Home » Why The Japanese Market Freakout Might Be Good For Car Buyers

Why The Japanese Market Freakout Might Be Good For Car Buyers

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I didn’t go to sleep planning to talk about the ‘carry trade’ or the ‘Sahm rule’ or ‘circuit breakers’ or any of that this morning, but I looked at social media around 2:00 am and saw that the Japanese markets continued to take it on the chin. People are freaking out, or getting excited about ‘buying the dip,’ or whatever. What does it all mean?

This is a car website, not a macroeconomic website or even a market website. I’m going to try make some sense of what’s going on, briefly, in the overall economy and then talk about what’s happening in the car market. Then I’m going to explain how it’s going to impact the car market… perhaps positively!

Vidframe Min Top
Vidframe Min Bottom

But are rate cuts actually going to happen? What does it all mean?

Are We Headed For A Recession?

Today would be a bad day to look at your 401k if your money is in the usual mix of index funds or even something slightly more exotic like QQQ. Based on what futures are looking like, my expectation is that the markets here in the United States will probably already be falling by the time this is published. Gains will be wiped out. Numbers will go down. Et cetera, et cetera.

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What’s going on, here? A few things.

Let’s start with the mother of all hand waves, which is that there is ‘geopolitical risk.’ The biggest risk, to the surprise of no one, is that Iran and its proxies are expected to respond to an incredibly embarrassing assassination in Tehran of a Hamas political leader by Israel. Iran looks weak and it’s expected it’ll respond, perhaps as soon as tonight, with a barrage of missiles and drones. The general vibe seems to be that Iran will do enough to cause a fuss, but not enough to cause a devastating war. No one knows for sure what’ll happen, least of all the parties involved.

That’s the easier factor to explain. Here’s where it gets trickier. Last week the U.S Federal Reserve Bank had its regularly scheduled meeting, and there was an assumption that the ‘Fed’ would cut the higher interest rates we’ve been all dealing with. In fact, given that inflation has generally cooled (minus ‘shelter’) it was a bummer for many that the Fed didn’t do so at its last meeting, though there was an intimation from Fed Chair Jerome Powell that a small cut might happen in September. That was last Wednesday.

What’s funky about everything is that markets have been expecting rate cuts for almost a year, but they haven’t happened, and yet unemployment has remained relatively low, markets have expanded rapidly, and corporate earnings have mostly stayed high. This is kind of impressive. Coming off of a pandemic, huge government stimulus, the resulting inflation, and everything else it feels like the Fed has come close to achieving its “soft landing” goal of getting the economy back to normal without some massive issue.

Again, that was Wednesday. On Friday the July jobs report came out and the numbers were a little worse than expected. This triggered the so-called ‘Sahm Rule’ and I’ll let CNBC explain what that means:

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The so-called “Sahm rule” has observed without fail that the initial phase of a recession has started when the three-month moving average of the U.S. unemployment rate is at least a half a percentage point higher than the 12-month low.

Does that mean a recession is going to happen? Economist Claudia Sahm of the ‘Sahm Rule’ says it probably doesn’t:

“We are not in a recession now — contrary the historical signal from the Sahm rule — but the momentum is in that direction,” Sahm told CNBC by email on Friday. “A recession is not inevitable and there is substantial scope to reduce interest rates.”

The important thing to note here is that the ‘Sahm Rule’ is meant to be prescriptive, i.e. if it’s triggered it’s more of a countdown clock on a time bomb than the explosion itself. What it’s telling the Fed is it needs to cut the blue wire… err, it needs to cut interest rates.

Much of the Fed policy up to this point, whether in regards to rates or its other tools (we’ve talked about quantitative tightening here before) has been designed to give the central bank room to adjust when necessary. By keeping rates high and taking money out of the market the Fed now has room to act, which wasn’t the case when rates were effectively zero.

So why is everyone freaking out now? Is it just the Middle East and U.S. unemployment? Nope.

There was a place where the rates were effectively zero for an extremely long time: Japan.

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One theme of this year in TMD has been more intervention in the economy by bankers and other market players in Japan. For the most part, Japan’s central bank, the Bank of Japan (BOJ) has kept rates down, thus we’ve seen the yen drop to the U.S. dollar. This has been a windfall for exporters like Toyota but carries its own risk in Japan.

While everyone was waiting for the U.S. Federal Reserve Bank to lower its rates, the BOJ kinda surprised everyone by raising rates substantially to avoid the yen collapsing and to try to avoid inflation for consumers in Japan. It worked to some degree because the yen is now way up compared to the dollar.

It gets wackier, and this is where I’m going to try to find the briefest explanation for the ‘carry trade’ that I can. This is from CNBC:

The rising yen has fueled speculation about whether this could mark the end of the popular so-called “carry trade” — wherein an investor borrows in a currency with low interest rates, such as the yen, and reinvests the proceeds in a currency with a higher rate of return.

Does that make sense? You borrow money in yen, which has a low interest rate, and then go buy other stuff. The yen being low for so long made this a popular trade, but even then the yields aren’t that great, so the assumption is that hedge funds have been doing what hedge funds do and have been using significant leverage to make even more money.

That worked until it didn’t, and the BOJ move is now causing all of those trades to “unwind” and it’s leading to all the havoc we’re seeing in markets around the world. Is this like 2008? Hopefully not.  A lot of what markets have been doing doesn’t make a lot of sense, and corrections like this, while temporarily painful, can sometimes bring a little more logic to the universe.

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I’m not an economist and I’m not a markets reporter. That’s just my rough explanation of what’s happening, please add more nuance to the comments if you wish. This is my way of setting up the next two stories.

Automotive Inventory Is Way Up

Sp Dealer Inventory

Let’s look at cars. This is a car website. According to S&P Global Mobility, there are a lot of new cars on dealer lots. So many cars. In fact, there were 2.84 million cars advertised in retail inventory at the end of June, which is up 57% year-over-year.

This makes sense. Pandemic shortages are over, and plants are producing cars again. Simultaneously, interest rates are high. While cars are getting cheaper, they can only get so cheap for so long. People clearly want to buy new vehicles, and the one piece that’s holding people back seems to be interest rates.

Just look at the discounts:

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Sp Discounts

Those are big discounts! The average advertised discount is $3,236.

My guess here is that the only thing left to do is lower rates in order to bring more buyers out.

There Are ‘Warning Signs’ In The Credit Market: Jonathan Smoke

Did you know that there are economists whose whole job is to just look at the car market? One of those economists is Jonathan Smoke, at Cox Automotive, and he put out a prescient piece last week that warned about keeping interest rates up any longer.

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I suggest you read the whole thing, but here’s what struck me:

Consumers prioritize their auto debt in the U.S., as we Americans are very dependent on private transportation. Lose your vehicle and you lose mobility and potentially your livelihood. Yet with a “strong economy,” defaults are on track to be their worst since the Great Recession. That is not a good sign.

Keeping rates at this restrictive level too long is a risky strategy. The good news is that if credit card rates follow the Fed’s rate cuts as quickly as they followed their increases, that debt service will decline rapidly once the Fed starts cutting. That would be a tailwind for consumers.

However, I am not encouraged by today’s decision to wait being the 17th straight unanimous decision by the Fed. There should be more debate, as the economics community is divided on this topic. In my opinion, we are risking the economy over a questionable target based on an imprecise and imperfect measure of inflation. My worry is that conditions will deteriorate more at an accelerating pace before the Fed finally decides to cut.

This makes sense to me. The Fed has decided to focus seemingly all its attention on one economic measure (PCE) even though all sorts of other alarms are going off right now, including in consumer credit.

So What Happens Next? How Does This Help Car Buyers?

It’s now five minutes until markets open as of writing this and all indications are that we’re going to open down. Honestly, things are so volatile right now, I wouldn’t be surprised if some indication from the Fed of a rate cut causes things to reverse.

So what’s the Fed going to do? Here’s something this morning from Chicago Federal Reserve President Austan Goolsbee to CNBC:

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Asked whether weakening in the labor market and manufacturing sector could prompt a response from the Fed, Goolsbee did not commit to a specific course of action but said it doesn’t make sense to keep a “restrictive” policy stance if the economy is weakening. He also declined comment on whether the Fed would institute an emergency intermeeting cut.

“The Fed’s job is very straightforward, maximize employment, stabilize prices and maintain financial stability. That’s what we’re going to do,” the central bank official said during an interview on CNBC’s “Squawk Box” program. “We’re forward-looking about it. So if the conditions collectively start coming in like that on the through line, there’s deterioration on any of those parts, we’re going to fix it.”

That’s not nothing, I guess.

A rate cut, of course, should eventually lead to lower interest rates for car buyers, which will bring down car payments to a level where more people are expected to then be able to enter the market for new cars.

Consumers are generally understood to be most sensitive to a monthly price, and if they purchased a car when interest rates were near 0% then having to pay more per month for a car that’s cheaper doesn’t work for a lot of people.

Will a Fed rate cut suddenly make cars cheaper? Not exactly.

Smoke, in his piece, warns that even if the Fed lowers rates today it doesn’t mean that rates for car buyers will suddenly lower overnight as there are a lot of factors that go into setting those rates. Also, lower rates don’t matter as much if the Fed blows it and the economy stumbles and people lose their jobs or wages drop.

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Still, in an ideal world, the Fed cuts quickly, markets stabilize, companies don’t lay people off, and rates for new cars come down before the end of the year and spur more sales growth.

What I’m Listening To While Writing TMD

Of course I’m not actually writing TMD while listening to “Tubthumping” by Chumbawamba, are you mad? It’s just an apt song for this morning.

The Big Question

Am I wrong? How do you feel about the economy right now? Are rate cuts coming? Is the sky falling?

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Widgetsltd
Widgetsltd
3 months ago

Just last week I leased a 2024 Subaru Solterra. I’m doing my part to keep the economy afloat! (plus, the incentives were huge)

Double Wide Harvey Park
Double Wide Harvey Park
3 months ago
Reply to  Widgetsltd

I’m sorry to hear that.

Jk, how do you like it?

Widgetsltd
Widgetsltd
3 months ago

It’s pretty quiet and serene to drive. I haven’t even driven it myself yet – it’s my wife’s commuter car. The Solterra satisfies three important criteria:
1. Qualifies for the California clean air vehicle stickers to save a lot of money on tolls & allow driving solo in the carpool lane.
2. Runs on energy from the solar panels on the roof of my house.
3. Has a low lease payment.
Plus, it’s red (not boring gray, silver, white, or black)

Double Wide Harvey Park
Double Wide Harvey Park
3 months ago
Reply to  Widgetsltd

Red = good.

Slow Joe Crow
Slow Joe Crow
3 months ago

If you’re not actually listening to Chumbawamba may I suggest “Capital it Fails Us Now” by Gang of Four

Lotsofchops
Lotsofchops
3 months ago

I just want to re-fi this stupid van I bought, that’s all.

Church
Church
3 months ago

Of course I’m not actually writing TMD while listening to “Tubthumping” by Chumbawamba, are you mad?

I’ll admit that you had me going there. I thought you had lost it, Matt.

Stef Schrader
Stef Schrader
3 months ago

{ goes outside, looks up }

sky seems to still be in place

just waiting on Porsche injectors

Clark B
Clark B
3 months ago

Tubthumping is my jam. One of the first times my best friend and I hung out outside of school, we went to Half Price Books and bought that Chumbawumba CD, then drove around aimlessly (in her Pontiac Sunfire) and listened to it. Good times, and we are still best friends today.

Freddy Bartholomew
Freddy Bartholomew
3 months ago

Economics: How can you be expected to predict the future, when you can’t explain the past?

Crank Shaft
Crank Shaft
3 months ago

Celozzi-Ettleson Chevrolet. Now that’s a dealer you should do a story about.

Lincoln Clown CaR
Lincoln Clown CaR
3 months ago
Reply to  Crank Shaft

That was a little call back to my childhood right there.

Shop-Teacher
Shop-Teacher
3 months ago
Reply to  Crank Shaft

“Where you always save more money.”

There’s half an old exposed bill-board for them at a construction company’s storage yard near my house. I’d post a picture, but we still can’t do that here.

TOSSABL
TOSSABL
3 months ago

Anyone who continually checks their 401k deserves the blood pressure spikes. You look at it while evaluating your taxes & when making retirement plans. If you’re in your 30s or 40s , the peaks & troughs mean nothing except more anxiety

The Stig's Misanthropic Cousin
The Stig's Misanthropic Cousin
3 months ago
Reply to  TOSSABL

I tend to see market declines as buying opportunities, so watching my 401k decline doesn’t bother me (I’m in my early 40s so I won’t need it for a while). Assuming the market continues to decline, I will be on a shopping spree in the coming weeks while index funds are on sale. May as well take advantage of the dips if you are able to.

Last edited 3 months ago by The Stig's Misanthropic Cousin
Tim Connors
Tim Connors
3 months ago

Yep. 41. Seeing this makes me want to plan to boost contributions this year if at all possible. Probably move money from bonds into the market too.

Not rich either. I’m a teacher. Because of 401k/403b grocery prices and stock prices matter to a lot of people.

Cars? I've owned a few
Cars? I've owned a few
3 months ago
Reply to  TOSSABL

As a retired 67-year-old, it’s a little more difficult not to feel some distress on a day like today. Actually, the last week has been unpleasant watching my IRA get a Boxster-sized haircut. Sooner or later, it will be back up. Sooner would be better in my case.

Vic Vinegar
Vic Vinegar
3 months ago
Reply to  TOSSABL

I won’t look again until January when I need to shovel more coal into the fire (aka contribute to my IRA).

I was going to put some money in a brokerage account though, and this shit gets me starting to try to time the market even though I intend to leave it in there for years.

Random Shots
Random Shots
3 months ago

Last week the U.S Federal Reserve Bank had its regularly scheduled meeting, and there was an assumption that the ‘Fed’ would cut the higher interest rates we’ve been all dealing with.

There was no assumption, among investment “professionals”, that the Fed would cut at last week’s meeting.

I’m not an economist and I’m not a markets reporter. That’s just my rough explanation of what’s happening, please add more nuance to the comments if you wish

It shows but don’t worry. Economists and markets reporters don’t know any better than the typical reader, they just pretend to know more and have less scruples about not admitting it.

Last edited 3 months ago by Random Shots
Random Shots
Random Shots
3 months ago
Reply to  Matt Hardigree

I cannot tell if your serious or joking. Polymarket is the “professional” version of Reddit’s WSB. $2.8 million in total bets where 55% (essentially a tossup) bet there was a rate cut is not what I would use to support an article.

https://polymarket.com/event/fed-interest-rates-july-2024/no-change-in-fed-interest-rates-after-2024-july-meeting?tid=1722876886241

Last edited 3 months ago by Random Shots
Beto O'Kitty
Beto O'Kitty
3 months ago

Home buyers in the mid 1980’s were paying a mortgage rate north of 12%. Everything is a cycle. Up and down like a piston, round and round like a Wenkel and Hertz like an electric. Your 401k will be OK. Seeing our economy expert has just purchased a new vehicle ( unless Matt Miller really wrote this article) the sky is not falling. Though I am thinking of an R.E.M. tune!

Data
Data
3 months ago
Reply to  Beto O'Kitty

All I know is Lenny Bruce is not afraid and I feel fine.

Scottingham
Scottingham
3 months ago
Reply to  Beto O'Kitty

I hear this a lot, and it’s true…but there’s a difference between paying 12% on a $100k house and paying $500k @ 6% for that same house today.

Church
Church
3 months ago
Reply to  Scottingham

This. Some folks seem to have forgotten how the math actually works out here. And they’ll say ‘oh but wages are so much higher’ without checking to see if the wage increase actually covers the home costs and additional inflation involved.

Harvey Firebirdman
Harvey Firebirdman
3 months ago
Reply to  Church

Haha yup would much rather have 15% on 100k home than 7% on 500k

Vetatur Fumare
Vetatur Fumare
3 months ago

Think again! 100K in 1985 dollars is 291K in 2024 dollars. As far as the mortgage goes, the monthly payment would be $3,679.53 for $291K at 15% interest, $3,326.51 for $500K at 7 percent.

Harvey Firebirdman
Harvey Firebirdman
3 months ago
Reply to  Vetatur Fumare

That is going based off inflation. I am not saying based off inflation. But at that point I’m a 100k home is only 291k today I would rather have that price home vs what the average home price is now what 400k+?

Church
Church
3 months ago

Agreed. Maybe it’s regional, but homes bought in my neck of the woods for $100k in the ’80s are worth $400-425 now. The home prices have outpaced inflation and wages here. It’s a rough spot.

Widgetsltd
Widgetsltd
3 months ago
Reply to  Church

Today’s wages might even be LOWER on an inflation-adjusted basis, compared with 30 years ago. While cleaning my garage this weekend, I came across some of my old pay stubs. In early 1996, I was working for one of the Detroit-based automakers (in Detroit) as a customer relations rep. This meant talking to unhappy customers on the phone all day long and trying to resolve the issues that they were having with their car or truck. According to my old pay stub, I made $33k/year gross, including paid-for health insurance coverage and an eventual pension. That particular job was UAW-represented, and I had been doing it for two years at that point. If you run that $33k number (as of March 1996) through the bureau of labor statistics’ CPI inflation calculator and adjust to June of 2024, you get $66,588. I’d be surprised if the person doing that job today receives that pay and those benefits!

Beto O'Kitty
Beto O'Kitty
3 months ago
Reply to  Scottingham

I’LL take a 1985 dollar?

Ramblin' Gamblin' Man
Ramblin' Gamblin' Man
3 months ago

I wonder, are Japanese Freakouts the same as American Freakouts? 😉

https://www.youtube.com/watch?v=aXgSHL7efKg

Jdoubledub
Jdoubledub
3 months ago

My only thought reading this is “holy crap Matt has a hard job and he’s killing it.”

Parsko
Parsko
3 months ago

I consider myself a logician. Logic would lead me to believe we are in a bubble. My only hope is they deflate the bubble using the slow, squeaky fart technique.

Huja Shaw
Huja Shaw
3 months ago

I came to read about hooning and tuning. Instead I got graphs and economic policy.

Parsko
Parsko
3 months ago
Reply to  Huja Shaw

TMD is about communicating the news with respect to the automotive industry, and Matt is, perhaps, the best in the industry at doing so on a daily basis.

Drive By Commenter
Drive By Commenter
3 months ago

One of the main things getting me into a new car earlier this year was the manufacturer subsidizing the interest rate on the loan. It made sense at that point. Paying 6-7% APR just to have a new car was insanity.

Markets go up and they go down. Pick a strategy that meets needs and stay the course.

Urban Runabout
Urban Runabout
3 months ago

You think that’s bad.
My first new car loan was 13% in 1989.

Ramblin' Gamblin' Man
Ramblin' Gamblin' Man
3 months ago
Reply to  Urban Runabout

I had a loan on a 2 year old used car from GMAC in 1984, it was 15.50% (´。`)

( And that was the fair market rate back then!)

Drive By Commenter
Drive By Commenter
3 months ago

Valid points that the relative interest rates are similar today to the 1980’s. There’s about a 3-4% spread between savings and loan interest rates.

Nick Thomas
Nick Thomas
3 months ago

Thanks for this really amazing summary and write up! My whole beef with the standard gauges of inflation, is that they leave out housing costs. The whole “absent shelter” thing you mentioned above. For the VAST majority of families, the largest portion of income is spent on shelter. And prices there continue to RISE. Housing prices and rent in the majority of US markets are still out of reach for many, many families. And a rate decrease will only cause prices to surge (or at least hold steady) for existing housing supply.

Now, a rate decrease might make NEW housing supply more available. But NEW housing is a lot more complicated (due to zoning restrictions, etc.). AND it usually takes several years to come to market. So it’s not like families would see any benefit from that in the short term.

So my vote would be to hold rates steady. Or to do the tiniest of tiny decreases just to put markets at ease.

Thanks again for this! It’s a fun thing to debate.

V10omous
V10omous
3 months ago
Reply to  Nick Thomas

For the VAST majority of families, the largest portion of income is spent on shelter.

This is both true and misleading. The majority of American adults are currently homeowners. Rising prices benefit them if they stay put, and are neutral if they are selling one house to buy another.

For the majority of people, shelter costs are fixed. There’s no easy way to account for that in a single inflation number that will please everyone.

Nick Thomas
Nick Thomas
3 months ago
Reply to  V10omous

You raise good points! But, according to the Fed, only about 65% of Americans own their homes. And while that is the majority of people, that still leaves 35% of people subject to rising rent costs. Also, I would assume (though don’t have a citation to back this up at the moment) that the majority of renters fall into the lower income brackets and feel the pinch of rent increases.

Also, rising home values is not always a benefit to home owners. In Columbus, where we live, prices have roughly doubled in the last few years, which means that taxes have sky rocketed. Some people can absorb these costs, but a lot of homeowners, such as those on fixed incomes or those, again, in the lower income brackets, have really struggled with this.

V10omous
V10omous
3 months ago
Reply to  Nick Thomas

My comment is not to say that rising home prices are a universal good thing, only a reason why it doesn’t (IMO) make sense to include housing prices in a single broad gauge of inflation.

A 10% rise in grocery prices is going to hit everyone approximately equally.

A 10% rise in home prices is going to have much more of a varied impact depending on where you live, whether you own or rent, whether you plan to sell, what your tax rate is, and so on.

Data
Data
3 months ago
Reply to  Nick Thomas

Core inflation also strips out energy and food, because nobody needs energy or food.

Red92svx
Red92svx
3 months ago
Reply to  Data

I know you’re being facetious, but energy and food are stripped out because they’re volatile. It’d be like asking your hyperactive 5-year-old whether they’re happy or sad every minute, and trying to draw any meaningful conclusions from that. I will say that having more indicators helps tell the whole story.

Urban Runabout
Urban Runabout
3 months ago
Reply to  Nick Thomas

Real Estate transactional numbers have actually been softening since the spring in most markets.
Houses are staying on market longer – sellers are reducing prices and offering concessions.

Of course they’re not dropping in a major way – because the entire country under built housing since the 2008-2009 housing crash.

If we want housing be more affordable – we need to encourage more building, redevelopment & densification – and quit worshiping at the altar of the Suburban Single Family Home.

Andy Individual
Andy Individual
3 months ago

I really wish more economists would just come out and say the obvious: too many people make bad purchasing and financial decisions. I get that there are people affected by having little choice and changes in the economy putting them in a bad spot, but I’m so tired of people who over buy things and then whine and complain about the government having done this to them.

Maybe some genius manufacturer will look at their excess aging inventory of luxury trucks and decide to build up some inventory of affordable vehicles. Just a thought…

Huja Shaw
Huja Shaw
3 months ago

The American Economy is driven by people buying shit. It’s how we get out of recessions. It’s also how we get into trouble. It’s George Jetson on the treadmill.

Tbird
Tbird
3 months ago
Reply to  Huja Shaw

Economic growth is always the goal – but how do you grow an economy with a stable population? I don’t NEED to buy any more shit besides consumables in reality. The quest for more, more, more is ruining us (and our environment). At some point we cannot grow any more, uncontrolled growth is the definition of a cancer.

Data
Data
3 months ago
Reply to  Tbird

Subscriptions. At one time you bought an antivirus package and could run it for years, receiving free virus updates. MS Office is now a subscription. Music was owned on physical media (CD, Cassette, Vinyl) is now a subscription. TV is a subscription to multiple providers vs a cable bill. I know there are alternatives for many of these, but most people are looking for the path of least resistance.

Bringing it around to cars, we are aware the manufacturers are looking for a way to continuously monetize the people who buy their cars through subscription services.

Why charge someone once when you can charge them forever?

Who Knows
Who Knows
3 months ago
Reply to  Tbird

I feel like moving the economy more towards services instead of merchandise and “stuff” could help grow the economy, but get away a bit from consumption of materials. It also could more directly put spending into wages, not materials.

Spending money on excess goods that rely on production of materials is probably going to put most of the cost into the materials, not as much towards anyone working. Modern manufacturing actively tries to produce junk with as few workers as possible. Spending money on services should in theory put almost all of the cost into someone’s personal income.

Do we want as a society to base economic growth on producing materials and stuff, or on paying others for services? Of course there has to be some balance, but in general, I’d rather pay someone for a massage than go buy some sort of new doohickey.

Pupmeow
Pupmeow
3 months ago

Seriously? I make really good money and inflation has significantly impacted my finances in the past few years. Cannot imagine how most people are managing. I mean I can, they’re managing by racking up debt and defaulting on payments.

SaabaruDude
SaabaruDude
3 months ago

better understanding of why people make choices which seem (externally) illogical was what drew me into the Behavioral Economics field. Sure, the Freakonomics guys have had to take a step back, but work from Kahneman and others is still solid. The short version: people let emotions influence raw logic, and accounting for emotions at the macro or geopolitical level is basically impossible.

Nsane In The MembraNe
Nsane In The MembraNe
3 months ago

I’m more or less in complete agreement with V10emous. There are a lot of people who make a lot of money to panic loudly about the economy regardless of what’s actually going on. They’ve been screaming that a recession is coming for years now and it hasn’t. A lot of Americans have a “woe is us” attitude because of the high interest rates, and I get it because my wife and I have lost a fairly significant amount of money as a result between our retirement accounts taking hits, our home value depreciating because mortgages are so unaffordable, our cars depreciating, etc.

But those things aren’t permanent, and the vast majority of the world is in way worse economic straits than we are. The pandemic was unprecedented and it borked things pretty badly across the board. Then we had the supply chain meltdown, Russia invading Ukraine, and now the Middle East is being the Middle East and teetering on dragging us into World War III.

The TL:DR is that a lot of shit has happened and the Fed/Biden administration have actually done an admiral job of navigating it. There are no perfect answers here, and I do think it sucks that it’s mainly regular ass people that are bearing the brunt of it. But unfortunately that’s capitalism. Its welfare for the 1%, a vague kind of, sort of meritocracy with several asterisks for top 25% or so after that, then hellworld for everyone else. But that’s a conversation for another time.

Anyway, I’m not buying into the bed wetting. It’s also an election year, which brings additional volatility to markets. There’s plenty of hand wringing over KAMALA WILL KILL THE ECONOMY or TRUMP WILL KILL THE ECONOMY from both sides. That being said, one side has had some success navigating us through one of the trickiest economic periods in modern history and the other is still Weekend At Bernie’s-ing trickle down/voodoo economics for going on 50 years now. So I’m certainly keeping that in mind.

Edit: something else to remember is the current interest rates are more or less historically normal. They’re not ridiculously high by any stretch of the imagination, we just got used to free money after the 2008 crash. So we aren’t really dealing with crazy rates, we just got used to low ones. And if higher rates curtail some of the rampant, rabid American consumerism then it will have positive long term effects even if it’s a pain right now.

Last edited 3 months ago by Nsane In The MembraNe
OrigamiSensei
OrigamiSensei
3 months ago

“something else to remember is the current interest rates are more or less historically normal. They’re not ridiculously high by any stretch of the imagination, we just got used to free money after the 2008 crash.”

This is one point I hoped would be made. When I bought my first house in 1991 the interest rate was 8 7/8%. My parents dealt with 15+% interest rates in the 70s. The current interest rates are comparatively painful, not historically painful. Also, to echo your other point in that paragraph, if higher interest rates are making people a bit more fiscally cautious that’s not necessarily a bad thing.

JumboG
JumboG
3 months ago
Reply to  OrigamiSensei

Lot’s of people dealt with the high interest rates on homes in the 70s by having the buyer take over the mortgage for the seller. I can remember my parents getting their monthly check from the person who bought our house in ~1980 for the next 28 years – which they did religiously. That’s also why there is now clauses in mortgages that you can’t do that anymore.

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3 months ago

Rates being normal is entirely subjective. I’m approaching my 30s and for nearly the entirety of my earning/spending years rates have been much lower than they are today. For me rates are unquestionably high. These rates will not be normal just because someone paid 15% for a mortgage in the 80s. The baseline for normal has shifted.

MegaVan
MegaVan
3 months ago

I mean I prefer it when savings rates exceed inflation rates. Something that hasn’t happened since 2006 or so. They may be subjective but the priority of the government the last 18 years has been to build more cheap debt, not the wealth of the lower/middle class. Obviously a lot more goes into it but there has been almost no benefit to paying off debt or saving money the last couple decades and people can struggle understanding how to navigate that world.

Widgetsltd
Widgetsltd
3 months ago

I see your point, but there is a serious justification for the claim that interest rates now are close to historical averages. For example: according to the Federal Reserve, the average rate for a 30-year fixed mortgage was 6.7% or higher from 1971-2001! A 3 percent interest rate on a 30-year fixed is simply not normal! (although I’m glad that I have it!) 30-Year Fixed Rate Mortgage Average in the United States (MORTGAGE30US) | FRED | St. Louis Fed (stlouisfed.org)

RidesBicyclesButLovesCars
RidesBicyclesButLovesCars
3 months ago

I feel like we are scheduled for a soft landing at Lukla Airport in Nepal. The pilots are the only ones that see the runway, everyone else sees cliff faces and mountains. Or at least we hope the plane is lined up with the runway.

IMHO, the FED should have lowered rates 0.25% three meetings ago. Not enough of a change to impact the metrics they look at, but enough of a change to send a signal that things are looking good and inflation is coming under control.

Mrbrown89
Mrbrown89
3 months ago

We may not be in the best position compared to pre-covid times but we are in the best position compared to the rest of the world today, period. We got hit the less and our economy is still strong, prices may went up in a lot of things that should went down by now but that’s pure corporate greed, when McDonalds cost the same as getting tacos from a good local restaurant you know something is wrong.

The same apply to cars when inventory was low but now that everything is getting normalized, some brands are not offering competitive pricing (cof cof Stellantis) and their product is not the best, people will think twice before they make a big purchase like that.

Canopysaurus
Canopysaurus
3 months ago

Reputations are made in the margins. No one thinks you’re a genius if things are going good and you predict things will stay good. Likewise, in down times, if your predictions are for continued suffering, you are no guru. So, you prove your mettle by going against the flow, because people tend to quickly forget the wrong predictions, but you only have to be right once to make your rep.

Harvey Firebirdman
Harvey Firebirdman
3 months ago

I don’t feel great about the economy. My pay has went up over the last few years but I had switched jobs twice in that span if I had stayed where I worked at when COVID hit the union I was in agreed to a contract of a 12% pay increase over 4 years (so 3% a year not great not terrible but with the way inflation was it would have not kept up). The price of things have gone up ridiculous amounts car insurance for me has gone up somewhere in the range of 30-40% and that is even after switching providers. My homeowners has also gone up by about 600 a year. Farmers actually wanted to increase it by 1200 so almost doubling it and I live in Indiana. Property taxes keep going up (my dad in Illinois has had it really bad in a small house outside Chicago). Also I feel like what 200 dollars pre-covid vs post COVID got you grocery wise is night and day and I pretty much get all store brand now but it seems the store brand prices are where name brand used to be. I could go on but meh just gotta go day by day and try to just enjoy life.

Taargus Taargus
Taargus Taargus
3 months ago

You are absolutely listening to Chumbawamba, probably on repeat.

ElmerTheAmish
ElmerTheAmish
3 months ago

To be fair, that’s a fantastic album. (An album completely of it’s time, of course, but it’s still good to this kid born in the 80’s)

V10omous
V10omous
3 months ago

My opinion:

People (many of whom should know better) have been predicting doom and gloom and an impending recession in the US for three full years now. It’s not surprising that they will take any opportunity to scream how right they were (despite being wrong over and over for years).

Obviously a recession will happen sometime. Maybe it’s imminent. What I will say is that the US has consistently shown itself to have the best recovery coming out of covid as any major economy; our inflation came down the fastest, our unemployment stayed the lowest, our stock market performed the best, our real wages grew the most.

Call me naive if you wish, but I think the Fed has earned some benefit of the doubt these last couple of years.

StillNotATony
StillNotATony
3 months ago
Reply to  Matt Hardigree

I get all my economics opinions from some guy on the internet who really likes Vipers.

V10omous
V10omous
3 months ago
Reply to  StillNotATony

The world would be better if more people listened to us!

StillNotATony
StillNotATony
3 months ago
Reply to  V10omous

How about we team up and run for President/Vice President? I, of course, will be at the top of the ticket and do nothing but provide a long running distraction via outrageous antics and long winded, but ultimately amusing anecdotes, while you make all the hard decisions that gets the country back on track? I’ll take all the heat because I have AMAZING self esteem (have I told you lately how amazing I am?), and everything will turn out great, right?

I’m also incredibly optimistic.

Dan Pritts
Dan Pritts
3 months ago
Reply to  StillNotATony

Vote Tony/venom ‘24

Slogan: what the hell

Last edited 3 months ago by Dan Pritts
Rad Barchetta
Rad Barchetta
3 months ago
Reply to  V10omous

Exactly. Doom and gloom glues eyeballs to the TV news and gets the clicks on the websites. This too shall pass.

Ranwhenparked
Ranwhenparked
3 months ago
Reply to  V10omous

Pundits are always predicting doom and gloom and an impending recession any time we’re not in a recession, then spend all their time speculating on how much worse things will get once we are in one. Its like nobody’s happy unless everyone’s unhappy.

Ottomottopean
Ottomottopean
3 months ago
Reply to  V10omous

I’ve grown especially cynical over the years listening to a lot of the pundits.
I’m starting to wonder if they actually try to influence the events to benefit their own portfolios.

I do think that the recent history of our economy (coming out of the pandemic) is not something that could be charted or measured. By all historical measure we probably should have entered a recession just based on how society reacts. But for some reason, every time there was bad news (inflation, jobs market etc) everyone just ignored it and kept going about business as usual. Which means they kept spending which is the true power in our economy.

Maybe that’s the lesson. Ignore the news, keep going and everything will be alright. Most everything happening right now that’s causing the international freak-out seems like a short term, temporary issue. Let’s hope its a blip and everyone sees the opportunity to buy low while you can!

V10omous
V10omous
3 months ago
Reply to  Ottomottopean

I’m starting to wonder if they actually try to influence the events to benefit their own portfolios.

This is a severely underrated part of all market coverage IMO.

StillNotATony
StillNotATony
3 months ago
Reply to  Ottomottopean
Random Shots
Random Shots
3 months ago
Reply to  Ottomottopean

Massive monetary and fiscal stimulus papered over a lot of issues. It will be interesting in the next recession if they start helicoptering money again, and if not, how resilient the economy will be.

Last edited 3 months ago by Random Shots
Ottomottopean
Ottomottopean
3 months ago
Reply to  Random Shots

Current inflation owes its existence to that massive spending and the money printed to make that happen.
I read recently that the interest on the national debt is now eating 74% of all income taxes paid in this country (note not all taxes just income tax).

Things would have to get real bad for anything like what we saw in stimulus payments like that any time soon. We should all hope that doesn’t happen because it would indicate alarming happenings in our economy.

Maybe one day we’ll actually consider the affect on future generations this debt load is having. Probably not in my lifetime as I’m in my 50s now. But maybe one day.

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