The Long Term Investor

This is an interesting article with a BIG lesson for speculators.

They couldn’t even scream any more. They were just sobbing’: the amateur investors ruined by the crypto crash
Fuelled by hype and hysteria, the market in bitcoin and other cryptocurrencies went from an obscure niche to a $3tn industry. Then the house of cards collapsed

https://www.theguardian.com/technol...-amateur-investors-ruined-by-the-crypto-crash

(BOLD is my opinion OR what I consider important content)

"In the gloom of an 18th-century drawing room at the private rehab clinic Castle Craig, near Peebles in the Scottish Borders, Roy, a 29-year-old victim of the global cryptocurrency crash, tells me his story. It is a dazzling summer’s day, but here the mood is sombre. Roy shifts uncomfortably in his chair as he begins.

It all started in February 2021, with a radio advert for Dogecoin, a cryptocurrency promoted by Elon Musk, the founder of Tesla. Intrigued, Roy started Googling, eventually using his credit card to make an initial investment of €2,500 (£2,200) in a range of cryptocurrencies. The value of Roy’s portfolio climbed to €8,000, then €100,000, then €525,000. Roy had entered the market during an adrenalised bull run, meaning an extended period of price growth. A combination of Covid stimulus packages, low interest rates and an unprecedented level of enthusiasm for cryptocurrency among furloughed workers meant the bull was careering out of sight.

Roy started spending all his time watching YouTube videos and speaking to other cryptocurrency enthusiasts in private groups on the messaging app Telegram. He had been treated for cocaine and alcohol addiction twice, but by 2021 he was sober and working as an addiction counsellor, although he was on sick leave as a result of panic attacks brought on by childhood trauma. He soon relapsed. By day, he checked his cryptocurrency wallets every 10 seconds; by night, he set alarms to go off on the hour. He began fantasising about a life free of financial constraints, in which he would never have to work. “I thought I was on top of the world,” Roy says. “Nobody could tell me anything. Money would fix every single problem I faced from now on.”

from £42,000 in May 2021 to £23,000 by the end of June. It rallied to an all-time high of £48,000 in November, before diving to £26,000 at the end of January. Since then, it has been in near-continuous freefall. At the time of writing, bitcoin is hovering at £17,000. “It felt like I had lost my life,” says Roy. “Because I had invested everything in crypto. I had built every dream I had on there. So, when it came crashing down, my whole life came crashing down.”

Desperate, Roy made a string of bad bets. The value of his portfolio dwindled to €20,000, then €3,000. “It got so out of control because I saw all my chances to live a better life fading away,” he says. “So I became really desperate and eventually just completely isolated. I didn’t want to see anybody, because I thought I was a failure.”

Most mornings, he would wake up shaking from alcohol withdrawal, order booze online and spend the day drinking and taking drugs. He developed stomach ulcers. “You can’t explain the pain,” he says. “I would drink and puke and drink and puke and drink and hope to keep it in, so the pain would go away. I felt like dying.”

In May, jobless and broke, Roy checked into Castle Craig, one of the only centres in the world that treats cryptocurrency addiction. (He lost his job when he relapsed; his rehab fees are covered by medical insurance.) His cryptocurrency portfolio is worth about €300. Now, amid the incongruous grandeur of a Scottish stately home, he is attempting to rebuild his life – and quieten the tormenting thought that he should have pulled out his money when he had the chance.

“It’s heartbreaking,” Roy says, softly. “I hate myself for the fact that I didn’t take it out.”


They gather on Telegram to let out howls of grief and short, sharp shrieks of pain. “Eeeeeeee!”yowls a young woman. “Waahahahah,” roars a man in a deep baritone. A third person wails like a baby. These are victims of the cryptocurrency bloodbath, 3,315 of whom have assembled in a “Bear Market Screaming Therapy Group” group to vent their anguish. “I had a few people lamenting and crying,” says the group’s founder, a 30-year-old cryptocurrency investor who gives only his first name, Giulio. “I decided not to ban them. I felt bad. They weren’t even able to scream any more. They were just sobbing.”

The cryptocurrency industry is in roiling waters. Scarcely a day seems to pass without a wave crashing across the sector. “The rollercoaster has turned and taken crypto holders on a downward spiral,” says Susannah Streeter, an analyst at Hargreaves Lansdown. “Many people have been caused serious financial pain.”

Last month, major coins including bitcoin and ethereum dropped by more than one-third in just a week. While bitcoin has tumbled significantly on several occasions, this bear run – meaning a period of declining prices – feels different. The industry is larger and more interconnected than ever, with retail and institutional investors jostling for space in what was, until last year, a $3tn market. (The crash has wiped $2tn off the market’s value.)

In May, the “stablecoin” terra/luna collapsed, prompting the Guardian’s UK technology editor, Alex Hern, to ask whether this was the industry’s “Lehman Brothers moment”. It had been marketed as a safe bet, due to the fact it was pegged to the US dollar, and promised returns of up to 20%.
The carnage prompted further sell-offs. This month, the cryptocurrency lending platform Celsius Network halted withdrawals for its 1.7 million customers, citing “extreme market conditions”. A day later, Coinbase, one of the largest cryptocurrency exchanges, announced that it was sacking 18% of its workforce. At the end of June, the hedge fund Three Arrows Capital, which was heavily leveraged in cryptocurrency and related businesses, went into liquidation.

Everywhere is panic and turmoil – and things look likely to get worse. The casualties range from ordinary retail investors to multimillionaire “whales” and celebrities – in May, the British rapper KSI tweeted that he had lost almost $3m in the terra/luna crash. There have been at least two reported suicides, in the UK and Taiwan; on the Reddit community for terra/luna investors, users share details of suicide hotlines.

Advocates argue that this is but a cryptocurrency winter, as seen in 2013 and 2018. Prices will rebound; spring will turn to summer; the bear becomes the bull. They lampoon so-called “paper-hands” investors, meaning those who abscond at the first sign of trouble, and urge each other to Hodl (“hold on for dear life”) and “buy the dip” (purchase coins when prices are low). Others are less certain. Will the frost ever thaw?

There are eight stages of crypto-crash grief.

Shock. “I couldn’t eat or sleep for two nights,” says Alla Driksne, a 34-year-old chef from London. “I got sick from the stress.” She has lost her life savings – a six-figure sum – in the Celsius freeze.

Denial. “I always thought the next project would bring me back up again and I’d cash out before it crashed,” says Roy. “In the next cycle, I’m going to try. In the next cycle, I’m going to do it again.” A part of him still believes this is possible.

Anger. Alex Koh, a 41-year-old engineer and personal finance YouTuber from Glasgow, directs his towards Do Kwon, the South Korean entrepreneur who founded terra/luna. Koh says he lost enough to buy a four-bedroom house in London. Kwon has been accused of fraud by five investors based in South Korea; he is being investigated there by a financial crimes unit and in the US by the Securities and Exchange Commission.

Bargaining. Vahid, a 31-year-old from London, has used Twitterused Twitter to plead for his money with Alex Mashinsky, the founder of Celsius. Vahid’s life savings, more than £50,000 in cryptocurrency, is locked in his Celsius account. Vahid had planned to use the money to start a business or buy a house. For support, he spends his time on conference calls with other Celsius victims; I listen in to one. “I know anything short of getting your native token [initial investment] back is unacceptable,” says one investor, with desperation in his voice. “But would you rather get back 10%, or 20%, or 34%, you know? Now, I’m hoping it’s not a complete loss.”

Depression. “I thought I’d be able to retire early,” says Koh. “But it’s all gone down the drain. I’ve never cried so much in my life.”

Acceptance and hope. “I worked my ass off doing 16-hour days for six years to earn this money,” says Driksne. “This is hard-earned money. That’s what hurts the most. I lost six years of hard work. But I am trying to stay positive. I’ll make it back again.”

Shame. Vahid hasn’t told anyone he has lost his life savings. “I don’t want people turning around to me, saying: you should have taken your money out last year,” he says. I ask him if he is embarrassed. “Of course,” he responds.

Processing. “I hope that I can show that I am willing to learn and accept my mistakes,” says Koh. “If I rebound from this, perhaps I can be an inspiration to people elsewhere around the world – or my kids, at least.”

The industry’s enthusiasts and sceptics agree on one thing: they saw this coming. Perhaps they didn’t predict the precise contours of the crash, or the fact that so many seemingly reputable companies would flame out, but there was a sense that the cryptocurrency bull would run out of road. The sector was too hot, too loaded with bad-faith actors, scammers, credulous investors and amateurs feigning expertise in Telegram groups, YouTube videos and Twitter threads. When internet jokes such as PooCoin and Dogecoin surged in popularity, it ought to have been apparent that a market correction was coming. Such stupidity cannot be sustained for long.

“Was it surprising?” says Dr Larisa Yarovaya, an associate professor of finance at the University of Southampton. “I think it was quite predictable.” The Bank of England has repeatedly told cryptocurrency investors to be prepared to lose all their money. Investors bought bitcoin as a speculative punt in 2020 and 2021 because interest rates were low and many had spare cash due to lockdowns and economic stimulus packages. But when interest rates and inflation began to rise, fuelled by Covid‑affected supply chains and the war in Ukraine, institutional investors preferred to put their money into safer assets.

“There is a fear factor rippling through financial markets about how out of control inflation is and whether central banks will be able to bring it under control,” says Hargreaves Lansdown’s Streeter. “When people feel richer, they are more likely to spend on riskier assets, like crypto. But in times of uncertainty, investors flee to safer havens.”

The mania around bitcoin and other cryptocurrencies was fuelled by a social media hype machine unprecedented in the history of financial markets. Investors touted new coins that were amassing huge returns, hung off the tweets of crypto-influencers and spoke in impenetrable jargon. “Demand for bitcoin related purely to the level of interest in this new technology, and that interest was manipulated by the companies that offered different cryptocurrencies and exchanges and startups,” Yarovaya says. “All of this happened on social media, meaning that investors didn’t even know whether there was genuine interest in crypto, or lots of Twitter bots encouraging people to buy. The system wasn’t transparent.”

Koh got swept up in the social media frenzy. “You fall into this dream, this La-La land of thinking: I’m going to make it. It was like a whole trend, a pop culture. Now, sitting back, I think we got brainwashed.” Koh’s wife has a master’s degree in business administration and she urged him to be cautious. “She said: ‘Alex, it sounds like a Ponzi scheme … this is social media marketing to rope you in; take your liquidity and go.’” But he didn’t listen. “They call it ‘being an alpha’,” he says. “You have to be on Twitter, and follow the right people, and be in the right Discord channel. You listen to the right chatrooms. It makes you feel so special.”

At one point, says Koh, he convinced himself that terra/luna was such a great project that he “was ready to sell my house, my car, put everything in”. Now, he wouldn’t invest even £10 in cryptocurrencies. “It’s like a drug,” Koh says. “You’ve been there. You got high. And then you’re in rehab. I’m not going to go back in again.”

His greatest regret is that he encouraged others to invest in the terra/luna project. His YouTube channel, which has 17,600 subscribers, repeatedly championed the cryptocurrency. “I do feel responsible,” Koh says. “I don’t know what to do. How much I apologise. I haven’t got much hate, because I think I’ve been quite transparent in how much I’ve lost. I am not saying people forgive, though. I don’t forgive myself for it.”

Has the great cryptocurrency revolution simply evaporated?

Nassim Nicholas Taleb was once open-minded about the potential of cryptocurrencies. The risk engineering professor originated the theory of the “black swan”: a hard-to-predict but seismic event, such as the 2008 financial crash, that is often rationalised after the fact with the benefit of hindsight. In 2018, Taleb wrote an essay describing bitcoin as “an excellent idea” and a possible “insurance policy against an Orwellian future”.

Last year, Taleb revised his position in a paper that described bitcoin’s value as “zero”. “This is the first time we’ve seen a financial bubble coupled with religious, cult‑like behaviour and an investment strategy not seen before in history,” he says. Many demur – and Taleb could yet be proved wrong. A common defence of bitcoin and other cryptocurrencies is that the underlying technology, blockchain, has functions not yet discovered.

Taleb says: “I would tell people who are still holding bitcoin: ask your grandmother if the idea makes sense. And if it doesn’t make sense to her, it doesn’t make sense … get out. Do something productive with your life.”
But few in the cryptocurrency world are heeding the esteemed professor’s advice. Driksne plans to invest in cryptocurrency in the future, despite her six-figure loss, although she would steer clear of platforms such as Celsius. “I firmly believe crypto is the future,” agrees Vahid. “It’s not a Ponzi scheme or a scam.”

He compares cryptocurrency to the early days of Amazon and Google. When I point out that they were growing businesses, unlike bitcoin, Vahid says: “But bitcoin replaces gold. Bitcoin is digital gold.” Taleb is exasperated by this line of reasoning. “If you buy gold and store it in your basement or wear it on your neck, there is no chance of that gold turning to lead over any foreseeable horizon,” says Taleb. “Metals don’t need maintenance. Bitcoin requires continuous maintenance.”

It may be that future economists view the cryptocurrency boom of the early 2020s as a mass Dunning-Kruger event, fuelled by social media and facilitated by technology; an era in which amateurs took financial advice from fellow amateurs and bet the house on speculative investments. “Admitting that you know nothing just tells you that you’re lucky,” says Roy. “And my ego couldn’t handle that. I didn’t want to be lucky. I wanted to be someone who knew what they were doing. I’m smart, right? Tell me I’m smart, please? That’s how it goes. The whole community reinforced themselves, and each other.”

When Taleb published his 2021 paper, he received so much abuse that he had to lock his Twitter account. “I could not believe how psychopathic bitcoin people were,” says Taleb. Watching his tormentors have their portfolios wiped out has provoked a degree of schadenfreude, he admits. But he has compassion for the inexperienced investors who got swept up in the hype. “Lots of these kids lost everything they have,” he says. “You feel empathy for them.” The scammers, who urged others to invest in doomed projects while they were secretly cashing out? “They must be punished,” Taleb says.

But it seems likely that, just as in the 2008 financial crash, the bad-faith actors who exacerbated this meltdown will walk away unscathed. What’s more, many of the investors who bought into the cryptocurrency boom did so to claw back security after a decade racked by recession and uncertainty. Koh was one of those. “I was lucky to keep my job, but I was really angry at the suits, at the bankers, at the high‑bonus people,” he says. “The whole space of crypto was about giving normal people the option to gain the upper edge in society financially. It was a beacon of hope. We could ride the next big thing. But that beacon of hope has been put out for now. The trust has been broken. Yet again, sitting here, in decade number two, the bankers have won again.”

Future generations may look back at this boom as a period of mania, when money multiplied like bacteria and a collective delusion gripped financial markets. It may seem unfathomable, but it shouldn’t. After all, who doesn’t want to be rich?'

MY COMMENT

A CLASSIC story that has been repeated for millennia. Speculative mania. The human brain on steroids. No doubt it will continue to happen in the future with various types of assets. A real lesson in the danger of Social Media.

 

This is not a good thing......at least if you believe this sort of indicator. Of course for long term investors.......who cares.

Yield curve inversion between 10-year and 2-year rates reaches biggest point since 2000

https://www.cnbc.com/2022/07/13/us-...-higher-as-traders-prepare-for-inflation.html

(BOLD is my opinion OR what I consider important content)

"The 2-year Treasury yield popped Wednesday while its 10-year counterpart fell, pushing the so-called inversion between the two to its biggest level since 2000. Yield-curve inversions are seen by many on Wall Street as signals that a recession lies on the horizon.

The 2-year, which is more sensitive to changes in monetary policy, traded more than 9 basis points higher at around 3.138%. The benchmark 10-year rate, meanwhile, slid nearly 4 basis points to 2.919%. Yields move inversely to prices, and a basis point is equal to 0.01%.

Those moves came after the U.S. government said after the consumer price index rose 9.1% on a year-over-year basis in June. That’s well above a Dow Jones estimate of 8.8% and marked the fastest pace for inflation since November 1981. It also added to worries of even tighter monetary policy from the Federal Reserve.

Wells Fargo’s Michael Schumacher said fed funds futures started pricing in a rate hike of more than 75 basis points for this month following the report’s release.

Core CPI, which strips out volatile food and energy prices, popped 5.9%, compared with a 5.7% estimate.

“The core is chugging along at a frightening clip,” said Michael Schumacher at Wells Fargo. He said fed funds futures are now pricing 81 basis points rate hike for July. That would indicate that some in the market expect a Federal Reserve rate hike of more than 75 basis points.

“With core running this strong, the Fed can’t ignore that. This is a bad number,” he said.

Earlier on Wednesday, Bank of America economists said in a note that they expect the U.S. to enter a “mild recession” this year. They noted that incoming data points to slowing momentum for the economy and that inflation seems to be hindering consumer spending."

MY COMMENT

BLAH, blah, blah.....we might enter a recession. DUH....we are already in a mild recession. Wake up people.

 

I cant believe that I am not seeing this as a headline story on a few major financial sites. This plus the bank earnings is the news driving the markets today.....along with speculation of a 1% FED increase and the Treasury inversion.


Wholesale inflation surges 11.3% in June, accelerating more than expected
Economists expected the gauge to climb by 10.7%

https://www.foxbusiness.com/economy/wholesale-inflation-surges-11-3-june-accelerating-more-expected

(BOLD is my opinion OR what I consider important content)

"Wholesale prices accelerated again in June as inflation seeps throughout every part of the U.S. economy, squeezing businesses and American households in the form of higher prices for most necessities.

The Labor Department said Thursday that its producer price index, which measures inflation at the wholesale level before it reaches consumers, climbed 11.3% in June from the previous year. On a monthly basis, prices grew by 1.1%.

Both of those figures are higher than the 10.7% annual and 0.5% monthly estimates from Refinitiv economists, underscoring just how strong inflationary pressures still are.

Core inflation at the wholesale level, which excludes the more volatile measurements of food and energy, increased 0.3% for the month, following a 0.4% increase in April and May. Over the past 12 months, core prices climbed 6.4%. Economists lauded the potential slowdown in core inflation increases, suggesting it could be a sign that consumer prices are beginning to moderate.

"It’s clear that food and energy are driving PPI higher, as was the case in yesterday’s inflation print," said Peter Essele, the head of portfolio management at Commonwealth Financial Network. "When removing these volatile components, PPI appears to have peaked and is starting to roll over, a tell-tale sign that the economy is shifting into late-cycle territory."

Overall, prices for goods jumped 2.4% last month, the sixth consecutive rise and the biggest contributor to the headline inflation figure. Nearly 90% of the June increase in services stems from a 10% leap in prices for final demand energy, including a stunning 18.% increase in gasoline prices, according to the Labor Department.

The services index, meanwhile, advanced 0.4% in June, with increases in transportation and warehousing services accounting for about two-thirds of the gain.


The surge in wholesale prices comes on the heels of a separate Labor Department report released on Wednesday that showed the consumer price index rose 9.1% in June from a year ago, exceeding market expectations. It marks the fastest pace of inflation since December 1981.

Rampant inflation has become a major political liability for President Biden ahead of the November midterm elections, in which Democrats are expected to lose their already razor-thin majorities. Surveys show that Americans see inflation as the biggest problem facing the country – and that many households blame Biden for the price spike.

The consecutively bad reports will likely solidify a series of aggressive rate hikes by the Federal Reserve as policymakers race to catch up with runaway inflation. The U.S. central bank already raised the benchmark interest rate by 75 basis points last month for the first time since 1994 and have confirmed that a similarly sized increase is on the table in July.

With inflation running even hotter than economists expected in June, Wall Street is now ramping up the odds of a mega-sized, 100-basis point hike in July. About 83% of traders are now pricing in the chances of a 100-basis point increase later this month, according to the CME Group's FedWatch tool, which tracks trading.

"The probability of a 100-basis point hike from the Fed in late July has greatly increased after the two price index releases," Essele said. "The Bank of Canada increased rates by 1% on Wednesday, the first G7 country to make such a move to curb inflation in this cycle, and it’s likely the US will follow suit.""

MY COMMENT

Stocks are being hit with a dismal news day today. It will be very difficult for stocks to do anything today with the above news and the FED speculation. The FED needs to stick to their .75% increase. It just makes them look confused and in panic mode if they vary their rate increase plan every time there is a new economic release. They need to give the markets and financial system a feeling of confidence by sticking to a plan for their increases. Unfortunately they seem to be in total panic mode recently......they are reacting......not planing.....what to do and how to do it.

 

Here is the markets today in this little article that covers some of the BIG BANK earnings.

Stock market news live updates: Stocks sink as Dimon warns of 'negative consequences' from inflation, Fed

https://finance.yahoo.com/news/stock-market-news-live-updates-july-14-2022-115058342.html

(BOLD is my opinion OR what I consider important content)

"U.S. stocks fell at Thursday’s market open as investors reeled from shock inflation data and digested earnings from some of Wall Street's big banks.

The S&P 500 and Dow both dropped 1.9% shortly after the open, while the tech-heavy Nasdaq was down closer to 1.7% in early trade.

JPMorgan Chase (JPM) was in the spotlight early Thursday after reporting a wider-than-expected drop in second-quarter profit of 28%, attributing the decline to a $1.1 billion in provision for credit losses amid concerns over a possible economic downturn. Shares slid as much as 5% at the start of trading Thursday.

“In our global economy, we are dealing with two conflicting factors, operating on different timetables," CEO Jamie Dimon said. "The U.S. economy continues to grow and both the job market and consumer spending, and their ability to spend, remain healthy."

"But geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy and food prices are very likely to have negative consequences on the global economy sometime down the road," Dimon added.

Morgan Stanley (MS) revealed results that missed analyst expectations, dragged down primarily by a slump in investment banking revenue due to volatile market conditions. Shares fell over 2% early Thursday.

These results also weighed on the broader financial sector, sending shares of bank peers Citi (C) and Wells Fargo (WFC) down over 2% in early trading ahead of their own earnings on Friday.

The moves across equity markets come after all three major indexes tumbled Wednesday following fresh CPI data that showed prices across the U.S. economy surged at the fastest pace since 1981.

Elsewhere on Thursday morning, initial jobless claims edged higher last week in a potential sign the labor market may be cooling as the Federal Reserve tightens financial conditions.

First-time filings for unemployment insurance in the U.S. increased to 244,000 in the week ended July 9, up by 9,000 from the prior period, Labor Department data showed Thursday morning. Economists surveyed by Bloomberg had expected the latest figure to come in at 235,000.

The producer price index for final demand — a gauge of wholesale and business prices — surged 11.3% year-over-year in June and 1.1% from the prior month, the Labor Department also reported Thursday, underscoring inflationary pressures at the wholesale level.

Meanwhile, commodity markets remained under pressure on rising worries of a supply crunch. West Texas Intermediate (WTI) crude futures fell by $2.24, or 2.33% to $94.06 per barrel in the early trade, and Brent Crude Oil fell by $1.94, or 1.95%, to $97.63.

“Markets had a knee-jerk reaction after the eye-popping inflation numbers and the headline number of 9.1% only makes the job that much harder for the Fed,” Allianz Investment Management Senior Investment Strategist Charlie Ripley said. “As a result, the Fed is likely going to send a hawkish message at the July meeting, and it would be a mistake to think that a rate hike less than 75 basis points is in the cards.”

The blowout headline figure even spurred a wave of speculation among strategists that an increase of 100 basis points may now be on the table — a move that would mark the most combative monetary intervention since the early 1990s.

“Everything is in play,” Atlanta Fed President Raphael Bostic told reporters in St. Petersburg, Florida on Wednesday. When asked if that included lifting interest rates by a full percentage point, he said, “it would mean everything."

MY COMMENT

The bank earnings along with the other news events today is going to make for a difficult market over the next couple of days as we close the week.

We are seeing many big companies cutting jobs and holding back on hiring......it is no surprise that filings for unemployment are UP. It looks to me like the job market is in the process of making a turn. People are focused on jobs being plentiful while big companies are cutting jobs. I dont believe the positive jobs data and constant media reports.

 

NONE of the news today is unexpected. From bank earnings to the FED to inflation numbers, to unemployment numbers.......everything that has been reported in the past couple of days is exactly what you would expect. I am not shocked or surprised by any of it. yes the markets are having a knee jerk reaction today.......but there is nothing new in any of what is happening. It is just a logical continuation of the past six months.

 

We are COSTCO members but dont go into the stores very often. We went to the local Costco yesterday for a specific purchase. As a shareholder I was curious to see how the store was doing. It was PACKED. It was hard to find parking and inside the store was extremely crowded.

Costco is obviously THRIVING. We have been Costco members since their very early days in the Seattle area so I am used to seeing the throngs of customers in their stores. What I saw yesterday.....in the middle of a work day.....was more than I expected. Simply an amazing company and business.

 

Add this to the pile of negative news today.

Mortgage rates jump after two weeks of declines

https://finance.yahoo.com/news/mortgage-rates-jump-143000137.html

(BOLD is my opinion OR what I consider important content)

"Mortgage rates are back up again following two weeks of declines that did little to boost homebuyer demand.

The rate on the 30-year fixed mortgage jumped to 5.51% from 5.30% the week prior, according to Freddie Mac. While lower than the 5.81% registered in late June, the average rate is still more than 2 percentage points higher than the beginning of the year.

Rates add to the challenging affordability conditions homebuyers are facing that include persistently high inflation and now newfound recession worries. Homeowners, too, are also spooked by recent rate volatility, thinking twice before tapping into their equity – now more expensive than before.

“Mortgage rates are volatile as economic growth slows due to fiscal and monetary drags,” Sam Khater, Freddie Mac’s chief economist, said in a press statement. “With rates the highest in over a decade, home prices at elevated levels, and inflation continuing to impact consumers, affordability remains the main obstacle to homeownership for many Americans.”
Last week, homebuyers got a short reprieve when rates dropped a half-point after the yield on the 10-year Treasury – which mortgage rates track – dropped below 3% for the first time since early June.

But that reversed this week. After June’s elevated inflation reading Wednesday came in higher than expected, the yield rose sharply — taking mortgage rates with it — as the likelihood of the Federal Reserve hiking its benchmark by one percentage-point rate this month got stronger.

The result is a slowing housing market that’s hard to ignore.

A record-high 81% of consumers think the economy is on the “wrong track,” according to the latest homebuyer sentiment survey from Fannie Mae, with a plurality of respondents saying it would be difficult to get a mortgage — the first time in nearly seven years.

“High mortgage rates and record high home prices have informed that sentiment for months now already,” Keith Gumbinger, vice president of HSH.com, told Yahoo Money. “It's true that mortgage rates did dip last week, but rates have risen since late last week, and much of that decline has likely already disappeared.”

The volume of mortgage applications decreased for the second week in a row, down 1.7% from a week earlier, according to the Mortgage Bankers Association survey for the week ending July 8. The purchase index fell 14% on an unadjusted basis from the previous week, and was down 18% from the same week one year ago.

“Summer is the busiest time of the year, so a slowdown during this time could obviously mean a much slower year,” George Ratiu, manager of economic research at Realtor.com, told Yahoo Money. “Today’s market is not what it was a few months ago.”

Sky-high rent prices are also foiling potential buyers' plans to purchase anytime soon. According to the National Association of Realtors (NAR), at least one in five renters spend at least 50% of their monthly income on rent.

“Some of their budgets are really tight and it can be very difficult to get a downpayment,” Nadia Evangelou, senior economist and director of forecasting at NAR, told Yahoo Finance. “The transition from renters to homeownership is even more challenging now.”

For instance, the national median listing price for active listings was $450,000, up 16.9% compared with last year, according to Realtor.com. That and rising rates are making buyers think twice.

Approximately 60,000 home-purchase agreements fell through in June, the highest percentage registered since March and April 2020, when economic uncertainty ran high during the onset of the COVID pandemic, according to Redfin.

“Inflation has an immediate and direct impact on household finances,” Ratiu said. “The prices of food, apparel, services and gasoline are much higher. We’re likely to see at least on the demand side of housing a significant continued decline we’re already observing – there’s only so much money to go around each month.”

Homeowners have also felt the pinch of rising borrowing costs.

With rates more than 2 percentage points higher than the start of the year, very few homeowners would benefit from a refinance today. According to the MBA, the refinance activity remains 80% lower than the same week a year ago.

“For certain homeowners who bought their home in the last two to three years, and have a mortgage at 2.6% – today’s market is going to be quite challenging,” Ratiu said. “Especially if they want to upgrade. If they want a bigger house, not only is it a higher price tag but now mortgage rates are much higher.”"

MY COMMENT

Another poke in the eye for the markets today. May as well get all this stuff out this week. Yet another item that is obvious and totally expected. it is actually a wonder that mortgage rates are this low. I expect that they will go much higher....in the 7-9% range as the FED raises rates over the rest of the year and into next year.

 

Here is one positive story for a day of much negative economic news.

Amazon says members bought 300 million items on Prime Day

https://finance.yahoo.com/news/amaz...300-million-items-on-prime-day-141510533.html

(BOLD is my opinion OR what I consider important content)

"Amazon (AMZN) released the results of its Prime Day 2022 event on Thursday, saying Prime subscribers purchased some 300 million items worldwide during the two-day sales event.

That’s a significant uptick from Prime Day 2021 when users bought 250 million items through the retailer. Amazon didn’t release total sales numbers for the event.

The company, however, said customers spent $3 billion on small business items during its Support Small Businesses to Win Big sweepstakes, which took place during the three weeks leading into Prime Day.

In 2021, Prime members spent $1.9 billion on small business items in the two weeks before Prime Day as part of the company’s Spend $10, Get $10 promotion.

“Prime Day is a celebration of our Prime members, who look forward to this event every year, and we’re thrilled to have delivered incredible savings to them once again,” Amazon Worldwide Stores CEO Doug Herrington said in a statement.

According to the retailer, customers worldwide purchased more than 100,000 items per minute during the event, with top sellers coming from beauty brands like Laneige and NuFACE, and products like the Apple (AAPL) Watch Series 7 and Levi’s (LEVI) apparel.

Amazon’s e-commerce sales have slowed significantly since the height of the pandemic when customers turned to the online retailer for goods ranging from cleaning supplies to toilet paper.

Amazon reported sales of $116.4 billion during Q1 2022, a 7% year-over-year increase. However, that pales in comparison to Q1 2021, when the company reported a 44% sales increase, topping out at $108.5 billion.

The slow-down, coupled with a Q1 loss per share of $7.56, has hammered Amazon’s stock price, which was down 34.9% to $108.28 year-to-date at the start of trading on Thursday.

Amazon’s rapid expansion during the pandemic has put CEO Andy Jassy, who just celebrated his first full year at the helm of the company, in a tight spot. The former head of Amazon’s AWS business, Jassy is now tasked with cutting back on spending, while ensuring that he can continue to offer the same level of service that Amazon’s customers have become accustomed to.

According to Amazon CFO Brian Olsavsky, the company has too many workers due to the massive number of employees it hired during the pandemic. That, Olsavsky said during Amazon’s Q1 earnings call, has led to lower productivity and a $2 billion hit to the company’s pocket.

According to Bloomberg, Amazon is even looking to get rid of, or sublet, some of its warehouse property in a bid to lower costs."

MY COMMENT

Not a lot of info here.....but a taste of what Prime Day did.

Management will continue to be the big unknown for Amazon over the next year or two. This is yet another company that is looking to cut hiring and workers. We are seeing very uniform cutting in hiring and spending in the corporate world right now.

 

Here is some detail on the POOR bank earnings. Bank stocks are one of the categories of stocks that I will just NOT own. Too erratic for my taste.

JPMorgan, Morgan Stanley Miss Wall Street Estimates

https://www.investors.com/news/jpm-stock-morgan-stanley-dive-after-missing-q2-views/?src=A00220

(BOLD is my opinion OR what I consider important content)

"JPMorgan (JPM) and Morgan Stanley (MS) reported second quarter financial results before market open Thursday that were well below analyst expectations. JPM stock dropped nearly 5% after the opening bell and Morgan Stanley shares fell more than 2.5%.

JPMorgan earnings per share fell 27% over the year to $2.76, while revenue was relatively flat at $30.7 billion. Wall Street analysts were expecting earnings to fall to $2.92 per share from last year's period of $3.78. JPMorgan really missed revenue estimates, which were forecast to increase 4.3% to $31.81 billion. The bank is planning to suspend its share buyback program following the results.

"The U.S. economy continues to grow and both the job market and consumer spending, and their ability to spend, remain healthy," CEO Jamie Dimon said in the announcement. But, he says, high inflation, weakening consumer confidence, high interest rates, "never-before-seen" quantitative tightening and international conflicts will likely have negative consequences on the global economy down the road.

JPMorgan's gross investment banking revenue fell 32% to $788 million. Provisions for credit losses increased to $1.1 billion, which included $428 million from the reserve build and $657 million of net charge-offs.

As a result of JPM's recent stress tests, the bank will build capital and focus on managing its capital ratios, Dimon said in the announcement. "In order to quickly meet the higher requirements, we have temporarily suspended share buybacks which will allow us maximum flexibility to best serve our customers, clients and community through a broad range of economic environments."

Morgan Stanley earnings fell to $1.39 per share, down 25% from the $1.85 recorded for the period in 2021. Revenue declined 11% to $13.1 billion over the year. Analysts were expecting EPS to fall to $1.57 on revenues of $13.4 billion.

"Overall the Firm delivered a solid quarter in what was a more volatile market environment than we have seen for some time," CEO James Gorman said in the announcement. Morgan Stanley's equity and fixed income was able to partially counter weaker investment banking activity, he said. MS investment banking revenue fell to $1.2 billion, down 55% over the year from $2.5 billion.

JPM Stock, MS Stock Analysis

Like most bank issues, both Morgan Stanley and JPM stock are trading far below recent highs. The JPM is down more than 58% from a peak near 173 in October. Morgan Stanley is trading 31% off a February peak."

MY COMMENT

Again.....I dont think any of these results were unexpected......at least to me. I dont like banks as investments especially the BIG BANKS. I dont every touch them. Other industries that I avoid in general......insurance and financial companies, auto companies, drug companies.

I prefer to focus on the CONSUMER and MANUFACTURING and TECH sides of the economy.

Over the next couple of weeks we will get much of the bank earnings out of the way. After that we will get into the earnings that will give us some REAL clue as to what is going on in the business world.

 

At least we will see the 20 for 1 Google split happen tomorrow. Something to look forward to as we end the week with much negative news.

 

NOW.....lets see if the markets can stage any sort of come-back as the day goes on. I see NOTHING today that is shocking news. Actually just a BORING market.

 

YEAH.....management at Amazon does not seem to have much of a clue what to do. I have definitely NOT been impressed by the new management that has now been in place for the past year. They need to simply focus.....totally.....on their long time business model.

 

Speaking of management......it is just totally RIDICULOUS how public and other pension funds are being managed. If these funds would simply put all their assets into some form of index like the SP500 for the long term their results would be much better. The fact that they are now trying to use leverage to catch up is an extremely dangerous FAD.

The market meltdown threatening pensions for millions of Americans

https://www.cnn.com/2022/07/14/investing/pensions-markets-unfunded

BOLD is my opinion OR what I consider important content)

"New York (CNN Business) American public pension funds are facing serious challenges that threaten the retirement plans for millions of US state and local government employees.

Pension plans remained severely underfunded during the 11-year bull market that followed the Great Recession. The plunge toward insolvency and high-return markets led fund managers to take on risky bets in hope of staying afloat. Now, the recent selloff has left funds struggling to keep up with their future obligations.

The 100 largest public pension funds in the United States had been funded at just 78.6% of their total obligations at the close of the second quarter, down from 85.5% at the end of 2021 according to analysis by Milliman, an actuarial and consulting firm. The funds lost a whopping $220 billion between March and April alone as Russia's invasion of Ukraine roiled markets.

Public pensions are borrowing increasing sums to meet their payout obligations. Nearly $13 billion in pension obligation bonds were sold in 2021, more than in the past five years combined. Now, they're taking on more risk by investing that leveraged money.

The California Public Employees' Retirement System (CalPERS), which manages the largest public pension fund in the United States, with about $440 billion in assets under management, began leveraging some of its debt this month.
"We need every arrow in the quiver we can get, and private debt is one of the critical ones," said Dan Bienvenue, CalPERS' deputy chief investment officer. "There isn't a no-risk choice."

The Teacher Retirement System of Texas, the country's fifth-largest public pension fund, has also used leverage funds since 2019.

Leveraging can help multiply market gains in bull markets, but it can also increase losses during the bear times.
While the majority of pensions still don't use borrowed funds, there has been a sharp increase over the last four years. Before 2018, none of the largest funds used leverage.

Taking on risk

At the same time, funds began taking on riskier assets during the bull run and low-interest environment to make up for some insolvency.

Instead of increasing fees or costs to make up for a lack of funding, pension managers have opted to raise their annual growth target rate and engage in riskier investing behavior to meet it. In many states, if funds end up going bust because of that strategy, the onus of meeting payout requirements will fall on the shoulders of taxpayers, found a study by the Boston Federal Reserve.

Analysts say pension funds are now operating more like hedge funds and treading on risky footing. It's also typically the funds in the most financial trouble that take on these trades.
"Risk-taking behavior is most pronounced among funds with sponsors with the least ability to bear additional risk," the Fed said.

Some funds, like the Houston Firefighters Relief and Retirement Fund began investing in cryptocurrency, according to a Reuters report. A lack of transparency makes it difficult to assess just how much money funds lost in the crypto crash this spring. Funds don't report second quarter returns until later in the summer.

As interest rates increase and market stability decreases, those pensions could face more trouble.
Of the roughly $4 trillion in assets managed by public pension funds in the United States, more than two-thirds are allocated to risky investments like equities, and alternative vehicles, including private equity, real estate, and hedge funds, according to Pew research. That means retirement systems' ability to meet their commitments are subject to stock market swings.

"It's like the gambler who's on a losing streak but keeps betting in the hope of making up some of the losses," wrote Merrill Matthews, a scholar at the conservative-leaning Institute for Policy Innovation "If most public pension funds were already underfunded last year, what does that mean today, when the market has been in a six-month slide?"

But some researchers say the crisis feels bigger than it is. The gap in funding for pension plans is "often a huge and scary number," explained Louise Sheiner, policy director at The Hutchins Center on Fiscal and Monetary Policy. But "for most (certainly not all) plans, there is no imminent crisis in the sense that the plans are likely to exhaust their assets within the next two decades."""

MY COMMENT

It is absolutely MORONIC......and.....absolutely expected.......that these public/government pension funds are using leverage, hedge funds, crypto, etc, etc, etc.....in an attempt to make higher returns. We know how it will end.....many of these funds will FAIL and stick the taxpayers with the bill. Typical government in action........total incompetence.

 

AMAZING......I am GREEN at the moment.....by $23. Good old COSTCO is powering my account today. I only have two stocks that are in the green....Costco and Apple. They are carrying my entire account today and canceling out the mild losses in my other 8 holdings.

A shocking positive surprise when I just looked at my account.