Happy Halloween, readers! As we dive into Halloween day festivities—trick-or-treating, spooky parties, and all things eerie—Wall Street has added a twist to the scare. Today, both the S&P 500 and the NASDAQ experienced their sharpest drops in over a month, delivering a frightful reality check for investors. | AUDIO | VIDEO
The NASDAQ tumbled a chilling 2.76%, closing at 18,957, with the S&P 500 close behind, dropping 1.86% to settle at 5,754. Even the Dow Jones felt the Halloween chill, shedding a haunting 378 points. What triggered this financial fright? It seems a perfect storm was brewing, with tech giants at the center of the market turmoil. Companies like Microsoft and Meta stumbled, spreading fear throughout the stock market and sending investors into a frenzy.
Microsoft’s scare came from missing revenue guidance, its own forecast for future sales, hinting at potential growth slowdowns and causing a 6% dive in its stock price. Meta faced a different fright: stagnant user growth and a warning of significant capital expenditures in 2025, as the company prepares to invest heavily in new tech. This announcement spooked investors, who weren’t thrilled about increased upfront spending, leading them to a quick exit.
But tech troubles weren’t the only factor haunting the market. Thursday’s Personal Consumption Expenditures (PCE) report—a key inflation measure—suggested that inflation might be stickier than expected. With the Federal Reserve’s November 7th interest rate decision looming, investors are on edge, wondering if the Fed will raise rates again. The PCE report added an unexpected twist, reminding us that even the most powerful tech companies aren’t invincible in the face of economic fears.
A Haunted House Market: Real Estate’s Chilling Slowdown
Shifting gears, let’s step into a haunted house of a different kind—the real estate market. September brought some real chills, with home sales dropping to their lowest levels since 2010. Compared to August, sales fell another 1%, leading to an annualized rate of 3.84 million units sold. Year-over-year, sales are down by a haunting 3.5%, a stark contrast to the buying frenzy of just a few years ago.
One factor haunting the housing market? Cash buyers, who now make up a spooky 30% of home sales, far above the usual 20%. For buyers relying on mortgages, this fierce cash competition is a nightmare, especially for first-timers. With first-time buyers representing a record low of just 26% of sales in September, they’re struggling in a national market driven by cash-rich competitors and rising prices, which crept up 3% year-over-year to a frightening $444,500. Of course, that’s cheap compared to the average Los Angeles home price.
The Specter of Stagflation
Beyond the spooky vibes in real estate and tech, there’s a looming threat of stagflation. This eerie combination of economic stagnation and high inflation presents a dilemma for policymakers. Normally, raising interest rates can curb inflation, but it also risks stalling economic growth. Despite the Fed’s rate hikes earlier this year, inflation remains high, putting pressure on both businesses and households.
Navigating the Spooky Maze of Market Mysteries
So, how should we approach this haunting economic landscape?
1. Stay Informed: Knowledge is your best defense. Keep tabs on economic developments, like the PCE report and tech earnings, to make better-informed decisions.
2. Be Strategic: Don’t react to every headline. Instead, make financial decisions aligned with your long-term goals.
3. Seek Guidance: Don’t be afraid to seek help from financial experts who can guide you through this eerie economic maze.
4. Keep Perspective: Like a haunted house, the market’s ups and downs are temporary thrills. Remember, you’re not just a bystander; you have the power to shape your financial future.
So, amid all the tricks this market is playing, remember that treats lie ahead. Whether it’s potential lower mortgage rates or the transformative power of AI, glimmers of hope shine through the fog. As you navigate this landscape, stay curious, informed, and ready to adapt. This Halloween, let’s treat ourselves to a brighter, more resilient future.
FIND OUT HOW MUCH YOUR HOME IS WORTH — FREE, ONLINE! Get a free list of recently sold homes in Los Angeles, Orange County or any area. Fill out the online form.
REAL ESTATE NEWS (Los Anglees, CA) — In a world awash with financial jargon and complex economic theories, it can be challenging for the average person to decode the happenings within our economic landscape. A recent video from RJ Talks titled “Bank of America: Strong Sign Federal Reserve is Done as Revisions PLOW Toward Hard Landing Recession” has brought some of these complexities to light, notably discussing the market imbalances, employment data shifts, and Federal Reserve actions. This blog post aims to unravel these complexities and explore the ominous idea of the Greater Depression of the 2020s.
August Jobs Data: A Grim Milestone
The video starts with a revelation that the August jobs data was not just disappointing but seemed to indicate a significant shift. Unemployment rates have spiked, surprising many who have been following the steadily recovering job market post virus hysteria. Such a substantial change in employment data is alarming, not just for the average American worker but also for the Federal Reserve. It seems that what the Federal Reserve had been cautiously monitoring for over a year just occurred.
The Federal Reserve’s Unlikely Balancing Act
The Federal Reserve has been walking a tightrope for a while now, maintaining a balance between interest rates, inflation, and unemployment. Jerome Powell, the Federal Reserve chairman, expressed that the Central Bank was closely watching for the unemployment rate to normalize around 4%. This is easier said than done, as unemployment rates can quickly escalate and lead to severe consequences like stalling the labor market. The Fed had been employing a “higher for longer” strategy, tightening monetary conditions until they saw the unemployment rate break upward, which has finally happened. This shift triggers a reconsideration of the Federal Reserve’s approach to monetary policy.
Real Rates and Economic Squeeze
One crucial point raised in the video is the ‘real rate’ or the actual interest rate that matters when considered against inflation. This real rate currently sits at over 2%, a figure that historically leads to an economic downturn or ‘hard landing.’ This tightening of financial conditions is already taking its toll on small and medium-sized businesses, who are described as being “six feet under, gasping for air.”
Quantitative Tightening: Uncharted Waters
The Federal Reserve is currently in a phase of Quantitative Tightening (QT), which aims to undo some of the actions taken during the phase of Quantitative Easing (QE) initiated during previous crises. QT involves vacuuming up the extra money that had been pumped into the economy, a strategy that has never been employed before in the history of the Federal Reserve. Given how QE led to significant economic and market implications, the impacts of QT are still uncertain but potentially significant.
Bank of America’s Warnings and the Future Outlook
The video discussed a note from Michael Hartnett, Chief Investment Strategist at Bank of America Global Research, which stated that a significant indicator—the job openings to unemployed ratio—had reached its lowest level since September 2021. This is considered a strong sign that the Fed’s current monetary cycle could be coming to an end. Hartnett also notes that never in U.S. history have Treasury returns fallen three years in a row, marking yet another unprecedented economic situation.
Navigating Uncertainty: Investor Strategies for Q4
The video ends with advice for investors to be ultra-conservative as the year moves towards its final quarter. It suggests that the time might be ripe for investors to move into money market accounts, which are still paying risk-free five percent yields and offer liquidity in case of a massive sell-off.
A Greater Depression?
The term “Greater Depression of the 2020s” is heavy with implications. While some believe it’s too soon to predict if the current economic signals will indeed lead to a depression surpassing that of the 1930s, the stock, employment and GDP statistics indicate that it already began in 2020. The depression has been covered-up, papered over with federal helicopter money, leading to uncontrolled inflation, then higher interest rates.
Fewer Transactions Due to Higher Interest Rates
When interest rates rise, the cost of borrowing increases, which directly impacts the affordability of mortgages. This discourages new buyers from entering the market and can also deter existing homeowners from selling their current homes to upgrade. Why? Because they may also face higher interest rates when they look for a new mortgage.
In essence, higher interest rates can lead to a decline in the overall number of real estate transactions. This stagnation can have a ripple effect through the broader economy, affecting everything from home construction to consumer spending.
Uncontrolled Inflation Keeps Prices High
On the flip side, high and uncontrolled inflation can create a situation where the nominal prices of homes remain high or even increase. This phenomenon occurs even as the market softens, i.e., as the number of willing buyers decreases due to the inflated prices and higher interest rates. In this scenario, the “sticker price” of the home remains high due to inflation, but the intrinsic value may not necessarily follow suit.
Moreover, it’s important to note that while the nominal price of a property may increase with inflation, this doesn’t mean the “real” value of the property has increased when adjusted for inflation. Owners may find that when they sell, the buying power of the money they receive is not as strong as they had anticipated, which can be a harsh reality check.
The Complex Dance: Real Estate in an Inflationary, High-Interest-Rate Environment
Thus, we find ourselves in a delicate balance. On one hand, fewer transactions occur due to higher interest rates, contributing to market stagnation. On the other, high inflation keeps the “sticker price” of properties elevated, creating a disconnect between price and value.
Both of these factors can lead to increased market volatility and uncertainty. For participants in the real estate market—whether they are buyers, sellers, or investors—this can be a challenging landscape to navigate.
This duality adds another layer of complexity to the real estate market and underscores the importance of a nuanced understanding when making property-related decisions during times of inflationary pressure and rising interest rates.
A recent article raises multiple points about the role of the Federal Reserve, particularly its Chair Jerome Powell, in the current inflationary environment. It questions Powell’s account of the inflationary forces at play and suggests that the actions of the Federal Reserve and the U.S. Government are to blame for the rise in prices. Here are some of the key arguments presented in the article:
Blame Misplacement: The author argues that Powell is blaming external factors like the Russia-Ukraine war and volatile global conditions for inflation. The argument is that this is an incorrect or misleading assessment.
Inflation Cause: The article references Milton Friedman’s statement that “corporations don’t cause inflation; governments create inflation by printing money.” It suggests that government policies, including fiscal stimulus and pandemic-related interventions, are the real causes of inflation.
Incorrect Targeting: The article contends that if Powell and the Federal Reserve do not correctly identify the causes of inflation, they run the risk of taking either too much or too little action, which could exacerbate economic conditions.
War With Ukraine: The article specifically disputes the notion that the Russia-Ukraine conflict is a significant driver of inflation, arguing that oil prices were already on the rise due to other factors.
Monetary Policy Risks: The article suggests that the Fed is in a tricky situation; if they tighten too much, they risk slowing down the economy, but if they don’t tighten enough, inflation could get out of control.
Future Risks: The article ends by warning that if Powell genuinely believes that inflation is due to factors other than government and Fed actions, he could end up being “the architect of the next recession.”
Concerns About the Federal Reserve and Jerome Powell’s Excuses
Complex Causes of Inflation: Inflation usually has multiple causes, and it’s often a mix of supply and demand factors, monetary policy, and sometimes even external events like wars or natural disasters. Saying that it’s solely the fault of the government or the Fed may sound like an oversimplification, yet it is the Fed’s responsibility to print the correct amount of money to allow liquidity without causing inflation.
Political Neutrality: Central banks aim to remain politically neutral and base decisions on data and economic indicators. If Powell is avoiding blaming any particular administration, it might be in line with this principle.
Forward Guidance: The Federal Reserve uses “forward guidance” as a tool to manage expectations about future monetary policy. The statements Powell makes are carefully calibrated to influence market behavior and should be understood in this context. Powell has been very wrong before, when he incorrectly labeled long-term inflation “transitory”.
Timing and Lags: Monetary policy acts with a lag on the economy. Mistakes in monetary policy are often only visible in hindsight. This is certainly true for Powell, as he has made some monumental mistakes.
Public Sentiment: Managing public and market expectations is a significant part of central banking. Statements may be crafted not just to convey factual assessments but to influence behavior in a way that’s conducive to economic stability and bank profits.
Historical Precedents: There have been instances in history where monetary policy missteps have led to economic downturns.
Policy Response: Both monetary and fiscal policy play roles in combating inflation. If inflation is deemed to be more structural, then fiscal policies may be better suited to address it, but this generally falls outside the remit of the Fed.
The debate about the causes of inflation and the appropriate policy response is complex and involves multiple factors. However, the article presents a critique of the Federal Reserve’s current stance and highlights the risks associated with not correctly identifying the underlying causes of inflation. While we hope that AI will benevolently save us from economic despair, most consumers and business owners are concerned that a hard landing is inevitable, when rising unemployment makes QE and worsening inflation inevitable. October is frequently a month of historic stock market crashes.
The landscape we navigate is riddled with both known and unknown variables, making the path forward fraught with uncertainty. In such times, knowledge is power, and understanding the various economic indicators and Federal Reserve actions can arm us with the tools needed to face any future economic storm. Whether or not we are on the brink of a Greater Depression is a question that only time will answer. Our research indicates that Jawbone Jerome still does not have a handle on inflation, as the Greater Depression of the 2020s grows increasingly undeniable. Being prepared can make all the difference.
Find out how much the home down the street sold for. Fill out the online form.
