Nothing Goes to Hell in a Straight Line, not even on Wall Street.

I have to admit, it was the most volatile holiday period in the stock market and the credit markets that I can remember – and perhaps in history. All kinds of crazy things happened, just when market participation was thinnest. These were crazy moves. But those crazy moves won’t be the last crazy moves (11 minutes).

Here are the ugly long-term charts that Wall Street doesn’t want us to see. And now US stocks are infected too. Read…  Long-Term “Buy & Hold” Crushed Stockholders in Largest Markets Except US & India. But for the US, Luck’s Running Out

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  40 comments for “THE WOLF STREET REPORT

  1. Kaz Augustin says:

    “It’s December 6, 2019.” Hey Wolf, you shot through the year there. Any stocks/strategies you recommend? ;)

  2. Trinacria says:

    Thank your for the good perspective on this monetary experiment of the last 9 years. “they” did all they could to prevent the inevitable downturn in asset prices over the last few years , which only makes the day of reckoning much much worse!!! One can only sell “air” and feast on debt for so long….again, much longer than most imagined!

    • Iamafan says:

      Sorry but the monetary experiment continues.
      The fact that the Fed caps the rolloffs of Treasuries to 30bil a month means that they are reinvesting a lot more usually during Feb, May, Aug and Nov.
      The Treasury auctioned a lot more Treasuries in 2018 compared to any other year 2008 and 2009 included. Together with the very low interest rates, the Fed and Treasury duo has been extremely acommodative. Yet spoiled brat Wall Street wants more?

    • economicminor says:

      The monetary experiment has been going on for more like 30 years with the lowering of interest rates in order to achieve the FED’s goals. They have been increasingly intervening in the markets since around 1995. It was the last decade that their intervention became evident to many observers and traders as they have tried to supplant the business cycle with credit cycles.

    • nick kelly says:

      Dick Bove writing on CNBC today (Jan 7) says the Fed has caved to Trump and more important, that this is a good thing.

      He adds: ‘Until it (the Fed) can articulate a coherent monetary policy that is embraced by all of its constituents – the public being most important — it should take a rest.’

      So the consumers of punch should decide when the bowl is taken away.
      I guess that means never but I wouldn’t want to own the house hosting the party.

      Are rates going to be set by taking a poll now? How about polling airliner passengers about the rate of descent to the runway?

      And how does anyone generate a ‘coherent monetary policy’ in the face of insane fiscal policy (i.e. a trillion a year deficit)

      • Wolf Richter says:

        nick kelly,

        The Fed has a very coherent monetary policy. Over the past two years, it has been so coherent that even I could get it. It’s just that the market, Wall Street, its mouthpieces on CNBC, and the White House hate this coherent monetary policy, and they want their flip-flop Fed back.

  3. Briny says:

    First time listener ;-). Perhaps just confirmation bias, though I doubt that, but my read is the same. Very nice report.

  4. Art says:

    My meager 401K has suffered,

    • Nicko2 says:

      My 401K, 30% stocks…..kept a boring 6% return for the past 10 years.

    • Iamafan says:

      Maybe we can ask Wolf to comment on 401k’s.
      By design, this looks likes a gift to Wall Street, well including Boston and Philly.
      My consternation is rarely have I’ve seen a choice to invest in pure Treasuries. You are stuck to choosing between mostly equities and bond funds and sometimes swap return funds by institutions. Why can’t we hide in Treasuries? There should be a law that requires 401k to included just putting savings to Treasury Direct, our own government.

      • RD Blakeslee says:

        ” …a choice to invest in pure Treasuries.”

        • economicminor says:

          Many company/industry pension funds do not allow treasuries as an option.. Only if you take control yourself can you do that.
          Then the person has to be responsible for their own future and most people do not want to spend the time or emotional energy so go along with the offered choices from the *professionals*.

      • Wolf Richter says:


        OK, here I go…

        The killer in 401k plans is the layering of fees from the plan and the various funds used in the plan, plus other fees. Some fees are disclosed upfront and are easy to see. Others are in the footnotes and are harder to find. And some you can get only if you call the number provided in the documents.

        There are many excellent 401k plans with very low fees. And with employer matching, they’re superb tool for building a retirement nest egg.

        But there are others that will just eat your retirement.

        As I mentioned before, a few years ago, I checked the 401k my wife was offered by her (small) employer. ING provided that plan and the mutual funds. Some other company administered it. After a few hours of sorting through the documents and calling the numbers provided, I came up with 7% annual fees in total. For her, this was a no-go.

        Imagine 7% fees on – to use some round numbers — $100,000 balance in the 401K = $7,000 in fees a year. Assume you make $60,000 and the employer contributes 5% of this to the plan = $3,000 a year. Assume you contribute 10% = $6,000 a year. Of this $9,000 contribution, the 401k plan and funds offered take the first $7,000 right off the top. Your retirement gets the left-over $2,000 of the $9,000 you and your employer contributed.

        The tax considerations make this more complicated. Instead of a 401k, you can contribute to an IRA that you control. Most brokers won’t charge a fee for it. But the contribution limits are smaller.

        The most important task, if you have a 401k, is to sort out all the fees.

        NOTE: if you just start in a 401k, the fees are small since they’re based on the amounts in the funds. So if the employer contributes are large amount, and you do too, even a high-fee 401k can be a benefit for the first few years until the balance gets bigger. At some point, as the balance grows, the fees will start eating up too much of the employer’s and your own contributions. Then it’s time to get out.

        But getting out of a 401k and transferring the money to an IRA without changing jobs may not be easy (I’m not up-to-date on this issue, but this needs to be checked first).

        When to get out of the plan is a calculation that is easy enough to perform once you know what the fees are.

        • RoseN says:

          When job interviewing, I don’t know that it’s common practice to ask for details of a company’s 401K plan. (This is true for health insurance plans as well.) But these details can translate into a lot of money over the course of a career. As usual, a given American’s prospects for financial prosperity is highly variable and not always transparent. It’s a shame.

        • Iamafan says:

          Thank you very much for responding. I had no idea the fees went up that high. I am now retired with no earned income, but my 2 kids’ plan are from 1-2%. I guess they are lucky – as their employers are Dow and S&P500 large cap firms.

          One thing we did not bring up is Tax Deductability. Assuming most are in the 22-24% marginal tax bracket, the 2018 MAX contribution of $18,500 has a tax buffer of around 4,000 bucks; or put another way a market downturn of 20% will not be felt as much (since you would have paid higher tax anyway).

          It would be easier if we just allow 401K to invest directly in Treasuries cutting out the managers and avoiding losses. But I guess that’s too easy.

        • IdahoPotato says:


          Many employers now offer an option within the 401(k) to link to the custodian’s brokerage account where you can buy whatever anyone else can buy – including Treasuries (at zero commission).

          Fidelity’s BrokerageLink, for instance, is offered by many employer plans. You need to fill an additional form. That’s it. Worth checking into.

        • Wisdom Seeker says:

          Re “getting out of a 401k and transferring the money to an IRA without changing jobs may not be easy”

          I’ve looked into this and generally it’s not feasible, unless you like paying tax penalties or your fund was set up to allow in-service distributions.

          The “Brokerage Link” option is valuable but not all plans give you the ability to choose anything.

          Unless your balance is small, there’s no reason to pay more than 0.1-0.2% of assets/year in plan and fund fees. Save $10K/year for 10 years and you have $100K. Fund fees for stock or bond index funds are 0 to 0.1%, so up to $100/year. Plan fees should not be over $100/year.

          If you invest in index funds, this provides the opportunity to directly compare the fund performance against the actual index. These should track very well: within one dividend payment at all times, and within the accumulated expenses over several years. But you have to compare total returns, including dividends for both the index and the fund.

          If you can quantify the financial punishment a poor 401K is inflicting on you as a long-time employee, though, it might be worth pointing it out to your employer. Assuming they value loyalty and expertise (which they should), they might make it up to you or fix the bad plan…

        • WSKJ says:

          Wolf, I have just listened to your latest audio (as above), which has just started showing up on my righthand margin of YouTube-recommendations-for-me, in addition to its availability from the WS website.

          Thanks for your summary of “killer” features of some 401K plans: !!! it is devastating. (Am sticking to my self-directed IRA account, where at least I can see whence the pain is coming.)

          On different topic, you comment in the podcast on decline in heavy truck orders: may this be due to a decline in the rate of acceleration of internet retailing ? How difficult to sort out Shipping to individual addresses as compared to Shipping to existing bricks and mortar retailers?

        • Wolf Richter says:

          Internet retailing (“e-commerce”) has had a huge impact on transportation and warehousing because it shifts everything around. For example, “industrial” real estate — mostly warehouses and fulfillment centers — has been red hot, even as other sectors have declined. This is because retailers (Macy’s, et al.) are investing a huge amount of money in their fulfillment infrastructure to cost-efficiently live up to the requirements of e-commerce and not get run over by Amazon. This has had an impact on trucking too — but this trends has been going on for years, and so I don’t think it alone caused the boom in truck orders and now the deflation of that boom.

      • NotBuying says:

        There are a few 401k plans with certain packages that include treasuries, you will have to look at the information of every choice you have.

  5. Dave k. says:

    Thank you Wolf for another great report.
    I cashed out my gains after the last rally, I’m not greedy.
    I recently added a few short term CD’S paying 2.5%, which looks good right now and mortgage payoffs.

    Do you have yourself, get out of the market completely?

  6. MooMoo says:

    When All that money leaves France… its going to need a home. It won’t be China. It will be the USA…. and it won’t be weighted towards Government Bonds… it will be weighted towards equities.

    How much of your 401Ks are invested in Government bonds???

  7. MC01 says:

    My French part (as opposed to the Italian part) is usually well behaved so I’ll give you un conseil gratuit: please think for five minutes before posting such highly questionable links. Merci beaucoup.

    If there’s a financial problem in France is that many insurance policies, private banking managed accounts and retirement funds who peddled “up to 8% yearly returns” are now having a hard time explaining how the 2% loss they incurred in 2018 is actually covered by the fine print at the bottom of the contract the infuriated customers signed.
    That money, and it’s a lot of money, was already largely invested in equities: in fact a good part of the reason for such poor performances is many of these funds passively stuck to the FANGMAN when they should have reduced their positions, cashed in their (customers’) chips. AAPL, AMZN, GOOG etc have long been huge favorites among these usually Luxembourg-registered funds.

    These funds are loaded to the brim both with highly volatile equities and questionable loans extended to the lower part of the creditworthness spectrum. Those loans went to sectors (airlines, commercial real estate, “sharing economy” etc) that are already feeling the pinch from raising interest rates… at a time when financial repression is still standard monetary policy in Europe.
    Those funds who know how to deal with these new volatile conditions will make a killing for themselves and their customers but the others… let’s just say I do not envy those who are putting their savings there.

    • MooMoo says:

      If there’s a financial problem in France is that many insurance policies, private banking managed accounts and retirement funds who peddled “up to 8% yearly returns” are now having a hard time explaining how the 2% loss they incurred in 2018 is actually covered by the fine print at the bottom of the contract the infuriated customers signed.

      That’s true. I had written about France earlier. But my comment was ‘withdrawn’. It was not controversial in the least…except to say that French capital may finad a home in US equities as opposed to US Gov. Bonds.

      • Wolf Richter says:

        MooMoo, your comment itself was fine but it included a click-bait link about “France is in free-fall,” which is nonsense, and it’s totally unrelated to this topic here, and I don’t allow this kind of link-dumping of unrelated articles, particularly if they have click-bait headlines (see commenting guidelines). France does politics as it has done them for decades. Any reform effort is met with demonstrations, blockades of highways, etc., and then compromises are developed. Reforming anything in France is nearly impossible. But that doesn’t mean that France is in “free fall.”

  8. MD says:

    I think CBs and entities such as ‘plunge protection teams’ believe that they are indeed alchemists, who will be able to ensure that whilst there may be temporary dips, trees DO in fact grow to the sky, and that perpetual growth of every asset IS in fact possible.

    Will they succeed?

    Come what may, it’s a bizarre form of ‘free market capitalism’ that requires chronic, gross state intervention and the foisting on to the much-maligned state of increasingly more in the form of ‘externalities’ which used to be known as business losses and costs.

    All because under the auspices of the cult which is neoliberal economics, the STOCKHOLDER MUST HAVE HIS WAY.

    • Rowen says:

      “it’s a bizarre form of ‘free market capitalism’ that requires chronic, gross state intervention and the foisting on to the much-maligned state of increasingly more in the form of ‘externalities’ which used to be known as business losses and costs.”

      This is the textbook (or at least Chomsky’s) definition of neoliberalism.

  9. The Fed is blithely fine tuning their rate hike policy, oblivious to the huge imbalances set up by the bond market stock market swap. When things freeze up what’s a quarter point?

    • WSKJ says:

      Am hoping that Wolf may put up a post that compares and contrasts: the benefits to Big players (very wealthy, and mega-corps); versus the Smallholders (read most of the middle class, and anyone living within his/her means, and trying to save for the future),
      that have played out due to the Fed’s ZIRPs over the past c. decade. I use Zero here, to represent effective bank/credit union interest rates paid on “savings deposits”.

      I am trying to think this through, and I don’t want to leave out anything the Fed’s policies have done for us, the smallholders (the Very Low mortgage rates are already in the plus column).

      Anyone ?

      • RD Blakeslee says:

        There have been no benefits for me. I am elderly and retired, and debt free. Excellent credit rating. I’m “under the radar” with respect to the Fed’s machinations.

        There has been one major negative effect, though: Struggling to get any decent interest at all on my savings.

      • Tom Pfotzer says:

        The Fed’s actions, starting with Greenspan, especially with Bernanke and then Yellen kept paychecks coming in to middle-class households.

        On Greenspan’s watch, the Fed made investment capital for the dot-com era avaliable through low interest rates (cost of money low) and supporting stock- and housing-market risk-taking (investment).

        The flood of money into the technology sector (via stock market) resulted in massive efficiency gains in our economy, a boom of jobs, and massive transfer payments between producers and seniors, the disabled, the un-employed, etc. It also funded the biggest rise in U.S. home ownership ever. It enabled the FedGov to fund massive deficit spending, much of which went directly or thru middle-men into payrolls for the middle class.

        Under Bernanke, the Fed took onto its balance sheet much of the big banks’ investments-gone-bad in the aftermath of the Financial Crisis. WR reports regularly on the gradual unloading of these “assets” that were absorbed by the Fed during that crisis. The Fed also was the main buyer of mortgages from about 2009 thru 2016, and therefore offered life support to the housing industry. If these actions hadn’t been taken, the US economy would probably have suffered a very hard and deep recession, possibly depression. Big industry needs big banks.If big banks or home-building stops, our economy gets severely damaged. No payroll.

        Bernanke’s Fed also drove interest rates nearly to zero – both short- and long-term funds. Took heroics to accomplish that feat. He had to buy massive amounts of Gov’t debt to jimmy the “markets” in order to keep those rates low for full decade after the crisis. WR also reports on the gradual unloading by the Fed of this massive, unprecedented intervention in the nation’s economy. And it worked! This action kept the economy alive, food on table, entitlements and gov’t payrolls direct and indirect (thru contractors) humming.

        It also made the connected folk in Washington and the finance industry very rich. They were the conduits thru which the stim-drugs were administered, and they get a skim.

        Yellen was the transitional player. “rate hikes coming, coming, coming”. She’s the methadone detox agent and Kind Momma for Wall Street. She’s the beginning of the gradual taper away from Bernanke’s emergency stim-drugs. She kept the game going for the little guy, too: Jobs, paychex, transfer payments.

        Powell is slightly stronger detox medicine. Nobody knows how the economy will function without stim-drugs, and we’re not sure it actually can. As Powell reduces the size of the money supply (increase interest rates, and retires the debt on the Fed’s balance sheet), the economy will contract unless velocity increases as the money supply shrinks. “Velocity” (V) is the number of times a dollar changes hands in a year. Money supply (M) is the quantity of dollars in circulation. M * V = GDP (that’s just one of many formulas used to estimate GDP). This is occurring now, and WR is reporting on it. Housing, cars, “good economy”…all slowing down as stim-drugs abate.

        In short, the Fed massively increased the money supply to compensate for structural (gradual, massive) trends in the global economy that served to reduce domestic spending (velocity).

        Now that the Fed Gov’t is willing to go bonkers with deficit spending (increasing velociity – more expenditures, more wages, etc.) the Fed can back out….maybe. Long as U.S. citizens (only market left for US Gov’t debt) keep buiying, party stumbles onward.

        So that’s the big experiment of the Fed. Giant economic changes (automation, globalization e.g. Asia on-line & kickin’ hard , massive increase in investment via stock market bubbles) cause hard-to-manage excesses to happen fast, and Big Medicine was required to stabilze the canoe till We Get It Together.

        The Fed kept the canoe upright for a while post-Wobble. Bought us time to react.

        We don’t have it together yet.

        Hope that helps a little.

  10. timbers says:

    What I wonder is…given your (Wolf’s) spending quite a bit of time to talk of an upcoming recession, will the Fed’s actions in response to such a recession ignite another/more stock bubble? Because it’s reasonable to assume the Fed response will be:

    1. Cut rates. Except, it can’t cut rates all that much because it hans’t raised them much. So therefore…

    2. More QE?

    Will QE and interest rate cuts in response to a recession do the same thing it’s done these past 10 years – not help the economy and inflate assets more?

    In other words, will stock ever go down? I suppose so…real estate is starting to slip but than the Fed doesn’t bow to pressure from the real estate business like it does to Wall Street and it’s advocates.

    • The “do stocks ever go down” argument is rhetorical, stocks are an extension of monetary policy, with the goal of inflating the asset base artificially. So what? If it drags the real economy along, at less than a 1:1 ratio, the policy is still justified. People in red states get more votes, people in penthouses get more of the Fed induced profits. Was life ever fair? The monetary base is shrinking (gasp), and the 1% has a much bigger buffer(t), between them and the street below. (When it collapses quickly they jump to approximate the suddenness in their financial situation. It’s really all about them.). Then the socialists and fascists arrive on schedule, and they make the trains run on time. Meanwhile we record the event like dutiful scribes, while the monetary priests control the content. Bitcoin, not soon enough.

  11. Unamused says:

    “Nothing Goes to Hell in a Straight Line, not even on Wall Street.”

    Not when it’s circling the drain, and sometimes you still have to flush twice.

  12. Ro says:

    I love Wolf!! Ha!

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