| Yes/No/Maybe. It feels a bit more like 2006 since the real economy is still mostly flying along fine and most of the business page pronouncements from 'respected leaders' are that a soft landing is still in our future. There's a lot more unrest among average people though, back then you couldn't really find anyone in your normal life that thought it would crash. It isn't the same though, the pandemic and the inflationary period that we hit were not anything like what happened in the build up to the housing bubble. At the same time I think some people think we're back to the 1970s and inflation and stagflation are here to stay. That is unlikely to happen because this Fed speaks very highly of Volker and has signaled their willingness to crash the economy into a wall in order to tame inflation. This isn't the 1960s Fed that grew up during the 40s and 50s and wanted to prevent a Great Depression at all costs so was running the economy hot. There will be a recession and unemployment will rise, and the Fed has done everything other than come out and state explicitly that is what is going to happen. Because of the increase in interest rates things are going to break. We just saw one example of that, but there's also going to be a corrosive effect on bad companies/investments as the zombie ones that required rolling over loans at low interest rates see their borrowing costs increase and that pushes them into being liquidated. The blowup that I'm expecting is in commercial real estate and CMBS. The top will likely come off the housing market, and that can't possibly go down that easy without a lot of economic pain. At the same time I don't think anything has fundamentally changed. When unemployment starts to spike up significantly again and the system starts to lock up, then they'll drop rates back down to zero again. It'll also probably work, since with enough destruction of zombie businesses and a glut of unemployment there won't be an immediate rebound in employment or inflation. Might not happen this year though. The Fed rate tightening cycle has still not quite ended yet, and its usually 6-12 months after the tightening cycle ends that it gets bad. We can still see a counter-trend rally into e.g. a double top in the markets. A lot of people believe that interest rates rising are what causes economy pain, not holding interest rates at a higher rate (they thing it is an "edge trigger" rather than a "level trigger") and those people are likely to try to throw a party after the Fed stops raising rates. Or this cycle might be different and the aggressive Fed actions might start to blow up more stuff quicker this time, I can't really tell you (if I could I could make a ton of money, but I have no firm idea of the near-term trajectory of the economy). |