(AP Photo/Alex Brandon)
As the realization of stubbornly high inflation, paying more for less, a possible recession, an endless war in Eastern Europe, supply chain disruptions resulting in empty shelves and job cuts sink in, the United States may be entering the fear stage.
Working-class families worry about feeding their children. Young adults lament that they can’t afford the promised American dream of home ownership and starting a family. Only a year ago, the U.S. was reaping the benefits of economic prosperity. Now, 401(k)s, college funds for the kids and stock market investments have substantially plunged with no end in sight.
Emblematic of the mindset shift is what happened in the tech sector. After unbridled growth for over a decade, hiring thousands of well-paid professionals and offering them enticing amenities and perks, the party has abruptly ended. The end of cheap money is over due to the Federal Reserve Bank’s quantitative tightening and the government halting trillion-dollar financial stimulus programs.
You can see the results on LinkedIn, as thousands of newly laid-off tech workers post about their downsizing in pursuit of new jobs. Renowned venture capitalist Bill Gurley summarized the new landscape in an informative Twitter thread, stating that the “‘game on the field’ has changed.” During the economic boom, the tech companies “created a Disney-esque set of experiences [and] expectations.” Gurley added, “You can't ‘wish away’ the fact that if your company isn't cash-flow positive [and] capital is now expensive, you are living on borrowed time.”
Is Mark Zuckerberg Starting To Panic?
It’s been reported that fearful Meta, the parent company of Facebook, employees are expecting job cuts as high as 10%. Mark Zuckerberg, the imperial head of the once-invincible, social-media giant, said he would crack down on low performers.
Meta human resources chief Lori Goler struck a chord of fear, as she suggested in a memo that employees who couldn’t meet expectations in this new tougher environment may have to worry about the safety of their positions within the organization. Meta has been feeling the heat, as TikTok continues to steal market share.
The New York Post reported that Zuckerberg allegedly couldn’t maintain his composure when one of his employees inquired about vacation and personal days off during a meeting in which the CEO shared his plans for potentially letting go of underperforming workers.
The Wall Street Experts Sound The Alarm
You may recall the name Michael Burry from the book and film, The Big Short. He was one of the lone money managers to predict that the economy and stock market were in for a free fall. His reputation for making prescient market calls was cemented when the stock market crashed in the Great Recession.
Burry has been warning that the U.S. is in for another economic plunge, which would reverberate to the job market. Sensing that the White House is not owning up to the severe nature of the dilemma, he accused President Joe Biden of moving the goalposts on the definition of a recession (two consecutive quarters of contraction). Burry pointed out that Americans are using their credit cards to cover the high living costs. The high-interest rates on the debt will cause further concerns for the consumers.
His views are echoed in a new Maru public opinion poll, which found 57% of Americans are anxious over inflation’s impact on their financial situation, and 14% are experiencing a sense of fear, as they feel their lifestyle will decline.
Nouriel Roubini, chief executive of Roubini Macro Associates and teacher at New York University's Stern School of Business, said, “There are many reasons why we are going to have a severe recession and a severe debt and financial crisis.” Roubini, another expert who predicted the financial meltdown of 2008 and 2009, told Bloomberg, “The idea that this is going to be short and shallow is totally delusional. Today, we face supply shocks in a context of much higher debt levels, implying that we are heading for a combination of 1970s-style stagflation and 2008-style debt crises—that is, a stagflationary debt crisis.” He believes that U.S. stocks will most likely plunge lower and drop by 50%.
Walmart’s Warning
Walmart’s share price plummeted about 10% and its management cut its quarterly and full-year profit guidance. Walmart, the largest big-box retailer, is a bellwether for the economy. So it's alarming that one of the most successful U.S. companies that cater to working Americans is experiencing challenges.
As inflation hits a 40-year high and prices are uncomfortably rising, families are cutting back on their purchases. While they are buying necessities, such as food (which have low-profit margins), families are skimping on electronics and other items that don’t need to be bought at this time. The problem for Walmart and other retailers is that the profits are more substantial with the big-ticket items.
There are also concerns in an array of other sectors. For example, Wall Street is seeing fewer M&A, IPOs and deal-making activities. In addition, real estate faces headwinds as cash-strapped families can’t afford the higher monthly mortgage payments and are walking away from purchasing homes. Similarly, renters are not able to afford the rent in major cities.
Here’s Some Positivity
Famed Wall Street analyst Ed Yardeni offered some comfort. In a Bloomberg interview, the longtime securities analyst said the worst has passed for this bear market. The Yardeni Research president contends that the S&P 500’s plummet last month to a 3,666.77 low was most likely the bottom of the 2022 stock market rout. In addition, he points to the recent corporate earnings mainly looking solid, as American consumers continue to spend and there is still a high employment rate.
