A roller coaster climbs hard when it goes up, and when it plumps down, it falls free in an instant.
This is what the stock market is like these days.
Our markets go through hell as the US rate hikes to catch inflation, and the US market reacts to it.
Early on Thursday, the 16th in Seoul time, the Federal Reserve (Fed), the central bank of the United States, announced a 75bp rate hike.
(0.75 %p, bp is an abbreviation of basis point, meaning 0.01 percentage point.) This was the largest increase in 28 years since 1994, which was not expected until recently.
Before that, the market had been using the phrase 'big step' in forecasting a 50bp hike.
So this time, the word 'giant' step bigger than 'big' came out.
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Simply put, it's a bad thing.
Nevertheless, the US stock market, which had been falling terribly for several days, ended with a sharp rebound as if there was some great news on the day (Thursday morning Korean time).
However, the U.S. stock market, which was confirmed early the next morning, fell sharply again.
The Dow Jones Industrial Average broke the 30,000 mark, the lowest in one year and five months.
The Korean market, which was held on Friday, also fell helplessly.
Screams of being caught in a 'dead cat bounce' can be heard everywhere.
It is an American stock market slang word meaning 'even a dead cat will bounce if it falls from a height'.
It expresses a situation where you enter a low point buying and get bitten by a further decline.
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The end of the commotion of '75bp Giant Step'
At the beginning of this month, the market expected a 50bp (0.5%p) increase.
There were little expectations that inflation would have peaked, China would gradually lift the blockade and start production, and OPEC, an oil exporting country, would increase oil production, so things would get better.
However, the US economic statistics released on the 10th cast cold water on this expectation.
The US CPI, which seemed to have weakened slightly in April, was found to have reached a new high of 8.6% in May.
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It is the largest in 41 years since December 1981.
The core CPI, excluding energy and food, which is highly volatile, also rose by 6.0% from the same month a year ago and by 0.6% from the previous month.
Consumers also believe that inflation will last for a long time.
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The Wall Street Journal (WSJ), familiar with the internal affairs of the Fed, reported on the 14th that the Fed would raise rates by 75 basis points rather than 50 basis points.
The whole of Wall Street was shocked to accept this report as a fact.
JP Morgan fueled fears by saying that there is a possibility of a 100bp hike.
Then, if the Fed raises the key rate by 50 basis points, rather, it created a situation in which the voice of 'inflation is so serious and the Fed is still out of breath' was created.
The market hates the unexpected and the unpredictable.
When the Fed announced a 75bps hike, the market cheered and rally for relief.
Because the prediction was correct.
But thinking about it the next day, I came to the realization that the economy was not going to get better.
The giant step in raising interest rates will not end once and there will be no economy that will survive it.
Again, the goods poured out.
Metaphor: Will you be in your 50s or will you be in your 75s?
In school in the 1970s and 1980s, it was common to be right.
Corporal punishment was commonplace.
Let's assume that at this time, students almost burned down the school while playing with fire in the classroom.
The people who caused the accident appeared to be in their 50s with sticks.
I made my own preparations.
Wearing two underpants and what's on your ass...
.
However, a guy who overheard the teacher while going on an errand to the school office shouted like this.
"Hey, you're in your 75s, not your 50s!"
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The students who had the accident panicked.
If I was in my 50s, how could I endure it, but I even thought that if I were in my 75s, I would die or hit my teacher or something would happen.
'Ah, maybe...
Didn't I hear it wrong?'
There were students who raised doubts, but within a few days, the public opinion was focused on the fact that he was really going to be in his 75s.
Then, among the students, there was a sense of anxiety that the situation would not be over once they hit their 50s.
I'd rather be hit by the 75th this time and finish it, but I'm going to try to harass you over and over again...
A fear of that has sprung up.
Finally, on the day of the threshing floor.
As expected, the students hit their 75s.
It hurt to death, but I was relieved that there was no end to it anyway, and after school, I went to a snack bar.
But the next day, I saw that there were bruises on my thighs and buttocks, and nothing was resolved.
Parents still have to be called to school, and even burnt household items have to be fetched.
Again, a sense of despair weighs on the students.
If we compare the situation of the US stock market in the last few days, maybe this is what it looks like.
'Perfect Storm' doesn't pass easily
Perfect storm.
It refers to a typhoon of exceptionally great intensity and scale, which is caused by the overlap of various factors.
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In October 2012, while I was working as a New York correspondent, a super-powerful hurricane called 'Sandy' struck the eastern United States.
Even Wall Street financial companies were submerged in the swollen Hudson River, and some even submerged their underground computer networks, causing great damage.
It was unprecedented.
Sandy was a great hurricane in its own right, but due to the full moon's gravitational pull, it landed at a time when the water level was at high tide and caused more damage.
The flood damage was caused by the failure of the rainwater pouring onto the land to drain out to the sea in time.
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This is the same reason why the recent economic crisis that threatens the world is called a 'perfect storm'.
This is because these two cataclysmic events overlapped: a reaction to the COVID-19 pandemic, and Russia's invasion of Ukraine, spurring post-globalization.
If we compare inflation to fire again, the release of astronomical amounts of money to overcome Corona 19 was like pouring oil on a dry field.
The Russian invasion of Ukraine was like throwing a cigarette butt here.
When the conditions for inflation are met, the supply chain principle of 'buy anywhere, buy from the cheapest' is broken, and necessary goods cannot be obtained at the previous price in a timely manner.
Countries around the world are falling into a complex crisis in which growth is slowing, inflation is rising, finances are insolvent, and the balance of payments is bad.
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Can this situation be resolved in a short time?
Let's take a look at the negative factors that make up recent inflation one by one.
First, international oil prices
Oil, shortage this year, shortage next year
Oil is the basis of all economic activities.
It is used for electricity production, transportation, heating and cooling, chemical raw materials, etc.
However, the current oil supply is not sufficient, and there is a forecast that it will be insufficient in the future.
The world has recovered from the coronavirus pandemic and has resumed active economic activity, as Russia, one of the world's largest oil-producing countries, is under sanctions for the invasion of Ukraine.
According to the International Energy Agency (IEA), Russia exported more than 3 million barrels of oil a day to the European Union (EU).
At the end of May, EU leaders agreed to cut Russian oil imports by 90% by the end of this year.
At least 2.6 million barrels of volume must come from other sources, but the amount agreed to increase at the regular meeting this month by OPEC+, a consultative body of major oil producing countries, is less than 650,000 barrels a day.
The UAE's oil minister, Suhail Majruai, said the supply shortage is not easy to address.
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The International Energy Agency (IEA) predicted in a report on the 16th that global oil demand will exceed the pre-pandemic level next year.
Global oil demand next year is expected to increase by 2.2 million barrels a day to 101.6 million barrels a day, exceeding the 2019 level for the first time since the pandemic.
On the other hand, global crude oil supply is projected to fall by 500,000 barrels per day next year.
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Looking at the third quarter of this year, there doesn't seem to be much room for oil prices to drop.
With the U.S. holiday season in full swing, demand for gasoline has increased dramatically.
According to a survey by the National Automobile Association, gasoline inventories are at their lowest level since 2015, even though the U.S. refinery utilization rate has risen to 94.2%.
In addition, the US is now playing the role of supplying petroleum products such as gasoline to Europe, which is reducing Russian oil imports, so there is no more inventory space.
In the midst of this, if a hurricane, equivalent to our summer typhoon, hits and stops oil-related facilities on the eastern coast of the United States, international oil prices will rise further.
(It happened often in previous years, but if it happens again this year, the shock will be different.) The
Washington Post (WP) said on the 13th that the US Biden administration had few cards that could be used to curb soaring oil prices, so inside the White House reported that his frustration was deepening.
President Biden plans to meet with Saudi Crown Prince bin Salman next month and ask him to increase oil supplies, but there is little expectation that the situation will change significantly.
Prices of almost all raw materials, such as grain and minerals, as well as oil, are rising.
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Such a nuclear disaster is a problem that will only be resolved after the Russia-Ukraine war is over, and this war is expected to continue for a long time in the form of exhaustive artillery warfare on the Eastern Front of Ukraine.
U.S. consumption still strong... A long way to go to catch inflation
Although the overall statistics and outlook are bleak, US consumers are still very active.
When the pandemic reached its peak, Americans saved 34 percent of their disposable income, according to Public Radio's Marketplace.
However, according to statistics from last April, they are now saving only 4.4 percent of their disposable income.
It means that they spent that much money, and it can also be said that the money that was saved as a corona subsidy or compensation is now slowly showing the bottom.
This situation can be interpreted in two ways, like a half-full cup of water.
This means that people are still actively spending their money, so it may take some time for prices to catch up.
On the one hand, it is possible to predict that inflation will gradually subside as more people return to work if savings decrease and consumption will gradually decrease.
On the other hand, it can be interpreted that economic growth is no longer difficult and the economy is only left to deteriorate.
Either way, it is too early to say that inflation has reached its peak yet.
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US consumers continue to spend despite rising prices, but the household budget is unlikely to be what it used to be.
The recent U.S. retail sales graph is as follows.
Although the amount of consumption expenditure itself is increasing, it is gradually decreasing when adjusted for inflated prices.
When inflation increases, consumers sit still and their purchasing power is 'cleaned'.
Inflation is so scary.
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American consumers bought enough to buy tangible goods such as furniture, home appliances, and clothes online during the severe COVID-19 period, and now they are moving toward consuming intangible services.
Fed Chairman Powell also pointed this out during an announcement of a rate hike.
Businesses such as travel, leisure, and restaurants are now in a stage where demand is rapidly increasing.
However, the US has yet to fill the vacant jobs.
There are still 1.7 jobs per job seeker.
It is highly likely that prices in the service sector will not be captured for a long period of time.
That's why the Fed's fight to catch inflation cannot be over in a short period of time.
Don't expect growth... catch inflation first
Countries are fighting to lower their economic growth forecasts.
In the US, the center of global finance, there is no other country that can go the other way while raising interest rates and collecting dollars to cool demand.
In Korea, which lives on exports, the profitability of trade is worsening.
This is because the price of raw materials to make goods is gradually rising and the economy of customers' countries is expected to gradually cool down.
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This means that the dollar we earn from exports decreases.
In relation to the future economic situation, the government, businesses, and households are all heading to a situation where they must fasten their seat belts.
The government has also lowered its economic growth forecast.
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If you are thinking of investing in this situation...
In this case, there are some who think that they can make money only by courageously buying at a low point.
In fact, there are investment techniques that make money by using volatility, and successful investors sometimes say that they have courage when others are terrified.
However, I hope that readers of this article will take this into consideration.
Recently, BlackRock, an institutional investor on Wall Street, released a data saying, "Why don't you buy at low prices?"
In short, it is not known how far interest rates will rise and how far the profitability of companies will deteriorate, but it is still not cheap enough.
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Bloomberg Economics conducts a monthly survey of the likelihood of a recession in the U.S., and that number is rising sharply.
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If you are a person who wants to buy virtual assets such as coins or NFTs at low prices, saying that there is nothing to expect about the real economy and the existing financial system, I recommend that you think carefully about the remarks of Bill Gates, who have recently caused a stir.
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There are people who can confidently say that Bill Gates does not know much about virtual assets, that I am smarter than Bill Gates, and that if I hit and fall quickly, I can earn.
Even so, it is better to invest only as much as you can afford even if you lose, with your own money rather than borrowed money.
The perfect storm of inflation and supply chain disruption still has a long way to go.
#A good article to read together by reference: Newsship May 21, 'There is no party that never ends - The collapse of the bubble and the advent of low growth'
[Composition: Hyunsik Lee, D Contents Producer, Content Design: Jisoo Ok]