Fed rate increase = lower hifi prices?

That’s just simply not true.  Using a 2022 S&P500 earnings estimate of 230 the current earnings yield is 5.5%, which leaves quite a bit of leeway for rates to rise before putting pressure on stocks (yes, I’ve done the research).  My expectation is after the dust settles we’ll head back down more to the 3% inflation range given our base rate for years has been stuck at less than 2%, but we’ll see.  

Please poke as big of holes as you feel is appropriate in anything I say. I won't take it personally. Is that earnings yield not based on growth?  Since you have done the research are you able to share some simple math for discussion?

I do feel you are correct, I can't see 8 years of high inflation. Gov debt will end up debilitating as there will be matching interest rates to help keep inflation down (in theory).

In your entire career or experience, has any reputable firm EVER made such a forecast? I don’t recall ever seeing anything like that…even doomsday cults stopped using exact dates.

That sounds like something I see from people trying to get me to buy stock newsletters.

We can't even predict a narrow set of critical commodities to battery manufacturing 6 months out, how one could accurately predict the world economy out a decade seems open to competence questioning.

Gold was not a great investment during the pandemic. It was not awful, but it and silver until recently totally under-performed. Real estate did well due to lack of supply caused by a whole host of issues in some countries, not just pandemic or China, but general immigration, zoning blocking construction, policies that provided "false" affordability, etc. However, in some countries, said real-estate is declining (Canada for instance), and could be headed for correction leaving those most vulnerable to holding assets worth less than the debt they hold against that asset. It’s the 80’s all over again. People 8+ year into ownership with mortgages worth more than the house. It’s fine if you can weather it for another 10 year.

Honestly, feelings are not hurt at all. I really do want to see the basis of you analysis so I can understand it better.

Almost everything technology oriented goes down in price. Computers, cell phones, televisions, most audio equipment. Gas goes up and down, thought overall up. Much like any commodity in which usage is increasing. Copper was very very good to me!

Na, it will be the market crash that will open up the used market.

You forgot price gouging because they can hide it in the inflation :-)   No I am not making that up, it was a researched report.

Inflation is much higher in the western economies that printed money during Covid as opposed to Asian economies who did far less of this. Can you comment on that? I would be interested in your thoughts.

Well we know it is not you @ghdprentice , that or you are just a lot less informed than you think you are.  I am not suggesting that audio companies are, but their suppliers are in some cases. We track our suppliers underlying costs with great detail. Why? Because when you know their underlying costs and can put that in front of them and explain, like all commodities surges, it will not last forever, and we will remember, it helps in bargaining.

Japan is a beautiful place. I would live there. Surprising amount of open space considering the number of people in a small space. China, communism is not for me. South Korea is quite nice too. I am sort of partial to Taiwan though.

@soix I have the impressing during Covid that most western countries were "printing money" in excess of what was necessary and/or at least without sufficient oversight for need. Pure Keynesian economics I thought was out of favor? QTM would explain at least some part of the inflation. Unfortunately with the stock run, though that already had wealth (likely many here) did okay, while those who did not fell further behind even though they were the ones most in need of additional money supply.

https://www.businessinsider.com/how-measure-inflation-raise-prices-corporate-profits-supply-chain-2022-2

https://www.usatoday.com/story/money/2022/04/27/price-gouging-corporate-greed-driving-inflation/7445429001/?gnt-cfr=1

https://www.forbes.com/sites/raulelizalde/2022/02/23/car-prices-above-msrp-reflect-price-gouging-rather-than-inflation/?sh=7b7bdbd1b60a

The sky could fall tomorrow (or Monday), we really don't know. Russia could make a move that signal a foreseeable war end or escalation. China could decide it does not need the US. The Chinese domestic market at some point will be much much bigger than the US, and Europe and the US both want to be the top dog, so cooperation is not as good as it could be.

If the interest rate is negative or 2%, if inflation is running a 6-7%, I am still paying someone to hold my money in either case. Similarly 3.4% sounds strong, but in a 6-7% inflation scenario, that is stagflation.

@ghdprentice my point was someone made a comment about living in Japan (or Asia in general where inflation was lower). My comment was there are lots of places in Asia live and be happy, China not being one of those places though.

Back to the market, 30K in Nov, 32.9 in now, 6 months at 7%+ inflation is a 3.5% devaluation. Not much, considering a war is going on.

My concern with valuations is where the near term growth is going to come from to support the forward predicted valuations. Longer term it may be there as India modernizes and drives global growth, but otherwise, there is not the driver that China has been of world consumption coming online.

The fact that the world economy didnt come to a screeching halt in mid-2020 is clear evidence that the monetary policy worked.

It is evidence that an aspect of the fiscal policy worked. That does not mean the fiscal policy was ideal or even close to ideal. Just the fact that we had a massive asset valuation increase during a global pandemic should give you pause. Literally no value was being created, but assets grew i value.  Throw your economic theories and monetary policy aside for a while. That is fundamentally flawed, and anything that fundamentally flawed will eventually crash.

Our business subscribes to an economic forecasting firm. Growth will slow into 2023 but no recession. Minor recession in 2026. Inflation will stay in 4 to 5% range for rest of this decade. Major depression around 2035 - worldwide.

With 4-5% inflation without compensatory growth, that would suggest a potential for significant decline of the stock market total asset valuation in constant dollars. An expected matching rise in interest rates will play havoc on government budgets and/or ability to deliver services.

Did it also predict GDP growth in constant dollars?

Sorry I have to catch up on other posts. This take me longer to absorb vs some others here.

Thought on the Bank of England predicting inflation could reach 10% by the end of the year and that could be coupled with a recession?

Oh my feelings are just fine. My questions about your reasoning are quite valid since the Real Earnings Ratio is the worst it has been in 80 years hitting almost -4% and it almost always is a leading indicator of a recession and stock market decline at least near term. Your assumptions seemed based on a rapid return to lowish inflation? However many disagree with a near term (<1 year) chance of that happening say like Bank of England economists.  As well due to the unusual conditions of the last two years there is a larger than normal differential between operating earnings and core earnings suggesting the Real Earnings Ratio is effectively worse. Then again I could read 50 analysts predictions for this year and all would be different the only consistency that a recession with inflation will be bad for valuations. Whose crystal ball is best?

@noske , purely IMHO at this point, but I would think the high high end is pretty inelastic since for the people buying this, it is chump change. I expect the middle-bottom end of the audiophile world to be rather elastic. $100K on a hobby with a $1M+ equivalent salary is "reasonable". There is a lot of disposable in $1M+.  $20K on a $200K salary, or $10K on a $100K salary is a much bigger chunk out of disposable income. For "family" people, there will be an expectation to maintain other aspects of life, including vacations, etc. especially as the pandemic ends, so I could see audio dropping down the list of spends.

Market is still not happy. Sometimes the best stock investment advice is not to invest.

https://fortune.com/2022/05/02/morgan-stanley-stocks-fall-sp-500-earnings-growth-slows/

It's the internet @soix, no worries. I find if you push smart people, it makes them think more and you learn more from them. I meant it quite honestly. I have no ego in this area and I did read everything you said looked deeper into some things I have not followed as closely as I could, etc. I have a financial advisor, I regularly talk to our economists and analysts are work because how and what we build is so tightly tied to related commodities, and do my own research.  My advisor encouraged me to invest more after the initial pandemic drop and he was absolutely right and I followed his advice. He thought I was taking too much of a risky position w.r.t. commodities late last year, but that turned out very well. I didn't follow his advice as well as I could w.r.t. Covid medical investments.  Any time human nature can play a huge role in the outcome, nothing is easy.