Are we heading for Economic Disaster?
UK wage growth failed to keep up with the rising cost of living new figures show. Wages rose, but when taking rising prices into account, regular pay showed a 1% fall from a year earlier, the Office for National Statistics said. As the country heads into recession 1 in 5 companies are planning to sack workers. Many tech companies are slowing or outright freezing hiring, while others are going a step further and laying employees off. We are already seeing this happening as consumer spending is tightening which affects business’s profits This list could potentially be a thousand times longer if things do get worse in the economy and overall at the moment, consumer confidence is very low in the UK.
The Stock Market
Well, this is the worse start to a year since 1939. The markets have been bear for 7 consecutive weeks, this has only ever happened 5 times since 1929. We have seen Amazon lose 200 Billion in one day, Netflix down 70% and many more tech companies in decline, even major retailers like Walmart are significantly down. So with the stock markets in decline how does this look for the economy?
Well to be honest it doesn't look good at all and to be honest, it looks really bad.
What about this inflation monster
With rampant inflation at an all-time high in 40 years it just paints a darker picture. To be honest I really don’t see any easy way out of this one as we can’t just flick a switch and turn this inflation monster off. To be honest we really only have 2 choices. There is a bad choice and a worse choice. The bad choice is to fight inflation and let interest rates go up so everything will collapse. The worse choice is to continue to create inflation to avoid that and postpone to consequences of hyperinflation. If you look at the history books the last time we had inflation this high was from the late 60s through to the early 80s. WoW, that is a very long time and it created a lot of pain. The chairman of the fed in the early 80s Paul Volcker raised interest rates to 20% and by doing this he brought inflation back down. I do believe we are heading into a stagflation period by the end of this year, a recession with high inflation and high unemployment.
The Housing Market
Just like the stock markets, the housing market has been on steroids for the last 2 years. House prices have now hit their peak as for April growth was 0.3% which is a big drop if you compare to previous months of this year. Expect house prices to decline, although this will vary depending on where you live. Within the next 2 years we will see a housing crash like nothing before. All of this pent up demand we have seen during the pandemic will evaporate. You can forget the supply and demand argument because the economy is going to take a real significant downturn. The bond market is having its worst year in history and we are only in May. This will have a devastating effect on all housing markets. They are selling all over the world as interest rates are rising globally. This will hurt all financial assets. My advice is to people don’t get too confident about house prices not going down in the near future because you will be in for a big shock.
A lot of people are saying this is different to 2008
I agree this is much worse. Only this time around we have had a global pandemic, 100s of billions of money printed for QE, rampant inflation, the highest records recorded for personal debts, war, and supply chain problems.
This will be a lot worse than 2008, the demand for buying houses will just evaporate.
Unfortunately, all of this money that was printed during the pandemic which has created these artificial markets will be coming back to bite us all really hard. We are just at the beginning of a very long bumpy road.
The Russian – Ukraine war doesn’t look like it’s going to end anytime soon which is so sad for many innocent people whose lives have been turned upside down and destroyed. I think we should all start preparing for a turbulent couple of years.
Please share your thoughts on what you think may happen?