FOH Cigar Index: Global Economy.

[El Presidente]

Todays question on the FOH Cigar Index.  Global economy. 

Given your local geographic location, do you believe your country will be in recession somtime between now and the end of 2023?

Do the poll and discuss. 

This is not a US political post. Keep US politics out of it. 

[TBird55]

I fear, but hope that economic armageddon is not upon us. But you can kick the can down the road only so far.

[shokao]

Well, right now our country is divided and our economy is fragile, depending exclusively of exportations goods, most of them not technological and extremely USD dependent. With that been said, I would say that COVID bills are knocking on government doors and we are in for a tough ‘23.

[bishop532]

I think there’s a fairly high potential for the cure to inflation sending us into a recession. However I also agree with the statement that as long as unemployment is low, any recession will probably be fairly mild. So I think/hope any tough bit will be over quickly. 

[Nevrknow]

Told a family member we may run out of diesel. The response? " I guess that will slow you down in those trucks of yours."

Yea, we don't get along. Anyway, loved the look on her face when I explained what else runs on diesel: everything you consume is touched by it. 
 

IF "we" get lucky, we may get some people with smarts and backbones. If not, we'll keep catering to those other people. THEN it's Armageddon. You can only spend other peoples money for so long.

[Chas.Alpha]

I'm always amazed how people are so quick to forget the past...

[Taco]

Unfortunately, my opinion is somewhere between medium in scale and armageddon. In the US, the fed has explicitly stated they will do whatever it takes to bring down inflation. This means at the cost of risk-on assets and jobs. I believe until we see a meaningful increase in unemployment or a breaking of some credit markets, we will be stuck in an ever increasing world of interest rates. Higher rates will slow everything down and eventually lead to “recession”…whatever that word means nowadays. 

[JohnS]

My country has not had a recession since the last time the New York Mets won the World Series (seriously...1986). Each successive Government has waxed lyrical about how successful they've been economically in avoiding recession. I can't see it been avoided this time. It's about time it happened, just like the New York Mets winning the World Series again.

Yes...it's about time.

In any case, I have one eye on each potential outcome stated in this post! 😉

[Islandboy]

I think there are some bumps in the road ahead, none of which are unique to history. But there are always opportunities to be had, no matter the circumstances. I think the key to recognizing them is keeping a mind open to the possibilities. I’m old enough to recognize the road ahead, and I’m confident I’ll adapt. 

[MrBirdman]

The only situations which tend to cause real "armageddon" scenarios are financial crises, and for now, none appear to be on the immediate horizon. China's financial sector is a wild card that can totally throw a wrench in the works, and their lack of transparency means something could be brewing we don't know about. But in the absence of that, it's hard to imagine a recession being especially bad when unemployment is so low. I think the most likely outcome is some sectors (like maybe tech, construction) getting hit very hard while others weather reasonably well.

Geopolitics down the line could play an even larger role. We've seen what the Ukrainian invasion has done to energy prices, and there is plenty of production outside of Russia. Until the west can develop better chipmaking infrastructure it's highly dependent on Taiwan; if the Chinese invade before that point, look out. 

[joeypots]

I think a mild recession is likely. I no longer anticipate armageddon, ever. People have been ringing the alarm bell about national debts and geopolitical disasters since I was a kid. Compared to one hundred years ago, quality of life world wide, in the aggregate, has risen spectacularly. Humanity now lives better than it ever has. This is an undeniable fact. Never mind the 24 hour news cycle, right now is pretty good. I try to remember this is the face of all of the news that is sold. It’s bad news that sells, good news is like a human interest story.

A financial guy I like recently said something like this.

“Never bet on the end of the world. It’ll only happens once and the odds are against it."

 

 

 

[SMELTZ]

I think most don’t have a clue about what’s going on in our supply chain and how bad it is. Lets take the Farmers for example, who have no fertilizer, pesticides, ect to grow crops to feed the cows that supply the meat.  That is just one example. You heard it here first, food supply shortages to come in 2023. As far as jobs go…don’t let that low unemployment percentage fool you, there are more low wage earners than ever before. 

[Glass Half Full]

17 hours ago, Islandboy said:

I think there are some bumps in the road ahead, none of which are unique to history. But there are always opportunities to be had, no matter the circumstances. I think the key to recognizing them is keeping a mind open to the possibilities. I’m old enough to recognize the road ahead, and I’m confident I’ll adapt. 

...And to keep some "dry powder" as suggested by Charlie Munger back in April (without those exact words) to act when appropriate.

[PuroDiario]

History does not repeat but rhymes…Volcker type cures are far less likely given how politicized Powell job is now vs back then. Also back then 35% US Debt to GDP ratio vs now 125% debt:GDP. Consumer debt not near close back then either. Labor productivity has been regressing though this has not been widely discussed at all, in spite of a seemingly still robust job market, but lay offs season has just started across industries. Delinquencies in credit card debt are consumer credit in general on the rise as households have been eating up through savings stacks. And market keeps pounding. Households savings right now imply around 18 months run way. Average recession historically maps out to that horizon. That said, manufacturing index for China is contracted levels, geopolitics a problem with big tail risks more apparent than ever, and consumer demand is weakening. Also inventories are being depleting. Oil is being settled in non-USD currencies on the regular which means there is less demand for the global reserve currency, commodities are cornered by the BRICs and Saudi is now publicly part of that club. 
 

they injected so much money in the system that new asset classes were created to park that liquidity: collectibles, digital pictures, crypto random stuff, no interest bearing consumer credit, etc. 

so while I am an optimist and I think there are  plenty of opportunities to find return and be smart and long term oriented and that we will obviously end up being fine, with my limited and fully incomplete view of the world I think we are in it for some turbulence. Don’t think soft turbulence…

 

never in history before the sovereign credit and equity markets had entered bear territory significantly at once. 

[Corylax18]

12 hours ago, SMELTZ said:

I think most don’t have a clue about what’s going on in our supply chain and how bad it is. Lets take the Farmers for example, who have no fertilizer, pesticides, ect to grow crops to feed the cows that supply the meat.  That is just one example. You heard it here first, food supply shortages to come in 2023. As far as jobs go…don’t let that low unemployment percentage fool you, there are more low wage earners than ever before. 

What Farmer in the US/northern hemisphere is planting and fertilizing crops mid november? I just spent last week at a jobsite on a farm in southern Michigan. That farmer pulled more soybeans from 1000 acres this year than ever before. His neighbors had bumper years too. There is and will continue to be PLENTY of grains in the US for a long time. Winter wheat may be in the ground now, but that doesn't take much during the winter and accounts for a tiny fraction of arable acreage. Cottons out of the ground in the south, same with sugarcane. Citrus harvest is just starting(whatevers left of it) so no ferts there. 

Stop watching the news. They're whipping you into a panic over a completely fake problem. Would you care if there was a snow shovel "shortage" in August? 

Inflation is definitely going to be a problem for another 6-12 months, but I've started to notice raw material prices are flattening out. Things like bulk structural steel, concrete, galvanizing costs, copper wire, pvc pipe, etc. I'm paying roughly the same for those items now that I was paying over the summer. 

Finished product prices can't start going down until the raw input prices do, so it's a ray of sunshine in my eyes. 

Now to the original question. Yes we'll have a recession soon. We're already in one, many just haven't admitted it to themselves yet. 

The cause was not Covid. The cause is the trillions in free money that governments all around the world pumped out for over a decade and the fact that was never sustainable. 

A large economic reset is badly overdue. We're seeing now how shaky(fake) a lot of GDP numbers where around the world. Being tied far too much into speculation and financial engineering instead of actual value production, was never a good idea. Real production will continue, but at 7-10% interest rates there are far fewer dollars to spread around the financial leaches. There will be job losses, further significant stock market losses, drastic drops in commodity and housing prices, etc. Notice I didn't say drops in value. All the things I listed above have been grossly over valued for 5-7 years now anyway, so a move back towards normal is/should be a healthy part of the process. (If most people hadn't leveraged themselves up to their eyballs)

[BettyHumpder]

corn, soybean, and sugar beet harvest was incredible in MN this year too. drought came right around harvest time so farmers were able to get fields cleared in record time. the mood across farm country is pretty good here. i know several farmers that almost didn't plant anything because of the soggy conditions this spring. but things dried out nicely and it was a good season.

from what i've been reading, and i'm no economist, wages in the US generally have been increasing even as consumer goods and raw materials have increased. but the wages have not increased as much, so people are feeling the squeeze. what we're not seeing is the death spiral of wages taking a nose dive while prices shoot the moon. the labor market is strong, at least it is in the upper midwest. if we see wages fall and inflation grows, buckle up. 

 

[Digi]

Anticipating a blood bath in the tech sector.  We're already seeing massive layoffs from companies that haven't traditionally done it.  I do think its a hangover/rebound from COVID - the economics for many tech companies went nuts in 2020 and roughly half of 21.  I think those same business scaled up to meet demand, not figuring things would taper this fast and hard on the other side.  Just like many companies got nuked at the top of and during COVID, I think the tech sector is having that moment now.  In places like Seattle, watching Amazon, Google, Facebook, Microsoft, Expedia, Stripe, Lyft, and a plethora of others go on a hiring freeze and/or layoffs is unsettling.  It's not something that's happened in my 20 years in tech.  The downstream effect will be noticed - those are high paying jobs located in very expensive areas.  Figuring that most tech workers save roughly like the rest of the white collar collective, they won't have that much of a cushion and high costs of living catch up quick - especially when entirely average homes are 2 million dollars with loans at 6 or 7 percent.  I think it's going to be ugly.

[MrBirdman]

On 11/10/2022 at 2:43 PM, BettyHumpder said:

from what i've been reading, and i'm no economist, wages in the US generally have been increasing even as consumer goods and raw materials have increased. but the wages have not increased as much, so people are feeling the squeeze. what we're not seeing is the death spiral of wages taking a nose dive while prices shoot the moon. the labor market is strong, at least it is in the upper midwest. if we see wages fall and inflation grows, buckle up. 

Very true, and I think this is a big reason behind the aggressive rate raising - "stagflation" is a really big long term fear. As Rob said it's sort of cave-man economics, but sometimes it's the best we can do apparently. 

[DaBoot]

Every time the fed as done increases, a recession has followed. We are already in one. Borrowing will slow as rates increase. US credit card debt is on the rise. The fed is aiming for 7% unemployment. 
the key is energy cost. Aluminum and steel factories are closing to not being able to turn a profit in the US and Europe. No raw material, no product. Manufacturing will slow down and cost of goods will double. Companies took the loss this year, they won’t next year. 
 

[GolfT3]

No one knows for sure, but I’d bet on a moderate tech led recession in the US. Much more 2000-2001 than 2008-2009. Household savings and employment stats are good, the Fed is moving aggressively to de-risk their balance sheet (people are ignoring this even though it’s as important as the rate hikes). Overall, the last decade has been incredibly prosperous. A moderate reset isn’t the end of the world.

I will say though, the picture in Europe looks much bleaker right now.