just 4 days after last weeks FOMC meeting stating, "Inflation is much too high" and he will "Do what it takes to get it under control (.50% Rate Hikes)". What was odd about that, is why not say this 4 days ago?
With increased interest rates in the future, more pressure is going to be put on the housing market which has exploded over the last decade since its collapse in 2008. Currently, at 47.9%, millennials have the lowest homeownership rates of any other generation. By comparison, gen-X's homeownership rate is 69%, while 77.8% of baby boomers and 78.8% of the silent generation owns their home. If the older generations are holding most of the supply, how is demand met over the next decade when millennials can't afford to buy. With economic conditions even worse today, millennials are losing money even faster now. Therefore, understanding this economic environment is not only important for the US but for every single American that will continue to suffer if these conditions don’t improve in the future.
Rockeman, Olivia. “U.S. Inflation Hit Fresh 40-Year High of 7.9% Before Oil Spike.” Bloomberg, 10 Mar. 2022, bloomberg.com/news/articles/2022-03-10/u-s-inflation-hits-fresh-40-year-high-of-7-9-before-oil-spike.
As the United States faces economic challenges not seen in 40 years, how the FED navigates this environment, and their effective policies will be the make or break for the average consumer.
Today, CPI data is currently at 7.9% which is the highest rise we have seen since the 1980s. According to Bloomberg, “compared with February last year, the 7.9% jump was the biggest since 1981”. With the conflict raging in Ukraine, this only applies more pressure to an already struggling economy. The sanctions our country has put on Russia have the potential to have even more of a ripple effect as we wait for the data that will show the impact of these sanctions in April. It's important to note, this recent rise in inflation is not solely from the Russian and Ukraine war.
This environment was building before this conflict ever arose. It's mere beginning just fueled an already steaming freight train. Once Covid hit the US back in 2020, the country quickly fell into a 2-month recession. Just as fast as it entered one, the economy exploded back to all times highs just a few months after. This was brought on by increased stimulus, easy monetary policy, and quantitative easement. With the average American receiving upwards of $3000 in stimulus alone, not to mention a loose unemployment policy, the average American started seeing a steady rise in their bank account. As covid completely changed the landscape of our lives, it also completely shocked supply and demand across all supply chains. With this rapid increase in demand, supply severely struggled to meet this new standard and because of this, prices and difficulty of attainability rose.
More specifically, “on a year-over-year basis, goods inflation rose by 13%, the most since 1980. That included the largest-ever annual increase in prices of new cars and trucks”, according to Bloomberg. This led to another butterfly effect which started the price gauging environment, most notable in anything in the technology sector. Because supply was severely behind demand, it created a market to buy things privately in bulk and sell it out at a marked-up price. This not only was a real problem in 2020 but still is very relevant today 2 years later. Furthermore, because of the Ukraine conflict, there has been a sharp rise in the energy sector. The US sanctioned/banned imports of Russian oil which has pushed oil and gas prices to new highs, with oil hitting a peak of $129 a barrel and gas prices averaging $4.32 a gallon across the country. Bloomberg states, “the retail price of a regular-grade gasoline has increased 19.3% to $4.32 a gallon, according to American Automobile Association data.”
Something significant to note about this rise in oil is that each time oil has significantly deviated from its current trend, it has resulted in a recession within a year of the spike. This has happened 4 times since the 1990s. If these economic conditions are not mitigated in the short or midterm, the challenges Americans are going to face cannot be understated.
Just as fast as Americans were able to save extra money in their bank, it is being drained at an even faster rate. Covid brought very easy policies across the entire economy. From the stock market, low-interest rates, rent payment forgiveness, easy unemployment, and not having to make daily commutes brought a lot of openings to save money. Now as the country has begun to open back up and operate as before, the pressures that were elevated because of Covid are being reapplied at much more elevated heights. With prices being as inflated as they are, Americans are going to burn through everything that they have been able to save.
This is how Capitalism works at its very core. There is always a median in which the economy will reset itself as each economic cycle comes and goes. Right now, it seems the economy is in a transition cycle that is siphoning all the money given to Americans right back into the system it came from. With geopolitical threats and economic conditions we are living in today, it has never been more important to understand how to save and protect capital. The threat of a recession or worse is increasing each day these conditions stay, and if the US is faced with any more unpredictable events there is no telling the result.
It seems like the perfect storm is brewing and the FED is very indecisive on how to handle it correctly. As of March 16, the FED increased interest rates by .25% which was an undercut of the prediction of .50%. To put this into perspective, the last time CPI data was at this level in the 1980s, Volcker (who was the FED chair at the time) had interest rates at 20%. The difference here in policy decisions is very significant and will be detrimental to implemen the correct policies at the correct times. In fact, Powell made a very odd public statement yesterday (Monday, 3/21) just 4 days after last weeks FOMC meeting stating, "Inflation is much too high" and he will "Do what it takes to get it under control (.50% Rate Hikes)". What was odd about that, is why not say this 4 days ago?
With increased interest rates in the future, more pressure is going to be put on the housing market which has exploded over the last decade since its collapse in 2008. Currently, at 47.9%, millennials have the lowest homeownership rates of any other generation. By comparison, gen-X's homeownership rate is 69%, while 77.8% of baby boomers and 78.8% of the silent generation owns their home. If the older generations are holding most of the supply, how is demand met over the next decade when millennials can't afford to buy. With economic conditions even worse today, millennials are losing money even faster now. Therefore, understanding this economic environment is not only important for the US but for every single American that will continue to suffer if these conditions don’t improve in the future.
Rockeman, Olivia. “U.S. Inflation Hit Fresh 40-Year High of 7.9% Before Oil Spike.” Bloomberg, 10 Mar. 2022, bloomberg.com/news/articles/2022-03-10/u-s-inflation-hits-fresh-40-year-high-of-7-9-before-oil-spike.
Nota
Finally approaching that support! I hope anyone who stumbled upon this analysis really tried to take it in at the time because it would have saved you a world of pain!
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