The Housing Market Collapse Deepens As Fed Officials Warn ‘Economy Will Slow’

Cooling inflation has helped temper concerns of an imminent recession, particularly as the job market continues to show historic strength, but a worsening housing market collapse and vast uncertainty over the course of the Federal Reserve’s interest hikes have many experts, including policy officials, warning that it’s still too early to know just how difficult this economic downturn will end up being.

“It does not feel like a recession now,” Minneapolis Fed President Neel Kashkari, one of the 12 central bankers who vote on changes to Fed policy, said in a public appearance on Thursday, noting that the labor market remains very strong, wages are rising and consumer demand remains resilient.

Though acknowledging the economy’s strength, which comes as inflation begins to show signs of slowing, Kashkari was also cautious, asking, “…can we continue to bring inflation down without triggering a recession?” and then answering, “I don’t know.”

He noted the Fed needs to temper still-high inflation “urgently” and pledged to continue hiking interest rates to help cool demand, and then warned the economy will “continue to slow as officials continue raising rates, making a recession more likely.”

The cautious statements came after home builders and realtors declared a recession in the housing market this week, as higher home prices and mortgage rates continued to sideline potential buyers and push demand to the lowest level since the turn of the century.

The Atlanta Fed cut its projections for third-quarter economic growth from 2.5% to 1.8% on Tuesday after data showing housing starts unexpectedly plunged 9.6% last month to the lowest level in more than a year, with experts blaming the worsening sentiment on rising mortgage rates.

Economists at Goldman Sachs are also worried it will be difficult to avoid a recession as the Fed works to combat inflation, saying on Tuesday that officials are “off to a good start but [have] a long way to go”; on Monday, Moody’s Analytics put the odds of a recession over the next year at 50%.

Higher interest rates are having a brutal effect on the housing market, driving up the cost of home-buying by hundreds of dollars each month and pummeling demand as a result. Existing home sales have plunged nearly 30% from a January high. Meanwhile, home prices are still skyrocketing and making affordability even worse. “We’re witnessing a housing recession in terms of declining home sales and home building; however, it’s not a recession in home prices,” National Association of Realtors economist Lawrence Yun said Thursday.

He is noting the median existing home price has fallen to $403,800 from a record high in June but is still up nearly 11% from one year ago.Consumer prices rose 8.5% in the 12 months ending in July—slowing down for the first time in months and fueling hopes the Fed’s efforts to cool inflation may finally be working. After an unprecedented surge in gas prices, inflation hit a 40-year high of 9.1% in June.

The Fed raised interest rates by another 75 basis points at its latest policy meeting in July, as officials discussed “unacceptably high inflation” and acknowledged economic growth will be “noticeably weaker” than they believed one month ago. Thus far, the central bank has hiked interest rates by 2.25 percentage points this year. Goldman says the majority of hikes are behind us in this tightening cycle and predicts only a 50-basis-point rate hike in September and 25-basis-point increases in November and December. However, that’s contingent on inflation coming down.

After a blockbuster jobs report, which showed the economy added more than half a million jobs in July, unemployment claims fell again this week, reflecting ongoing strength in the labor market despite waves of layoffs among some giant corporations. Average hourly wages, meanwhile, have jumped more than expected, climbing 5% in July to $32.27—the highest on record. “Any loosening in the labor market is marginal,” says Pantheon Macro chief economist Ian Shepherdson, citing the better-than-expected data. “There’s no recession here.”

Stocks have struggled to find direction after rallying more than 15% since the Fed’s rate hike in June when many investors concluded the worst of the increases may be over. However, the S&P 500 is still down 12% this year, compared to a 21% gain in 2021. Bank of America has warned slower-than-expected economic growth could tank stocks further, and if inflation isn’t tamed, more aggressive Fed policy would surely rock markets again.

I’m a senior reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill

Source: Recession Watch: It Doesn’t Seem Imminent—But The Housing Market Collapse Deepens As Fed Officials Warn ‘Economy Will Slow’

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Bull Markets Usually Don’t End With a Bang

Unlike bear market lows, which tend to be short and sharp, bullish stock market highs tend to occur gradually over time as a sector or investment style first peaks and declines. , then another.

This means that investors should not manage their equity portfolios assuming that there will be a specific day before which it would make sense to be 100% invested and then be in cash. Even if the precise timing of the stock market wasn’t incredibly difficult, it would still make more sense to gradually build up cash as individual positions hit their targets.

Of course, there is no way to know whether the current stock market – which abruptly retreated from record highs in late September, ahead of Friday’s rally to begin October – has entered such a protracted peak process. But the bull market will end someday, if it hasn’t already, and it’s important to review the characteristics of past highs so that you don’t manage your portfolio on the assumption that you will be able to peak in real time.

A recent illustration that not all sectors and styles are reaching their bullish highs at the same time appeared at the top of the internet stock bubble in early 2000. Although the S&P 500 and Nasdaq Composite indexes did reach their bullish highs in March 2000, value stocks – and small cap value stocks, in particular – continued to rise. The S&P 500 at its October 2002 bear market low was 49% lower than its March 2000 high, and the Nasdaq Composite was 78% lower, but the average value of small-cap stocks was 2% higher than what it was in March 2000, according to data from Dartmouth professor Kenneth French.

Although this is only an example, it is not unique. Consider what I found while analyzing the 30 bull market highs since the mid-1920s that appear in the timeline maintained by Ned Davis Research. In each case, I determined the dates on which various sectors of the market reached their particular bullish highs: the large, mid and small cap sectors, as well as the styles of value, growth and mix, as measured by the market. share price. -accounting reports. On average over the 30 bull market highs, there was a 225-day gap between the first date one of these sectors peaked and the last. It’s been over seven months.

There are exceptions, especially when an external event causes the market to collapse and virtually all sectors fall in unison. The stock market crash of 1987, as well as the declines following the terrorist attacks of September 11 and the pandemic lockdowns of March 2020, are good examples of this. But in most cases, it is more accurate to view a bullish top as a process rather than a one-time event.

Another reason to view market highs as a process is that, the day major stock indices such as the S&P 500 hit their bullish highs, you will have any idea that a bear market is imminent. . Instead, you’ll likely be caught up in the exuberance of the moment. Only with hindsight will it become clear that a bear market was starting.

This exuberance leads investors to be too heavily invested in stocks during the later stages of the bull markets. Believing that the exact day of the peak has not yet been reached, they hold on to their stock positions for too long. Viewing market highs as a process can counterbalance this exuberance, as it causes investors to focus on their individual positions rather than on the market as a monolithic whole.

Many resist this advice because their memories play tricks on them, leading them to believe that it is possible to spot a bullish top the moment it occurs. This is certainly not the case, according to my company’s daily monitoring of advice from stock timers – advisers who tell clients how much of their investment portfolios should be in stocks and cash. Over the past four decades in which the S&P 500 peaked in the bull market, the average level of exposure to equities recommended by these timers was 65.7%. This is a higher level of exposure than 95% of all other days over the past 40 years.

On the days when the S&P 500 hit its lowest bear market level, by contrast, the average exposure level recommended by stock timers was only 5%. Remember October 2007. Even though the S&P 500 was on the verge of entering a 57% 16-month decline, hardly any of the 100 or so stock stopwatches my company monitors were considering anything. the type.

This failure was true even for market timers with the best long-term records entering that month. One of the long-term top performers at the time was telling clients that a bear market was such a distant possibility it wasn’t even on his radar screen. Another went from full investment to 25% margin – borrowing to invest even more in stocks – the day before the exact day of the S&P 500 bull market high.

If these market professionals with good, long-term track records weren’t able to anticipate the onset of one of the most serious bear markets in U.S. history, you’re kidding yourself if you think that you can always do better. You are more likely to be successful by viewing the end of a bull market and the start of a bear market as a process rather than a one-time event.

By: Mark Hulbert

Mr. Hulbert is a columnist whose Hulbert Ratings follows news bulletins about investments that pay a fixed fee to be audited. He can be contacted at reports@wsj.com.

Source: Bull Markets Usually Don’t End With a Bang – WSJ

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Related Contents:

Break The Five Most Common Outsourcing Reform Myths

Break the five most common outsourcing reform myths

With 41 days to comply with the new regulation on Outsourcing, which comes into force on July 24, five myths prevail among Mexican companies. The new regulatory framework applies to companies of all sizes, however, SMEs are under more pressure because they do not have great internal support or consulting firms to carry out this transition.

In addition to the rush to comply with the new regulations, it must be taken into account that there is some confusion about the functions that can continue to be contracted through outsourcing. For SMEs, companies from 10 to 200 or 300 employees, internalizing the functions that were traditionally handled in outsourcing is complex and represents a challenge. Automation and support are key to successfully undergo this transformation and avoid the associated fines.

To dispel the main myths that exist regarding the new regulation, Business Republic organized a webinar to offer real facts and advice for the new regulation. At the event, Carlos Marina COO of Worky , Lorena Atondo and Gabriel Fernández, both from Reynoso & Atondo, Abogados, SC, agreed that this situation is significant, since it impacts more than 4.7 million workers, 17% of the formal jobs in the country.

And it is that urban myths and fake news abound that cause uncertainty and concern among clients and prospects, Carlos Marina warned.

The myths:

  1. “I can continue with my current outsourcing scheme, since the authority does not have the resources to detect it.”
  2. “I can avoid the new regulations by passing my collaborators to schemes of incorporation into the tax regime, fees, cooperatives or unions.”
  3. “We can pay a minimal amount in cash and the rest of the compensation can be handled through bonuses, commissions and vouchers.”
  4. “I don’t worry about the compensation schemes of the past, as there are no retroactive effects.”
  5. “The internalization of the payroll is too expensive, I better risk possible fines”

Each of these statements are not only false but risky. The specialists clarified that the new regulations are designed to improve the conditions of the workers and that in that spirit, the authority has organized itself to avoid precisely any act of simulation. At this juncture, solution providers have emerged that seem miraculous, but in reality only expose the company and its human capital to unnecessary risks.

Advice

“My advice to all employers is to take preventive measures to comply in a timely manner and to focus on the positive aspects that the internalization of staff brings in terms of employee satisfaction, loyalty, and company productivity,” commented Lorenia Atondo .

For his part, Gabriel Fernández, added that the sanctions are structured to promote broader compliance, since they range from 178,000 pesos to more than 4 million and even criminal sanctions are contemplated. It states, “The authority has full visibility of these myths and others, and is organized to detect and punish through mechanisms of collaboration between institutions and information exchange.”

The internalization of workers represents a change of capital dimensions for companies that currently depend on outsourcing for the management of their human resources. “For small and medium-sized companies, which do not have specialized departments or the support of consultants and law firms, this transition becomes even more delicate,” commented Marina, highlighting that Worky is dedicated precisely to companies with 20 and up to 200 employees for whom offers support throughout the internalization process with a 100% Mexican management platform designed to be affordable and relevant for this segment.

Hanz Dieter Schietekat, CEO of Business Republic and who moderated the event, ended the session by urging attendees to act promptly. “I hope it has become very clear that compliance with the new outsourcing standard is imminent and mandatory. Remember that if a solution sounds too good to be true, it probably is. With less than a month and a half remaining for compliance, it is imperative to have the right tools and advice. ”

By:

Source: Break the five most common outsourcing reform myths

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Critics:

Outsourcing is an agreement in which one company contracts a service bureau to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another.

The term outsourcing, which came from the phrase outside resourcing, originated no later than 1981. The concept, which The Economist says has “made its presence felt since the time of the Second World War”,often involves the contracting of a business process (e.g., payroll processing, claims processing), operational, and/or non-core functions, such as manufacturing, facility management, call center/call centre support).

The practice of handing over control of public services to private enterprises, even if on a short-term limited basis,[7] may also be described as “outsourcing”.

Outsourcing includes both foreign and domestic contracting,and sometimes includes offshoring (relocating a business function to a distant country) or nearshoring (transferring a business process to a nearby country).

Offshoring and outsourcing are not mutually inclusive: there can be one without the other. They can be intertwined (offshore outsourcing), and can be individually or jointly, partially or completely reversed,involving terms such as reshoring, inshoring, and insourcing.

  • Offshoring is moving the work to a distant country. If the distant workplace is a foreign subsidiary/owned by the company, then the offshore operation is a captive, sometimes referred to as in-house offshore.
  • Offshore outsourcing is the practice of hiring an external organization to perform some business functions (“Outsourcing”) in a far-off country other than the one where the products or services are actually performed, developed or manufactured (“Offshore”).
  • Insourcing entails bringing processes handled by third-party firms in-house, and is sometimes accomplished via vertical integration.
  • Nearshoring refers to outsource to a nearby country.
  • Farmshoring refers to outsourcing to companies in more rural locations within the same country.
  • Homeshoring (also known as Homesourcing) is a form of IT-enabled “transfer of service industry employment from offices to home-based … with appropriate telephone and Internet facilities”.[16][17] These telecommuting positions may be customer-facing or back-office,and the workers may be employees or independent contractors.
  • In-housing refers to hiring employees.
  • An Intermediary is when a business provides a contract service to another organization while contracting out that same service.

See also

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