Economic Outlook

The Crisis is about to hit

GDP Estimate for the US corrected to 5.1% for Q4, 2021.

My estimate for the GDP is 20,662 Trillion Dollars. This would be an astronomical 6.07% growth in the last quarter of 2021! According to GDP NOW the GDP number might come out lower at 19.725 Trillion Dollars.

Calculation GDP

Either way, these numbers are lagging and will confirm or contest our market assumption ONLY. If the S&P500 rises above last levels AND GDP grows it shows to continue dip buying in the markets. But if the S&P500 dips below 4300 the market will contract!

The Feds might be forced to hike interest rates in March.

To determine if to stay long in the market or to short the market look at the following numbers.
CPI of all Commodities are up 22.85% year over year!!
Producer Price Index for all finished Goods, PPI is up 12.41% year over year!!
PPI for all Manufacturing Industries is up to 15.04% year over year!!
Wage Inflation is up 7.91% for all urban earners and clerks.
Which is eaten away by the CPI, all goods of consumer price index ,inflation of 7.12%. This number includes food and gasoline.

Inflation in the Building Material Sector also rose slightly to 10.12% YoY. And a year ago is was up 16% YoY. Compared to 2 years ago you spend about 27% more on building materials. Add this to the upcoming interest rate hike and the housing market bubble might pop open.
Residential Construction is up 12.55% YoY and hitting new records. In September 2021 and before it was running at 5-6% YoY and now it is 12% YoY since then! There is more pain to come.

Looking up the rental increase we see an average increase of 5.05% YoY and an increase at an accelerating pace. Of course depending on the City you live in.

Used car prices are also going up rapidly. 37.29% YoY!!! This is also due to the fact that chips for new cars are in short supply and people tend to buy a used car instead of a new one that cannot be produced.

All this lead me to the conclusion that a market correction is immanent.

Lets take a look at the Warren Buffet Indicator.

The stock market is overvalued by 64% compared to the exponential trendline. It simply means that the prices are out of touch with the value of all companies.

The market dipped only by 20% when the China virus arrived. But look at this chart

What did other crisis tell us?

In all recent major crisis we see the S&P500, SPY or the NASDAQ, QQQ drop by 50-60%. There will be a lot of margin calls in trading accounts when interest rates hike up. In the data I am following the 10 Year Yield crossed over the yellow line and I believe when it hits the declining blue line it might trigger a major defaulting in the commercial and private loan industry. We will go for a dive.

Declining Yield curve

While Online buying has increased by 30-40% since the pandemic we see a 25% increase of spending under Trump and an additional increase of 16% under Biden. We have to keep in mind that these spending are related to the free government money given out in the lockdowns. There was money pumped into the circulation at an increasing rate. There was not so much produced due to the lockdown. More dollars were chasing fewer goods. Remember in a FIAT currency you grow the money supply with the growth rate of the GDP and the slowdown of the Money Velocity. You create inflation if the GDP doesnt grow or grows to a lesser rate due to the lockdowns.

Retail Spending

Gamblers at work.

Now when we see that the debt level is increasing we also want to take a look at Traders Margin accounts and their debt level. Excessive debt levels makes you vulnerable to MARGIN CALLS from your broker. We can see that there was a balanced approach before the Financial Crisis. Margin Account DEBIT was low and manageable. But since Retail Traders entered the game playing the stock market on credit became the norm. There is an assumption out there that markets can ONLY go up. These long positions in the stock market will lose their cash base. The broker will call in to put cash towards leveraged accounts and when that is not happening in a contracting or correcting market the broker will close your position. This will further increase downward pressure on the stock market. It is time to short the market.

Leave a Reply

Shares