Recession? What does it mean for the Markets? Bitcoin?Recessions are serious. They happen years apart from one another. The last one started in 2008 and the effects are still here in the form of Quantitative Easing by The Fed. The QE stopped in 2014, but then had to restart in 2020 due to Covid 19.
QE is used as a last-ditch option because with super low interest rates the tools they normally use don't work. The risk of QE is inflation. Inflation is now here.
Inflation in housing costs and food and now fuel are a massive burden on the general population. They reduce leisure and luxury spending as a result. All this is known. We have a perfect storm on the horizon, and the retail market is like a rabbit in the headlights.
The thing is, recessions aren't that hard to see coming, the difficult part is making money out of it. Some people have noted that the stock market usually rises as the economic recession starts. This catches out a lot of smart people who start wondering WTF is going on. After all, the signs are there plain to see, why on EARTH are markets still rising?
Here's why....
Stocks are driven by profits. Profits are high right now because prices are exploding. Oil companies, power companies, food retailers, landlords etc are all ABSOLUTELY RAKING IT IN. Without getting too political, you have an appalling situation in the West where the current generation of 20-30s are still living at home with the Mum and Dad, unable to afford accommodation as wage inflation is MILES behind. The gig economy is helping to drive this trend. Corporates NEED low wages to make their business models work, and it's a race to the bottom, literally.
As a result of this bias for cash to flow out of personal wealth into the hands of corporations, who report bumper profits as a result, markets go up. It all looks wonderful, but company profits are a lagging indicator. When all the plates stop spinning at the same time, then the company profits fall off a cliff and you get your market correction.
I would anticipate that there will be one more scare driving SPX lower (3930?) and the USD higher. This will see off the retail bulls, ready for the rally. The rally will last 6 months or so and get to 5000-5500, then we get the drop. I think it will be a large drop, to around 2000 in SPX.
There are also some technical reasons for thinking this, which are to do with Forex markets, but I'll leave those out for brevity's sake.
In a recession, no one will have money to throw into Bitcoin / crypto, so expect a big drop there too.
IF YOU GET THE IDEA ALREADY, FEEL FREE TO STOP READING HERE....
The general population are crippled financially, but it's big business that influences governments, not the people. As a result Western governments, particularly in the US but true also in the UK where I live, are just muddling through, hoping it will be OK. A lot of senators and members of parliament around the western world live live so far from reality that they don't see or perhaps don't believe that real hardship for many is just around the corner.
For example, with gasoline prices rising fast, the UK chancellor took 5p per litre off the fuel tax. Gas has gone up 50p a litre in the last few months here, so it's clear that he doesn't get it or just won't do anything about it. Heating costs are set to double in 6 months (this is not a forecast but is already known), and the solution is a £200 loan from the government that you pay back through your bills for years. Average bill set to rise to £2000 per year. Here's a quote:
"The energy bill reduction is not a loan. There will be no interest due, no debt attached, and it will not affect your credit rating. It is a grant now with a levy on future bill payers."
Who are the future bill payers? Well unless you live in a tent, that's you!
My point is simple. The cost of living issue isn't being taken seriously.
I have seen the stories about staff walkouts in the US, with minimum wage workers deciding to stop working themselves to the bone for low pay. Also, the efforts to unionise places like Starbucks and Amazon. These are nascent socialist events rather than nationwide movements thus far, but the recession has barely started. I would expect high growth in this area, as people's savings run dry trying to keep afloat in a low-wage high-cost environment.
Governments are sleepwalking to disaster. It doesn't matter who is in power in the US or anywhere else, most political parties bow to business interests by default. This is true in most of the developed world. It's a fact of life. ENOUGH POLITICS.
#recession #bitcoin #btc
