Pro Perspectives 12/19/22

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December 19, 2022
On Friday we looked at year-to-date change in global asset prices (stocks, commodities, bonds, real estate).
After adjusting for inflation, virtually everything is down on the year (including house prices), with the exception of some supply disrupted commodities, associated with Russia/Ukraine.
This "real" negative asset price performance reflects a loss of buying power against practically everything. But it also reflects clear demand erosion, which has been driven by Fed policy (both the level of rates, and its threats against jobs). 
Still, the Fed continues to jawbone about the inflation burden and their prescribed antidote of "bringing demand down, to align with supply." 
Meanwhile, the performance of asset prices is telling a deflationary story.  Even among the hottest of markets has cracked, and may be on the path to bust:  autos.
Car prices had a record surge in 2021.  It was a perfect storm. 
From the supply side, we had a disruption in labor and raw materials from covid lockdowns.   And simultaneously, demand was juiced by debt moratoriums and government handouts (PPP loans, federal unemployment subsidies, pandemic checks and "child tax credit"/direct payments).  People had cash, and they bought cars. 
By January of this year, Manheim's used vehicle value index was up 67%, from pre-covid levels. 

It rolled over in January.  And this index is now down 16% from the highs.
Rates and economic uncertainty have dampened demand.  But inventory remains low, keeping a floor under prices.  However, on the inventory side, with many car buyers of the past two years now underwater, repossessions will be coming (especially if the Fed has its way with jobs).  And add to that, failing online dealer, Carvana has been liquidating inventory on the wholesale market (and continues to).
The question:  Is it possible to see car prices return to pre-covid levels?
Some other major asset prices have: oil has, gold has, and stocks nearly did at the October lows.