Popping the Bubble

Happy Friday night Coachmen! We hope your week went well, for today’s issue we’ll be briefing you on the markets and giving an in-depth report on what’s to come in the economic world, strap in and keep reading for all the details.

“Excellence is a habit. You are what you repeatedly do.”
– Shaquille O’Neal.

Market Talk

It was a relatively underwhelming day for broader markets as a whole, the S&P was down 0.08%, while the NASDAQ closed up by .12%, the DJI retreated .15%, and crude oil jumped by 2.01%. All in all not a bad week for the indexes as the S&P closed up over 3%, the DJI shot up by 1.99%, and the NASDAQ climbed by 5.75%.
Special Report Update: The Unwinding of the Everything Bubble
So, unless you’ve been living under a rock you can see that we’re living through a period of economic history unlike many before it. We’re seeing equity markets tank, crypto not faring much better, supply chains not functioning, inflation running hot, all while we’re still dealing with a pandemic and a war in Europe. It’s a struggle to differentiate up from down, but to begin gaining an understanding of what is, and what’s to come let’s start at the beginning of this most recent crisis. March 2020, covid has begun making the rounds across the world, mass panic over toilet paper has begun, markets have begun selling off and then, the CARES act is signed. This $2.1Tn spending package flowed out to most industries and individuals in the United States, while the FED exponentially expanded its balance sheet.
At the time, this measure was deemed to be necessary due to the collapse in asset prices, jobs, and morale within the nation. This is not to say that the US was alone in this measure, the majority of developed nations across the globe performed similar actions, and will likely suffer the same consequences. Nevertheless, this program worked well for a time, it gave individuals money when they needed it, however, it also began to create a buying frenzy. Because the stimulus cheques were sent out to those who had lost their jobs, alongside those who hadn’t, those who were able to work from home, now received an extra $1200. This pattern was repeated across all financial rates with billions being funnelled into scams and corporations that weren’t necessarily in a pinch. This cash injection, coupled with low-interest rates, removed the risk from nearly every equity, crypto, and house on the market. This created a perfect storm across every facet of the economy for an everything bubble. This everything bubble was compounded by the further rounds of stimulus passed, alongside shortages of highly sought-after durable consumer goods such as electronics and cars.
Fast forward to 2022, and we’re facing similar problems as we were in March 2020, however, we’ve run out of ammunition to print with. By keeping our rates so low, and printing so much, the FED has moved to prioritize inflation reduction before it becomes entrenched. The FED’s entrenched inflation neutralization plan will likely act as economic chemotherapy, getting rid of cancer, but killing healthy parts of the body in the process. The unwinding of the bubble has already begun, as we’ve seen throughout the high-growth tech sector, however, there is more to come, across nearly every asset class. As such, unless policy changes within the FED’s doctrine, we’re predicting a deep trough recession by the end of this year. That’s not to say one should take their money out of the markets, however, repositioning it may not be the worst idea. For the time being, we recommend holding cash, and a short on the three major indices, those being the S&P 500, the DJI, and the NASDAQ.
Chart of the Day – The US Unemployment Stats, Reassuring or Ensuring More Hikes?