Thread by @str8edgeracer

🧵 When interest rates are too high to borrow freely against (approaching CPI*) , and when inventory returns(**), the tide will drop very fast. Demand and consumer confidence will crater quickly and spending/hiring/investing will change rapidly.

The wobble we are seeing right now is credit tightening…so the Money Printer merry go round is slowing down from BRRRRR to BRRRrr. This means that *top level* people can still borrow cheaply but lower tier credit offers are now approaching 8-15% which is ~par with inflation.

This is how the Cantillon effect works in real time. High wage earners are protected the longest, whale clients get lifejackets first. The lower decks start flooding and self employed (OnlyFans?) plebs with 650 fico are gonna pay 10% on car loans. Whales get 2.49%.

The boom in housing prices will see plateaus or outright drops- countering the massive ramp up trend of 10-20% cost increases for last 2 years. People will continue to move out of bad tax / cost states - but now it’s forced vs willingness. Relocation capitulation is painful.

But if your life is too expensive in one place and potentially 30% (or +++) cheaper somewhere else, AND your skills are portable/ in demand…why stay in the more expensive and potentially higher crime/tax/traffic location? The only thing that will hold back moving is loan rate %

last summer- home loans were cheap enough that you could potentially borrow against your home equity to get a down payment together and buy a second home for rental income. #SideHustle - And with travel restrictions easing this might have made sense. But-

Now it appears that discretionary spending is impacted. Vacations might be cut short because flights and gas and car rental costs are nuked. Food is more expensive. so your “5k a month guaranteed” from that AirBNB tiktok hack guru won’t be 4k- it could be zero for a while.

people forget to consider the long term implications. If they borrow at the right time, and buy at the right time, things can still go downhill as entire categories are annihilated by lockdowns (cruise lines, hotels in 2020) or trends fall out of favor- quickly. So- run to cash

But cash is worthless. It generates zero interest. You need income- so you invest. This is where elite level people have the massive advantage against middle and lower class people. They invest in some blue chip equities as an inflation hedge, AND borrow against that collateral

If they’re borrowing against their stocks, they’ve gotten 2-3% costs and don’t sell their stocks. CPI is totally BS but right now is probably still 8-10% for a while. If markets continue to pace inflation then your cash is discounted. Everyone else has to sell stocks for cash

the big banks make money by lending but also by managing massive piles of wealth. they are incentivized to offer loans against portfolios and continue to have lending open when rates for personal loans/ auto/ mortgages are all shooting vertical for low income / 1st time buyers

the real lurking issue here: inventory. when “days supply” creeps up- prices start dropping FAST. Durable goods are heartier but eventually the carrying costs for the seller are too high and we will see a race to the bottom. Some sellers will panic sell after a short period.

The common misconception: “this time it’s different”. The reality: you run out of money to hold inventory (cannot trade bananas for rent, or tires for salary) or you run out of space. A glut of inventory = purging into the market. Purging is ugly. We have gorged- its coming

So smarter companies are VERY FOCUSED on inventory management. They are producing to demand- not capacity. They’ve got metrics for higher end vs lower end, complex models and custom choice vs A or B model. They know over inventory breaks the merry go round, systemically.

now is the time to use whatever influence / charm/ dealmaking skills you have to secure your supply chain. Get a long term deal with tenants or your landlord/ power company/ ranchers. Find a few solid things to bolt down, build predictability into your life BEFORE the power cuts

When the merry go round of borrowing and spending and investing stops- so do easy returns (and tiktok financial advice). People will be ejected forcefully off the horse into hard objects like cost hiked snd tax bills and eventually foreclosures.

we have to stock the freezer and the dry goods in the cupboard before the crazed run on the stores. Good preparation means you consider what could become vulnerable. It’s a matter of time. Manage these risks and you’ll be better off than yoloing into memestocks

Have cash handy. Borrow cheaply if you know you can pay it back or refinance your expensive debts now before things get too toxic/expensive. Hold your valuable stuff, hold btc for liquidity- be ready to defend it. Seek best relationships now. Watch days supply everywhere.