Here’s What I’m Worried About. And It’s Not a Recession

A rout in the hyper-inflated bond market can blow up everything at this point.

This is the transcript from my podcast last SundayTHE WOLF STREET REPORT:

The locker room at my swim club has become the litmus test. When a complex topic, after years of being absent or ignored, suddenly crops up in conversation, and not just sporadically but all the time, it means that there is some kind of peaking going on. This suddenly hot topic now is a “coming recession.”

Just about everyone is talking about it. This means that fears of a recession or thoughts of a recession have now penetrated into the core of the previously recession-free zone: the swim-club locker room. It means that these recession fears might be peaking.

It makes sense. Recession-fear headlines are popping up everywhere. You cannot escape the drama. It’s not that there is a recession in the United States – far from it. It’s all about a coming recession.

And another term has penetrated into the musty locker room at my swim club, perhaps for the first time ever in its illustrious 100-plus-year history: “Inverted yield curve.”

People who didn’t care about it, who never cared about it, and who don’t know what it is, who don’t even really understand what a bond yield is, and who don’t really want to know what it is – in other words, perfectly sane people that have other things to worry about – are suddenly fretting about the inverted yield curve.

They’re fretting about it because everyone else is fretting about it. And every time the inverted yield curve comes up, recession talk is attached to it. But there’s a lot more to it than meets the eye.

In a survey released this week by the National Association of Realtors, 36% of active homebuyers – so people actively trying to buy a home – said they expect a recession starting next year, up from 30% a few months ago.

Active homebuyers are optimists. Or else they wouldn’t try to buy. They’re braving what in many markets are the most inflated home prices ever, and they’re ready to leverage up all the way to do so, and they’re ready to dive right in, but now they’re suddenly doing a lot of hand-wringing over a recession.

And they’re getting second thoughts about buying that home. 56% of these homebuyers said they would delay buying a home if the economy goes south.

Over the last 50 years, the United States has experienced seven recessions. They’re an essential part of the business cycle. They clean out the excesses, get rid of zombie companies, and blow off some debt at the expense of investors. Bankruptcy courts are busy, bankruptcy lawyers and corporate restructuring firms are having a field day. And after it’s all said and done, the economy gets a fresh start.

I’ve seen all seven of these recessions.

Six were more or less normal business-cycle events. Some were short and shallow, and they were over before you knew that there was a recession. Others lasted longer and had more of a bite. But for most people, six of these seven recessions were no big deal, unless you lost your job or were looking for a job at the time because you just graduated, and then they turned into a depression.

That happened to me: I emerged from graduate school with a master’s degree and walked straight into a recession. It was tough. No one should underestimate the harsh impact even a mild recession can have on people that get tripped up by it.

The biggie was the Great Recession. It was the seventh recession over the past 50 years. It was a mess. It was a lot more than a business-cycle event. It morphed into a global financial crisis. It scared the bejesus out of the entire world. And it triggered central bank actions whose consequences are now dogging the real economy around the world.

Now when we think of a coming recession, that thing hangs ominously over our thoughts.

We have trouble nowadays thinking about a recession without thinking about the Financial Crisis. And there is the fear that this time around, it’s going to be even worse, given that today’s “Everything Bubble” is far bigger and broader and deeper and more leveraged than whatever bubble there was before the Financial Crisis. And that it could all go to heck together.

We have a huge stock-market bubble.

We have the biggest-ever, all-encompassing credit market bubble that includes bonds and loans around the world. Bond prices have been inflated to such ludicrous levels that $17 trillion of them are now sporting negative yields. The whole concept of negative yields is totally absurd.

Then there is a whole separate bubble. This one consists of people – people who believe, and who go around and want to make others believe, that negative yields are a good thing, a godsend of sorts. But good for whom? We have by now well established that negative yields and even low yields have been screwing up the real economy for years.

Then there are magnificent housing bubbles in many markets around the globe, some of them deflating now. Housing is huge because of the large amounts of money and leverage involved.

And there is a massive bubble in commercial real estate. This includes offices, industrial, apartments, and the heavily marketed asset class called “student housing” that gets nurtured by student loans.

There is the biggest-ever IPO bubble where companies with billions of dollars in losses and no real business model and without a realistic chance of ever making any money, have valuations and market capitalizations in the tens of billions of dollars.

These are not necessarily tech companies that have reinvented how the world operates. These are companies that run taxi operations; tiny outfits that make fake-meat hamburgers, companies that make little offices out of big ones, companies that offer you to store your files on their servers for free.

We got all this going on.

And we have the US Treasury market that is now forecasting a long and hard depression – at least on the surface. The 30-year Treasury yield briefly fell to a record low this week of 1.9%. Below the rate of inflation. This left the entire yield curve inverted, with the 30-year yield below the federal funds rate, which the Fed controls. On the surface it looks like a fear-and-horror trade.

But the stock market is forecasting boom and glory forever. There is no fear in the stock market. Stock prices are way up there in lala-land.

So, how can these two markets see the economy in the United States so differently?

Maybe they don’t. There is something else that powers the US Treasury market right now – and it’s not fear. It’s greed. Reckless greed.

When you succeed in driving down long-term bond yields, such as the 10-year Treasury yield, or the 30-year Treasury yield — or in countries that have them, such as Austria, the 100-year yield – that means that bond prices are soaring. The price of the Austrian 100-year bond has nearly doubled over the past two years. Those are huge gains, particularly in the conservative generally risk-averse world of government bonds.

These bonds have engendered a feeding frenzy. This has nothing to do with fear and everything to do with greed. And these speculators, which includes Wall Street powerhouses, want bond prices to go higher and higher, which means that yields must go lower and lower.

To manipulate up bond prices and push down yields, you drag central banks into it and shove them into a corner, and you lambaste them and force their hands. And you rant and rave about a coming recession, and about the coming negative yields, even for the 10-year Treasury, so that others will jump into government bonds, thereby driving up prices and pushing down yields.

Government bonds are a gigantic asset class. In the US alone, at face value, there are $22.5 trillion of them. If the reckless greed that is behind all this could push down their yields into the negative, especially the yields of bonds with longer maturities, enormous amounts of trading profits could be made. Those profits could be measured in the trillions of dollars.

But here’s the thing. The speculators – the Wall Street powerhouses – would have to sell those bonds to actually take profits, because if you hold these bonds to maturity, all you get is face value, and the premium these bonds are trading at today and your profits evaporate the closer you get to the maturity date. So the only way to get these profits is by selling the bonds long before they mature.

The hope is that others will buy them, led by central banks in a new round of massive QE. That’s the exit strategy.

And there may still be no recession – just the fear mongering about a coming recession.

In the second quarter, consumer spending adjusted for inflation rose at the fastest rate since 2014 – at nearly 5%. Consumers are pulling their weight. They have jobs, and they’re making money, and they’re spending it. Consumer spending is about 70% of GDP. And it’s hard to have a recession without consumers cutting back in a big way.

The weak part is business investment, which declined by 1% in the second quarter. But part of that business investment are inventories, and inventories are bloated from front-running the tariffs. And now businesses are whittling them back down, which lowers business investment in the GDP figures. This process of whittling down inventories lasts about a year or so, and then it dissipates.

So for now, the recession fears are just that – they’re not based on the data emerging from the economy.

But when businesses and consumers start worrying about a coming recession to the extent that they will actually make decisions based on their concerns, and cut back in their hiring and investment plans, and in their consumption, etc. then this fear of a coming recession becomes a self-fulfilling fear.

That recession, if in fact it materializes, would not be the end of the world. The economy can handle a run-of-the-mill recession just fine. It would be part of the business cycle. It’s not what I’m worried about.

But when the feeding frenzy in the bond market reverses, when Wall Street, that has been trying to drive down yields and push up bond prices, is starting to lock in their trading profits by getting out of these bonds, then yields suddenly snap back, as they have a long history of doing.

With as much leverage as there is, and with such inflated bond prices, and as huge as the bond market now is, with excess risk-taking everywhere, with a bond market strung out like this, and with bonds used as collateral — when yields snap back, then suddenly, wow, it can blow up everything.

That will be the fear trade: getting out of these bonds before prices fall – before the rest of the folks involved in the erstwhile feeding frenzy do a 180 and the whole thing turns into a rout, powered by the first-mover advantage.

That would be the event I’m worried about. I’m worried that central banks are accommodating this feeding frenzy and are encouraging it and are trying to keep it going for a while longer, rather than to ease markets out of it.

That makes the bond market, and more broadly the entire credit market, that much more vulnerable to a rout. And a rout in the credit market can get ugly in a hurry – not just for investors, but for the real economy. And then central banks would do even crazier things to prevent the financial system from falling off a cliff. That would be the thing I’m worried about. Not a run-of-the-mill recession. You can listen to and subscribe to my podcast on YouTube.

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  127 comments for “Here’s What I’m Worried About. And It’s Not a Recession

  1. Tom says:

    As always spot on. The central banks reactions could lead to the crack-up boom, as Mises described it.

    The central banks won’t lose control, they were never in control. They will lose their illusions.

    • Mike says:

      Amen. The Atlantic discussed the effects in “The next recession will destroy millennials.” The Fed is destroying generations wealth to benefit banksters.

    • Memento mori says:

      There wont be any bond rout , rest assured.
      If such thing happened, the Fed will buy all the bonds and keep them to maturity. Fed is really part of the government and if there is anything QE has demonstrated is that government doesn’t really need to tax in order to borrow.
      What is to prevent the Fed to buy all the outstanding bonds out here? Big money knows this and has Fed’s ear.
      I think asset prices will remain elevated for the foreseeable future and more people will be renters, owning will be for the rich like in Europe where most people rent all their life.

      • fajensen says:

        Think about what that means, the next step after!?

        The FED being the holder of all credit issued and also the controller of interest rates of said credit means that the FED then becomes the primary distributer of wealth. Which is such a difficult and contentious task that Government is usually tasked with it (and people fighting over generations even to get close enough to Government to “help” with the redistribution).

        Everyone owing anything will in effect be paying tribute to the FED via their interest payments and management fees. The FED chairs will become HyperPopes, those with a direct line to the Machine God fixing the rates; I.O.W. those to bribe – and whose positions to murder ones way into. Because, even though all of these positions of supreme power will be Unelected positions, there will still be the Selections.

        It will be like the 16’th century Venice all over again, only shinier, faster, smarter, and infinitely more powerful.

        • Memento mori says:

          Your analysis is correct, but you just woke up.
          What you describe will happen in the future has already arrived.
          The Fed is only second to God on this planet, for those who still are religious.

    • Gandalf says:

      The problem here is that all the traditional indicators of how well the US economy is doing have become completely and utterly unreliable.

      The official inflation numbers and employment/unemployment figures are all lies and long ago started getting cooked to make them look better. From hedonics in the CPI to simply removing the long term unemployed from the labor statistics, nobody really knows what the real numbers are. Nobody knows what GDP really means anymore in this era of globalization, automation, and conversion of the US economy to service industries.

      That’s why the recession that preceded the start of the GFC in 2008 was identified only AFTER the fact. It was this relatively mild early recession that led to increasing defaults on the sub-prime mortgages that led to the collapse of highly leveraged financial institutions which then led to this huge global economic crisis.

      As you have said many times before, leverage greatly accelerates the pace of any downhill slide.

      A major point that I have not seen you make is that an economy based largely on consumer spending and service industries will show few advance warnings of a coming collapse. Everything will look great until… all of a sudden it isn’t.

      In studying what happened in the GFC, few people mention the fact that what REALLY accelerated the downward spiral was when Lehman and Bear Stearns were not bailed out immediately. This sudden collapse of a massive debt with no recourse caused the money markets and normal bank transactions to lock up. The arguments in government about doing any sort of bailout went on for months before a bailout was achieved. During that time companies basically stopped hiring and did mass layoffs instead

      Consumer spending and the service economy crashed as people lost their jobs and were unable to find jobs. This happened suddenly, with little warning, all because of this debt bomb explosion

      Financial catastrophes used to occur regularly approximately every 20 years in the US from the time of its founding, with the first one in 1797. The Great Depression caused a massive sea change in US governmental regulation and control of financial activities, which severely restricted the ability of financial institutions to take on risk and debt and PREVENTED such debt bomb explosions for the next 50 years. If you read the economic history of that time, you’ll see politicians in the 1950s talking about the need to keep financiers from doing anything too risky that might blow up on them. When I see that, I just find it remarkable that our politicians used to be so financially responsible

      All that started to change in the 1980s as one by one, governmental regulations and restrictions on financial institutions were repealed. This was done in the name of encouraging economic growth and competitiveness, as Europe and Japan, destroyed in WWII, were surging economically

      Predictably (in retrospect), the first financial debt bomb explosion happened quickly, as the Savings and Loans went nuts with risky investments and blew up. This had little consequence (other than forcing HW Bush to break his “no new taxes” pledge) as the S&Ls were locked in by law already into a Federal bailout

      So, what have we learned? The prediction of economic debt bomb explosions is very difficult to get right as explosions are non-linear catastrophic events, like predicting earthquakes, volcanic eruptions, or the path of hurricanes. We can at best only see the warning signs, but can’t tell when or where or how exactly the event will happen

      The warning signs of another debt bomb explosion are definitely there. Wolf’s articles have really honed in on the massive worldwide debt buildup and asset inflation.

      The focus on the Treasury yield inversion is justified, mainly because we have so few reliable indicators of the next economic downturn. This was not an indicator that people used to pay attention to. People keep trying to explain it away – but it’s hard to do that considering the huge numbers of bond investors involved, all with different motives and goals. I see its predictive power as a scientific phenomenon called “the wisdom of crowds”

      Not precise, not perfect, but that welling magma chamber of debt has been swelling and growing to massive proportions and something is going to trigger an explosion

      P.S. – we are in historically uncharted waters, with an impending debt bomb explosion in an era of worldwide QE, NIRP, and ZIRP. We have seen that these measures have little beneficial effect on improving economic growth and only build up massive asset bubbles.

      The bigger question will be the aftermath. Remember, the key factor that caused the US and world economy to freeze and lock up was failure to quickly bail out the massive debt of the sub prime mortgages, unlike what happened with the S&L crisis.

      I don’t see any political support to do such a bailout again.

      P.P.S., inflation for durable goods is increasing with big increases in shipping costs from China. However, since Trump was elected, the cost of ammunition (for gun owners like me) has plummeted, by some 30% or so. Fancy that. I’m not a full out prepper, but we will be living in interesting times soon

      • mike says:

        Amen as to Gandalf. The future is hard to predict. Some systemic shock may cause a collapse and the growing expectation of a recession may accelerate its arrival if enough persons stop investing, taking risks, hiring people, and spending funds.

        This trade war itself may have unforeseen consequences: China’s corrupt communist cadres are pulling out their ill-gotten funds from China. They are using many tactics to do so despite the draconian steps of Xi to prevent that.

        At some point, that substantial flow of capital to the West may cease. This is particularly the case if the current fuhrer of the rich gets his head out and realizes that he needs our allies to also pressure China to force it to make a deal or to collapse the equally corrupt Chinese communist regime.

        I do not know where the gigantic, capital funds flows out of China are going now, since they are not going out to the US as much as before. However, it is important to remember that our banks are now so connected to the global economy that they may collapse if some related derivatives gamble turns sour or a counter-party cannot fulfill commitments.

        The US biggest banks cannot even be called casinos anymore. They are more like drunk, compulsive gamblers in their reckless tactics to funnel as much money as possible to their control groups.

        Casinos are businesses that are usually firmly based on the laws of statistics: the owners are guaranteed a fine return out of their limited capital investment because the rules are set up to guarantee that their customers will slowly lose their shirts. Our biggest banks are not so weel run.

        They now are run using ludicrously complex gambling with derivatives and other debts and investments that are government-guaranteed (to the extent that is possible given the gigantic gambles of the biggest banks.) A major triggering event might make them insolvent by causing them to lose their true, tiny capital (3%-5%), such as a Chinese revolution or war with Taiwan (to distract the Chinese population from an economic collapse, which Chinese capital outflows indicate that Chinese communists anticipate.)

        Our biggest banks are enormously complicated (and affected by many financial winds, which only a deep knowledge of their secret, changing, complicated derivatives and other bets would reveal) and their operators (which I would call banksters) are arrogantly making very risky, ludicrously complex bets that may come back and bite them. Thus, the biggest banks are like fragile eggs. Consequently, the very desirable goal of collapsing the evil Chinese communist regime might precipitate what I see as the next, major, inevitable recession or depression in the West.

      • Wisdom Seeker says:

        @ Gandalf – “I don’t see any political support to do such a bailout again.”

        There was no political support for the original TARP bailout either. Public calls to Congress ran 97% opposed to TARP. Congress passed it anyway. I was astonished and dismayed at that time, because there were clearly any number of better ways of dealing with the crisis. But now I’d be surprised if the next time turned out any differently.

  2. Nicko2 says:

    “then this fear of a coming recession becomes a self-fulfilling fear.”

    I don’t buy this for a second. There are a few (emphasis on few) who foresaw the great recession, that apparently no one else predicted. There are real structural problems in the economy, namely underemployment, lack of savings, historically high wealth inequality, Trump’s insane trade war….it’s all there.

    • char says:

      You forget the buggy whipping of soon almost death industries like the mall store and coal

  3. Iamafan says:

    I listened to this 3x including to the one in YouTube in my TV. It’s really on the money and describes accurately what’s happening. Truly, bond traders are displaying their unbelievable greed and spreading fear mostly to old retirees. This is fuel to another crisis.

  4. mr_dood says:

    Correct. We’re seeing more and more Great Recession 2.0 doom porn, but without the recession. This could end up being a psychological recession, like we’ve had since the crash of ’08, even for months at a time. If everyone piles into bonds, then we know what happens next. The question is when and to what extent.

    • Frederick says:

      Nope it’s the debt bomb and derivatives that will crash the system this time from what I’ve learned

    • Iamafan says:

      Who is everyone?

      The common pensioner or retiree has to make a lot more Yield than what Treasuries can offer. That’s why most are in risky portfolios. Unless you are sure to lose your savings, you will probably let it roll (given the high levels of equities and private bonds).

      The article suggests that most of the current bidders for Treasuries are actually meaning to TRADE them. They are not there for the low yield or hold to maturity. As soon as they can sell the bonds at a HIGHER PRICE, they will close out their positions.

      Of course, they are assuming that there will be a buyer to sell to.
      Not sure what will cause the foreigners to buy more Long Term Treasuries. But that’s highly unlikely.

      So the leaves the Fed as the only eventual buyer. Whether this is a huge front-running (hoarding) experiment remains to be seen. If you are Buffett and have hundreds of billions in cash, what can you do? You’d probably do the same thing.

      Betting on QE.

      • Pinto says:

        Here we go again. Fire in the theater! Everyone run! Sky is falling.

        Well, if this is a recession it will be the most interesting one ever recorded, considering there is record employment.

        You are all following the yield curve and not paying attention to the currency war.

        The inversions are a consequence of USA higher rates. Everyone is flocking to USA treasuries for yield and driving the prices of bonds up.

        Today I read a new verb at tweeter:


        People and funds around the globe are getting NIRPed (robbed) and treasuries welcomes all of them.

        • Iamafan says:

          Again, be careful when you say EVERYONE.

          There’s a lot of people not buying this line of thinking.
          Foreigners included.

          The last 2 months of TICDATA Transactions were NET NEGATIVE for Long Term Treasuries: (in billions)
          June: -7,710
          May: -32,785

          Is is better if you know which kind of customer bought a lot of Treasuries lately.

        • Paul says:

          Record employment? Yes, the losers work part-time jobs, those trying to get ahead work 2-3 part-time jobs, and 37% of those 16 and over are not even in the workforce.

          There have been 800,000 jobs created paying $50K or more since 2000, and the population has increased 20 million?

          Look at the increase in wages over the last 20 years compared to living costs?

          Then, the subject of how much debt those people have must be included ion this conversation.

          Not a pretty picture, except for the fact that Americans still live incredibly well compared to 95% of the rest of the world.

          The minimum wage per hour is comparable to the global median wage per day.

          And if you have never lived elsewhere, do not try to tell me that the cost of living is lower in third-world or emerging countries.

          I have been in Thailand for 20 years, and a car, or a beer, or a hamburger costs as much here as it does in America.

          Actually, the cheaper cuts of chicken, pork and beef cost half as much in America as here.

          I will not offer a long explanation for that.
          Suffice it to say that there are no cuts that are “cheap” because people are happy to spend 2-3 times as much on the choice cuts.

          People simply live differently here, and most Americans would not like living that way, to put it mildly.

        • Rat Fink says:

          We are not facing a recession.

          We are facing Total Collapse.

          All we have done since 2008 is put off the inevitable by deploying gargantuan stimulus policies.

        • alex in San Jose AKA Digital Detroit says:

          Yep I work half-time, making just a bit over min. wage, as a 1099 so I’m paying both halves into MediCare and SS, but somehow don’t qualify for Medi-Cal, go figure. Technically I’m homeless. But hey, I’m employed, at less than 1/4 what I used to make so everything’s great!

          The trouble is, this next time, most people never having recovered from the last one, could get interesting.

        • Wisdom Seeker says:

          Iamafan, I don’t think TIC data are accurately disaggregated, particularly for individual and corporate foreign investors who may not be going through their local banking systems. And in any case the long-term treasuries aren’t what these people would be buying. Finally, 7 or 32B is drops in the bucket against 22,000B in Treasury debt outstanding. Need more data.

    • Bob Hoye says:

      Should be watching credit spreads.
      The CCC to long Treasuries Spread narrowed into May and made the First Breakout in reversing trend.
      In 2007 and 2000, it was the Second Breakout that led the stock market failure.
      This time around, the “Second” was accomplished by the middle of August.
      Oh yeah–in the Great Bubbles of 1929 and 1873, the curve inverted and eventually reversed but in both years was not a good guide to positioning.

    • Joan of Arc says:

      The stock market tops out 1 to 2 years after a 10 – 2 rate inversion. The US bond market keeps going up as those in the world suffering negative interest bring their money to the US to buy bonds offering 2% interest rates. The fear provides a wall for the bull market to climb. Bull markets end on optimism, not pessimism.

  5. Heff says:

    “Over the last 50 years, the United States has experienced seven recessions.”

    Read recently, (not sure where, maybe here)? Since 1850 the U.S. has had at least 1 recession in every decade, sometimes 2, and not uncommon to have 3 – every 10 years. And, as you know, we haven’t had any last 10 years. have to ask yourself – why. Great economy or pure financial manipulation/distortion? I choose the latter…

    • mr_dood says:

      We’ve never had an honest economy to begin with. The US economy has always been distorted because our business is imperialism.

      • Neoliberalism is giving everybody what they want until we run out of money (oops, looks like that has happened already!).

        Neoconservatism is continuing on with imperialism and colonialism (oops, looks like they’re all fighting back now!).

        America First is getting the housecleaning done before doing anything else.

    • c1ue says:

      I’d note that the “recent” recessions were far less brutal than the ones in the 1800s.
      Note I’m not saying the Fed is doing a great job now – merely putting in context.
      It is quite clear that the Fed has been kicking the can down the road starting with Nixon closing the gold window.
      As for this coming recession (?) – Dean Baker wrote a pretty decent article about it. Basically, his point is that a normal recession occurs because overinvestment becomes underinvestment in durable goods like cars as well as things like real estate. However, because the percent spent on durable goods has gone down a lot and half are now imported, the actual GDP impact of a 30% to 60% decline in durable goods spending won’t actually impact the US economy so much.
      Real estate is inflated, but not via mortgages like the runup to 2007. If investors get smashed, it won’t affect the economy because it is mostly their cash vaporizing.
      His conclusion is that the net of all of normal recession behaviors, due to imports being such a big part of the US economy, might not even trigger a technical recession (i.e. shrinkage of GDP) as opposed to a slowdown.
      Of course, Wolf speaks of the stock market. The stock market definitely is in a bubble, but the stock market itself doesn’t actually affect the economy much. Look at it this way: if stocks going up hasn’t helped GDP growth, stocks going down can’t hurt GDP growth much, either.
      The main takeaway for me: it is likely already too late for even a 1991 style “jobless recovery” to hurt Trump’s re-election.
      The DNC’s fecklessness is merely reinforcing an already likely outcome.

  6. Steve Graves says:

    Thankfully we have Wolf Street to articulate what almost no one else is either able or willing to say. What’s going on in the bond market is clearly nuts. More so for the widespread complacency behaving as if all of this is completely normal! Strange days, indeed.

    But as an investor, Wolf, I was wondering if you could cite some historical examples of bond market reversals which might be relevant to our admittedly unique situation. How much would yields need to snap back, do you think, to trigger the sort of snowball reversal you’re talking about? Rates zig-zagging downward for nearly four decades suggest the entire world will be negative – with absolutely nowhere else to go, in other words – before this bizarre debt cycle ends. Especially with central banks proudly proclaiming they’ll do whatever it takes to prevent the sort of bond market rout you’re describing, the US status as a reserve currency/safe haven, etc.

    I realize you don’t have a crystal ball, and also that predictions are made even more unreliable by Captain Chaos in the Oval Office (who could fast forward events with a handful of Tweets), but could you envision another decade of this madness before the music finally stops? Because if so, of course, there are considerable returns to be had on the ups and downs.

    • James Levy says:

      A long time ago I read C Wright Mills, and he said, and I’m paraphrasing, that conspiracies or no conspiracies, decisions get made. There are people in the system with the power to make choices. What is opaque to me is what they want in the short, middle, and long terms. In the 1970s they wanted the postwar system rebooted. In 2008 they wanted it preserved at all costs. But do they think a serious downturn now dovetails with their plans for the middle and longer term? Obviously, Trump and those around him want to stave off the downturn until after the 2020 election. But powerful players may not care about that, and have a different/bigger game to play. In short, none of this is random, even if the timing of events can get in the way of the “deciders” (to steal a term from George W.) plans and wishes.

    • Read about the 94′ bond massacre. The same rules don’t apply. The pace of deficit spending and expansion in the bond market was just getting started and it was the last hurrah for the vigilantes. I wouldn’t extrapolate too much including the subsequent rally in stocks. It’s all different now. Bank CEOs were calling for 5% on the ten year not long ago. Something has to give of course, just figure out the how and when. It won’t be rates.

    • joe saba says:

      and we my friend are spectators to whole thing with front row seats
      only thing I’m concerned about – being in front row – is HOW BADLY is 99% gonna get burned
      because it starts slowly – then fast

    • Paul says:

      I would suggest that what is going on in all asset classes is “nuts” to use your terminology.

      My liquid retirement asset of choice is gold, non-liquid is real estate.

      Note that I live in Thailand, gold will never be confiscated here, and real estate is not taxed.

  7. Depends on the jobs number they dream up this Friday or the number the man with the white cane pulls out of a hat.

  8. Bond market route from the start of May 2020 to the end of September 2020. Gold hammered down, bank and insurance company stocks soar, the long bond crushed as yields rise. That’s my guess on the time-frame.

  9. Wolfbay says:

    I learned about brokered CDs from Wolf and bought some by chance around the interest rate peak. Their value has gone way up but timing interest rates is beyond my ability and I’m not a trader. Their increases looks good on paper but I guess I’ll hold and be happy to just collect the interest.
    Speaking of CDs are they really much riskier than treasuries?

    • Ted Waller says:

      The value of your CDs has gone up? That’s a new one on me.

      • doug says:

        one can buy and sell brokered CDs say on Fidelity. If you own a long dated one that is paying more that mkt interest rates, yes you can sell it for more than you bought it for.
        For me, this makes brokered CDs a bit more liquid feeling than bank/credit union issued ones with a penalty for early withdrawal.

        • RoundAbout says:

          Same here. I bought some 5 year CDs at roughly 3.3-3.4% last year. Chose the slightly lower rate for the monthly payout option. The CD is up 5% in value if I chose to sell it on the secondary market.

          I was unsure at the time and was expecting rates to be about 4% by now. Kind of shocked by the recent rate declines. Maybe there will be a snap back in rates.

        • Ted Waller says:

          So the value can go down too if sold before maturity. Sounds like a bond.

      • Wolf Richter says:

        During the financial crisis, I sold a brokered 5-year CD for a pretty good profit. That’s normal when rates drop.

    • Iamafan says:

      Yes they are riskier. Who is your counter party? Brokered usually means someone you don’t really know.
      Who is Insuring them? You understand that there can be a delay in getting your money back from FDIC.
      The terms of a CD is rather fixed. Some of them are callable so you are hanging in limbo. So any monthly statement that valuates your CD portfolio really ain’t worth the paper it’s printed on.
      Since I am NOT a trader (I hold my Treasuries to Maturity), I ignore the Market Value gyrations that Vanguard reports on the end of the month.

      Also, don’t forget the TAX implications. CD income are taxed both by the Fed and the State.

      • Wolf Richter says:


        You’re mistaken about this one. A brokered CD is like any CD, in every aspect, including FDIC insurance and terms, as stated on the CD. The issuing bank (Wells Fargo, etc.) issues the CD and its name is on the CD — so that issuing bank is your counter party, and you know who it is. Instead of buying it directly from Wells Fargo, you’re buying it via your broker from Wells Fargo.

        And if a CD Is callable, this is clearly indicated in the terms of the CD, and not in the small print either, but right at the top along with the maturity, rate, etc.

        Check with your broker to find out how brokered CDs work.

        • Iamafan says:

          From BankRate:

          If you’re considering investing in a brokered CD, it’s important that you work with a reputable firm because the Federal Deposit Insurance Corp. does not insure brokered CDs.

          A brokered CD is a certificate of deposit sold by a middleman, called a broker. Financial institutions use brokers to market their CDs to help them gain deposits.

          If I want an FDIC Insured CD, it is a BANK CD instead.

          In my neck of the woods, the ISSUER is some institution I do not know. They aren’t JP Morgan Chase, Bank of America, or Citibank. I did check with my Merrill Lynch guy at my BofA branch, and the ISSUER was not an Institution I knew.

          Surely I am just old fashioned guy who would rather have the US Government as my counter-party. I prefer to use Treasury Direct, Vanguard and Fidelity which all have Treasuries with no commission.

        • Wolf Richter says:

          That — “…because the Federal Deposit Insurance Corp. does not insure brokered CDs” — is effing BS. Like I said, check with your broker and see what they broker, and don’t quote this crap on my site. Every CD that a broker sells and that says that it is FDIC insured is FDIC insured. Period. It says it right at the frigging top.

          There are some CDs that are not FDIC insured, such as a CD for $1 billion, if that’s what you want, but if you stay within the FDIC rules and limits, and if it says it’s FDIC insured, it is FDIC insured period.

          Every SINGLE brokered CD I ever bought is and was FDIC insured, and I have bought quite a few of them over the years. So don’t give me this crap. This includes a CD from a bank that collapsed during the Financial Crisis. The FDIC backed that CD, and I later sold it for a profit because rates were dropping and I had other things I wanted to buy.

    • I’ll be back here next year in an attempt to call the bottom in interest rate yields to the exact day. I might revise my predictions but I’m never wrong a month or two before the fact. In the last 45 years I’ve never gotten interest rates wrong. I’ll take a shot at the bottom or like I say the counter-trend to the ongoing current trend which should last ’til the first quarter of 2022.

  10. Paulo says:

    regarding statement: “No one should underestimate the harsh impact even a mild recession can have on people that get tripped up by it.”

    Mr. Richter, did this experience have much to do with your (for want of a better word) ‘ philosophy’, or personal philosophy as to the nature of economics, debt, and consumerism?

    I know that when I walked into the buzz saw of the ’81 slowdown in Canada, it changed me forever and probably distorted my total economic being. At the time I was also working for a rabid anti-union airline owner who gleefully laid off much of his staff on November 24th, merely to avoid paying the two stat holidays of Christmas and Boxing day. Our Union Business Agent said, “Hey, you’re one in a million”, as Canada surpassed over one million unemployed that year. By 1982 it moved up another 50% to almost 12% unemployed.

    I know this sounds very harsh, despite the pain and danger from a massive contraction (however it is caused), I think a recession would ultimately be a good thing for people and the environment. Unintended consequences abound, nevertheless, this rampant consumerisim orgy, fueled by debt and bizarre expectations (and perceived entitlements), has not been positive, imho. I also think people have lost their way and values in this drive to obtain ‘stuff’. Humans seem to be a dissatisfied ‘lot’, no matter what they have.

    I include Canada and all western countries in this Googled quote:

    “It’s this figure of seven global hectares that allows Wackernagel and his colleagues to calculate that it would take four Earths – or to be precise, 3.9 Earths – to sustain a population of seven billion at American levels of consumption.Jun 16, 2015”

    • robt says:

      And the likelihood of the other 90% of the world living and consuming at American levels is … zero.
      We are reminded of the predictions of Malthus, and later, Paul Erlich, who stated ‘The battle to feed all of humanity is over. In the 1970s hundreds of millions of people will starve to death …’, ‘… mass starvation’, etc etc. I (don’t) love it when these people say things like ‘the battle is over’, or ‘the argument is over’; it’s usually the only argument that they can make when they don’t want to consider other possibilities – in other words, doctrinaire.
      I do admit I did like Canada better when the population was about 10 million though, and most of us didn’t think we were entitled to anything except to enjoy the fruits of our own labor and paid 10 or 15% taxes instead of 50%.
      Anyway, historically and naturally, the economic cycle is 7 years, give or take. Near-zero interest simply signifies a lack of demand for money, they’re pushing on a string, and we are overdue for a correction.

      • nick kelly says:

        You liked Canada in 1930? That’s when it had a little over 10 million. BC has the land mass of France and Germany combined with roughly the population of Paris. Most of BC is virtually uninhabited.

  11. raxadian says:

    “I’ve seen all seven of these recessions.”

    I don’t think you were around during the Wall Street Crash of 1929. Otherwise you would be over at least 90 years old.

  12. Seneca’s Cliff says:

    Exactly Wolf, that is why my wife and I still refer to the oncoming recession using a term Max Keiser coined about 10 years ago, “Bondpocalypse.”

    • Frederick says:

      Max Keiser also coined the phrase “ Buy Silver, crash JP Morgan “ due to their Bear Stearns short silver position

    • Maybe governments won’t default, since they (or their European supergovernment) can (and will) print money. However, a lot of corporations, individual borrowers, students and probably some EU countries will default, since they can’t print money…. Still waiting for the $10,000 in every voter’s mailbox, which could happen in some scenarios. I guess the real question on bonds is who will NOT be backstopped, because that is who will default. Additionally, even printing governments can default if no one will buy their bonds — just ask Venezuela, Zimbabwe and Argentina, for starters.

      • sunny129 says:


        Public debt ‘may’ be delayed or kick the can down by digital $ created out of thin air and or MMT! But PRIVATE debt Which are in Trillions cannot be ignored. 15-20% of corps in S&P 500 are known to be Zombie variety. Also Corporate debt, doubled (+leverage) since GFC may be the first domino, shaking there?

  13. Frederick says:

    Good article however no mention of why precious metals are exploding higher recently

    • Arctic Chickens says:

      Large banks and the Chinese are purchasing physical, which can’t be offset by the usual paper multiplication.

  14. timbers says:

    NEW YORK (Reuters) – New York Federal Reserve President John Williams today:

    “I am carefully monitoring this nuanced picture and remain vigilant to act as appropriate to support continuing growth, a strong labor market, and a sustained return to 2% inflation,” he said.

    But he also said he was focused on persistently weak U.S. inflation readings. The Fed targets 2% inflation but a core reading for price gains has been holding about a half percentage point below that.

    He said the economic weakness abroad was a disinflationary pressure he was monitoring.

    “My number one goal is to keep the expansion on track,” he said.

    But also mentioned struggling global economies, struggling China economy, struggling UK economy.

    These nations should be grateful our Fed spends so much time worrying about their economies.

    Oddly, he never once mention struggling fly-over-country right here the U.S.

    The Fed is deliberately using it’s fake inflation reports to intensify it’s interest suppression.

    The Fed is expected to cut rates again when it next meets.

    Get the fraud out of the reports and out of the Fed.

    • Bobber says:

      Couldn’t agree more. The Fed spends so much time with research and actions that have been proven, beyond any doubt, to be counter-productive. What good is preventing a recession in the short-term if it leads to a bubble that pops later.

      Legislators should require the Fed to drop it’s current research and undertake an in-depth study of Winnie-the-Pooh and the Cookie Jar.

      • timbers says:

        IMO, every single time any member of the Fed mention “global economy” or a foreign nation or part of the world not of the United States, it should required to produce 1,000 in dept studies of Fly-Over-County, with intense analysis why the economy of Fly-Over-Country is struggling…and be required to submit an action plan to correct it.

        Apparently, the Fed does not view most of the United States as being within it’s area of responsibility.

        To put it in understated terms, the Fed is in need a an attitude adjustment that comes from a well thrown brick in the face.

        • Stockman writes a lot about the longstanding recession in flyover country, if you use real numbers. Even the Fed’s own trimmed mean inflation rate is running over 2%. Low rates benefit Wall Street and destroy Main Street, since the cheap capital only goes to fuel speculation and buybacks, which mostly happen at the south end of Manhattan and not really anywhere else (in the US).

  15. BenX says:

    Imagine what would happen if the 10yr went to 8% within a month or two, regardless of the Fed Funds Rate being zero. Interesting times.

  16. There are only a couple things that matter at this point. The name on the door at US Treasury. What the new ECB head does and how her former organization conducts their business. Potus is gaming the system and the Fed chief and the markets are gaming him. It’s all on the kindness of strangers (former allies) For once things are really out of our hands. GDP no GDP, rate cuts, no rate cuts. Then one day everyone [ROW] is telling you, your bonds suck, and you can’t do anything about it.

  17. SocalJin says:

    I do think the negative Treasury rate threat will be erased shortly. The trade imbalance, mostly from China, is being corrected and that will eliminate the low inflation problem … that will aboish any need for negative Treasury rates.

    • char says:

      Vietnam, Bangladesh, East Africa will take over China’s low cost production so no end to the trade imbalance

      • Nicko2 says:

        ….most of those companies setting up in East Africa, North Africa, Sub Saharan Africa, South East Asia ect…. are Chinese owned. ;)

  18. Paul Morphy says:

    Wolf has given us a great summation of the various economic problems which beset the entire global system.

    Before 1995, international trade was subject to GATT (General Agreement on Trade and Tariffs). GATT was replaced by WTO, and WTO was the precursor for Globalisation.

    Up to 1995, there was an economic firewall of sorts. That firewall helped contain recessions to regions, to a degree. With the introduction of WTO, that economic firewall was removed. This removal coupled with further de-regulation throughout the financial markets and increased globalisation, enabled the effects of recessions to ripple throughout the world economy.

    The economic/financial threats identified by Wolf are dangerous. And that danger is amplified because the architecture of the economic/financial system is global today. And that architecture doesn’t contain a firewall to contain those dangers.

  19. netmargins says:

    “We question banks’ willingness to continue to lend at relatively thin (and declining) spreads to offset net interest margin pressure, where questions around credit metrics remain front and center,” the Raymond James analysts wrote in a report.

    Dick Bove, a five-decade bank analyst at the brokerage firm Odeon Capital, said many loans made years ago now might be worth selling — since low interest rates have made investors hungry for high-yielding assets.

    And if banks choke off credit, businesses would probably find it harder to finance new investments in factories, equipment and technology, and households to justify home or auto purchases.

    “A significant recession could develop if banks decide to sell the loans they own rather than make new ones,” Bove wrote this week in an op-ed article on “At present, the pressure to take this path is rising.”

    • Wisdom Seeker says:

      Just FYI, Dick Bove is the moron who said bank stocks were a “generational buying opportunity” in the summer of 2008… before the real crash happened. He was among the first on my list of financial-sector people I would never listen to again. Jim Cramer and Larry Kudlow also made the original list.

  20. SocalJim says:

    Why are all of my comments being moderated? I get the message. I will move on.

    • Wolf Richter says:


      read commenting guidelines #3

      I cut you off after your comments exceeded 10% of all comments at the time you made them. You did this twice in a row, including most recently under THE WOLF STREET REPORT. Of the first 40 or comments, over 10 were yours. You were practically badgering other commenters who didn’t agree with you. The rule is 5%. So if there are 40 comments, 2 can be yours. But over 10 were yours!

      • alex in San Jose AKA Digital Detroit says:

        SocalJim’s posts are like those little bits in the fruit cake that don’t taste too hot and you can’t tell really what they are, but add to the mystery of fruit cake. Too many of those bits and it’s a low-budget fruit cake.

  21. Eastwind says:

    Wall street traders need volatility to make money, and recently the bond market has been much more volatile than historically typical while the stock market has been range bound. So I suspect a lot of fast money has moved into bonds. I agree they are counting on a Powell Put and QE4 as their exit strategy if/when the SHTF.

    BenX says “imagine what would happen if the ten year went to 8% in a month or two”. I can’t. Because what I can imagine is that if the 10 year went to 4% in a month or two the Fed would be in there buying with a massive QE4 and the 10 year would never get to 5% let alone 8%. They might be even quicker on the trigger than that, a fast move to 3% might be enough.

    So what’s wrong about this Powell Put idea? I’m not arguing QE4 is “good”, only that its likely, and people betting on it are not being irrational.

    • sunny129 says:

      Fed is getting trapped and getting squeezed into a corner of their own making!

      From ZH
      we highlight BofA’s conclusion that “market participants should be aware of the potentially limited easing arsenal of the Fed if it has to take rates to zero and face a flat UST yield curve.” In such an environment, the Fed would find its policy space is limited given relatively ineffective forward guidance and a reluctance to invert the curve via UST QE or twist. The flat – or rather inverted – curve would propel the Fed toward the “outer rim” of its unconventional easing policies and shorten the distance between when it might employ yield curve control, a “MBS vs UST twist”, or negative interest rates.”

  22. Michael Engel says:

    !) Gold futures vertical rise have reached Sept 2011(L) @ 1562.20 swing point.
    Gold fell from Sep 5 2011 peak to a swing point. This area is infested with resistance.
    GC will turn down.
    2) $BKX, the international banking index, is flashing
    red alarm signal.
    BKX have entered a 22Y old trading range :
    Buying Climax from July 1998(H) as resistance
    and support from Oct 1998(L).
    BKX 1998 hi/ lo is a backbone of finance.
    When BKX failed to exceed Feb 2007 peak, in Jan 2008(H)
    large institutions started to dump.
    3) XLE monthly, – the energy index, – troubles are far from over.
    XLE fell from 2014 peak to a swing point in Jan 2016(L) and
    rally to LPSY in May 2018.
    No inflation insight.

    • Dale says:

      But gold’s peak price (EOD) was $1880.

      And given its competition, I don’t see any hard stops below that.

  23. Devils Advocate says:

    As negative yields keep popping up, we have to wonder who’s really buying these bonds? Is it a regular investor? Highly unlikely. Is it a bank who needs to buy these assets as a safe collateral in their balance sheet to keep lending? More likely. Unless the world is awash is insane inflation, credit expansion is still needed for growth. Banks are using more assets like government bonds instead of mortgage backed securities as their reserves so 2008 doesn’t repeat – so there is demand for government bonds despite the negative yields because what they lend out/trade/invest is still positive.

    It wouldn’t make sense for the Fed to raise interest rates right now as tightening dollar will basically sink a lot of businesses and investments (how fun would your mortgage be if it’s variable and your interest payments go up).

    As every central bank is a monopoly issuer of their own currency, even if nobody “buys” the government debt the central bank can. So rates are set by central banks and in the Eurodollar system the Fed sets the interest rate for the world and everyone reacts.

    So if the inverted yield curve persists, it’s a reflection of banks (both in the US and internationally) hoarding short to medium term Treasuries ever since the tapering began. They need the Treasuries for their reserves and credit will contract if no one wants to lend out their reserves. The Fed is going to try to keep lowering rates to sort of reopen the spigot so dollars are going to be out there to be available to lend again.

    So will there be a recession? Maybe maybe not. But will rates jump and threaten the entire global financial system so all the politicians and bankers involved will get screwed? It would seem unlikely. But as an investor you might experience falling interest rates in the near future and it is probably a good way to obtain income producing assets more cheaply so that when you’re older and your job has been replaced by robots you can still collect dividends/rental income etc to help you live.

    • Eastwind says:

      Besides banks, another big buyer category of the bonds is pension funds, which are mandated by their investment rules to keep a certain percentage of their assets in ‘safe’ bonds. Ironically those rules, written in a time when bonds yielded 6%, are now forcing the pension funds to make investments guaranteed to lose money in the name of safety.

      Our pension funds are already wrecked, and NIRP will finish them off. We’ll have to socialize the obligations, but we need the inflation anyway so might as well print the money…

  24. Matt Keprta says:

    The simultaneous rising gold price is the key to the picture here. I know you avoid talking gold. But gold is telling us something in a very big way.

    • John Doody has always said that gold gains when the “real” interest rate is negative. When the coupon rate is negative, that is undeniably a gold-positive environment. Gold is honestly not that hard to figure out, though the ability of the market to swallow economic fakery does continue to surprise me… and that in turn has a bearing on the gold price. While USD gold fell from 2011-2015, CDN gold has had only one down year since 2001 (2013 was a serious rout, but we’re now in our 6th up year if you’re in Canadian dollars!).

  25. Ty says:

    Here’s What I’m Worried About.

    Zero or less interest rates.
    Zero investment options that will allow me to sleep at night.
    My money being debased to zero

    • Dale says:

      Here are some ideas:
      1. Large cash position.
      2. Insurance position (gold, silver, bitcoin). Ray Dalio has recommended 10%.
      3. Relatively small but highly leveraged long markets position (SPXL is my favorite). Between government trying to keep markets aloft, and companies trying to destroy themselves, this has tended to do well. In my opinion, you need some kind of indicator to know when to get out and in.
      4. Bonds: Can’t recommend them now. Supposedly the EU is against a hard-limit on NIRP unless they eradicate cash. If the US tries to go in that direction that will eliminate all foreign buyers (who are there mainly because the EU is negative); they are already small net sellers, they can easily become large net sellers. Also, within the next few years pensions will become net sellers instead of net sellers, then look out below. (Of course, that is true for equities as well.)

      This can be completely wrong, but it has worked so far.

      • LessonIsNeverTry says:

        Assuming Ty’s worries play out, real estate is a good option. However, I don’t think inflation is a major concern short term.

  26. sunny129 says:

    ‘In the second quarter, consumer spending adjusted for inflation rose at the fastest rate since 2014 – at nearly 5%. Consumers are pulling their weight. They have jobs, and they’re making money, and they’re spending it.’

    Are they spending THAT out of their current cheque or by charging to CC? . B/c of stagnant, rate of wage growth, since late 80s, bottom 80% have forced to use DEBT spending in order to preserve their standard of living/life style.The current Consumer credit is around 1.03T!

    How long this can go on?

    • Wolf Richter says:

      Lots of Americans are making a lot of money right now; and a lot of other Americans were being squeezed. It’s the bifurcation of the economy. Don’t underestimate the many Americans that have little or no debt and are doing very well.

      • Bart says:

        Wolf, with a shrinking middle class doesn’t than mean less people spending and adversely impacting aggregate consumer spending? This is something I do not understand. In flyover, lots of people struggling but on the coasts, many people doing well. You believe there are enough people doing wellto keep consumer spending strong or has it always been the top 10% or so that drive consumer spending.

        • Wolf Richter says:

          What is “flyover”? Places like North Texas, Denver metro, etc? These are huge metros with lots of people, and those metros are doing well. There are other metros that are not doing well. So it’s a mixed bag. Even within each metro, regardless of where they are, there are parts that are doing well, and parts that are not doing well. An economy is always made up of lots of mixed bags.

        • Wisdom Seeker says:

          Personally I see more struggling people on the high-cost, crazy-wealth-imbalanced coasts than in the low-cost middle of the country.

      • Charles says:

        Is it just me, or are restaurants in the Bay Area less crowded than they used to be? That’s discretionary spending being withheld.

        • Wolf Richter says:

          I flew back to SF Wed night, flight was overbooked. Airport was crowded. At 11 pm, still lots of traffic on the streets.

          However, there are over 7,000 eateries in SF, and that’s a lot. And there is a shakeout going on, because there are just so many restaurants, good ones too. But our favorites are still hard to get into.

  27. Gregor says:

    “But here’s the thing. The speculators – the Wall Street powerhouses – would have to sell those bonds to actually take profits”

    Very few traders ever hold a bond for the full duration of its term. They’re passed back and forth like a hot potatoe. Might be for profit or it might be to hedge. Could be for repo purposes.

    What you seem to fear is a snap-back bond decline, which I’ve been waitng for and have only lost money. This is not like any market I have ever traded. There is a mad rush into bonds which I suspect is tied to the big money having the inside scoop.

    Look, these Fed governers don’t sit around a table and make stuff up, they have well drafted plans on how to proceed in different scenarios written by an army of economists. Big money hires the very economists who write these plans, so they will have insight into what the Fed will do. Everything is scripted to an extent. This has always been true.

    The alternative is that things are really screwed up and the world is spirling into oblivion.

    • Doug T. says:

      Gregor, you make it sound like the U.S. Federal Reserve and other central banks are so smart. I remember years back comments about they can replace the U.S. Federal Reserve and Alan Greenspan with computers.

      It was based on the fact that interest have been purposely been forced down and controlled by them at any costs and means necessary because the name of their game is debt, debt, debt hyper accumulation. By the way, everyone on the U.S. Federal Reserve board, committee gets 6% interest guarantee on their deposits with the U.S. Federal Reserve. They will not probably admit it but it is true. They are all paid shills.

  28. Nicko2 says:

    Bank of Canada didn’t flinch…didn’t lower rates today. Pundits are calling it hawkish.

  29. Scott Devon says:

    I can’t believe Greenspan is still around and is saying in an article I read today that it is a matter of time rates go negative in the U.S.

    He is a wall street schill for wall street, bankers and all the many speculators around the world. He has done this many times as the last time back in 2002 to 2003 he was scaring everyone about deflation becoming a norm in U.S. which never materialized. It seems to me that many people in the U.S. and outside like UN and many world organizations from IMF to worldbank, NGO’s are purposely wanting to destroy the U.S. to make their global one world banking, financial, government system a dream come true.

    • Jack says:

      You do realize That the “world bank” & the “IMF” are but instruments that the US used and continue to use to destroy the Economies of large number of developing nations , don’t you?!!

      But sometimes the instruments do backfire on their users… so happy days!

      • Wolf Richter says:


        The IMF is always run by Europeans. The World Bank is run by Americans. That’s how they split the power.

        The primary purpose of the IMF is to bail out holders (investors) of foreign-currency bonds that countries eagerly issued to get their hands on cheap money that way, and that they threaten to default on, or already defaulted on, because they blew this cheap money and now cannot pay it back.

        The role of the IMF is to make whole those bondholders who stupidly gave that country this cheap money. The IMF bails out those bondholders by lending even more cheap money in form of even more foreign-currency debt to that country in exchange for some reforms that are hoped to make the IMF whole.

        Those reforms are a bitter pill to swallow for countries that blew that cheap money from foreign-currency debt they issued, and suddenly this cheap money from others around the world stops flowing in, and that country has no cheap money to blow anymore, and it can no longer spend money like it used to. That’s a bitter pill to swallow.

        If a country has a strong currency, and maintains this currency, it has no reason to borrow in foreign currency, and the IMF plays no role. That’s the key. A country like Argentina that destroys and debauches its own currency cannot borrow cheaply in its own currency. Argentina has to pay over 50% interest to induce investors to buy its crappy peso debt (even that wasn’t enough anymore to find buyers, and so it defaulted again).

        A country like that can briefly borrow cheaply in foreign currency, and it loads up on this debt and blows this money. When it then defaults on this debt, the IMF offers bondholders and that country an exit. No country is forced to accept that help. Argentina blew off the IMF after the currency collapse and default (in 2002, if I remember right). Turkey blew off the IMF recently. No problem. They just have a financial crisis on their hands.

        • timbers says:

          Wolf, the IMF may be run by Europeans but those Europeans are run by Americans. Just look at how the IMF obeyed Washington orders by shattering is our sacred rules regarding debt, when it was owed by Ukraine to Russia.

        • char says:

          Problem with those reforms is that they don’t work. Even for the investors. So why do those reforms outside ideology?

        • Wolf Richter says:


          Agreed, many of these reforms don’t work. Imho, the IMF shouldn’t exist. Bondholders should not get bailed out. Emerging market economies that trash their currencies should not be able to find brainless investors to borrow money from in foreign currencies.

        • Jack says:


          I would like to answer your post above extensively, but that might sound a bit of going around in circles! ( and will serve No purpose as we agree on the fundamental basis of how a responsible country/ Corp/entity /individual should run their financial affairs).

          I would like however to point you to some literature/ book to make this point of view a more rounded one by either of us!

          “ Confessions of an Economic Hit Man“ would be a good start.

          There are multitude of cases whereby the “Winning side” of the WW2 have created a blue print for pillage and destruction in all corners of the globe.

          I am sure we’re ( both of us) Not inclined to go off the course of the reasons why this forum exist ( of which I personally am so thankful for in the current Economic climate), so Not to be too political but the ( Creditor Nations have been grabbed by the proverbial to do the US’s bid in every turn of events across the globe)!

          Now that communist China is finding ways to throw its weight around “ albeit “ not as overtly as the US we’re starting to see the repercussions of this Friction between those two powers is having on the lives of the rest of the world.

          The bottom line is , you have to treat people with the respect they deserve if wish to propagate long-standing peaceful existence, lacking that moral foundation spelled disaster to many a World powers of the past.

          thank you for your time.


          You might also want to look at
          “ The Veins of Latin America”
          Thought it was written in the early 70’s and by a journalist it carries some perspective to where we’re now.

          and believe me “ I don’t like corrupt governments” though they’re the flavor or as you so often describe as “ all the rage”! :)

  30. Wes says:

    Interesting viewpoint Mr. Richter. Will the US investment banks, aka JP Morgan, Goldman Sachs etc. set up a US Treasury bond bubble ( along with US Congressional spending) for the Federal Reserve to step in and buy to avert a shock to the financial system? Time will tell.

  31. Richard says:

    Can someone explain to me *any* economic entity that would own trillions of dollars in negative yield bonds? Not hold to maturity – to even admit taking legal possession for 5 or more seconds.

    I am checking to see how many of these time bombs rest within my 401(3)b. Bonds with negative yields are like “negative accounts receivable”. These bonds are not safe “assets” as bonds have historically been thought to be, but may instead be liabilities with incalculable downside risk.

    What’s in YOUR 401(k) ???

    That’s Finance 101 for you baby boomers out there.

      • Rcohn says:

        Report reserves can nit account for the panic into duration.

      • Repo is a surrogate for deposits, banks access the line, pay a small interest on the short term loan and go long the market. They roll over every month or so, Greenspan worked this liquidity gambit with a gradual interest rate hike policy so everyone knew what the cost of rolling over debt would be. By comparison negative yields at the Repo window is Reverse Repo, which is what the Fed runs to cap interest rates, some call it IOER. If bank ‘A’ pledges assets and those assets get repriced lower, that’s when the Fed steps in with QE. Repo fell out of favor when combined global monetary accommodation exceeded that paltry amount. It still has some use as a means of keeping the money moving after the liquidity tap slows down. (Not happening) In the event of a liquidity crunch everyone is screwed and bank reserves thought to be safe are not, incl. and esp. Treasury bonds.

  32. anthonyhall says:

    Why isn`t Deuschbank being “Shorted” to Death by Wall Street`s Vulture Funds.

  33. Richard says:

    Thank you George for that link to Alhambra’s explanation. Yipes!

    Since it’s quite complicated, I’m glad we little guys only have the U.S.-China ongoing trade war and the Fed rate cut dilemmas to worry about. The big money banks guys wouldn’t be setting us up for a fall yet AGAIN, would they?

    • Anon says:

      Greedy with no strategic vision. The long lasting ones cultivate political connections as insurance policies for failed schemes. Read that one such hands out prestigious shares of stock to well connected politicians. Book deals are also good sources of legal bribery. Commodity futures not so much.

  34. akiddy111 says:

    I have followed J Snyder for a few years and i have become more and more impressed with him over time. He was having none of the FED’s “inflation” and “labor shortage” gibberish last year.

    He kept repeating his stance all year that the Global Bond Market is having none of the Fed’s made up stories.

    Rosie was another one in the same camp as Snyder. Mish too. There was a list of them on the same page. Good for them. I agreed and still do.

    Anyone who pays attention to the Fed is a sucker.

  35. Jest says:

    It Sounds like the Wolf has caught the Scent!
    It won’t be long now!!

  36. Tony bolongy says:

    “The stock market sees boom and glory ” wolf
    Come on wolf everybody knows that the indexes will boom during hyperinflation, venezuealas stocks are up 3000 +%

    Locker room talk eh?
    Ever heard the one about when the shoeshine boy is giving stock advice
    It’s time to sell ?
    Ps to recession will not be televised we are already there with all them great stats namely Cass freight ,inverted yield cure .etc…………….

  37. timbers says:

    1). The nation needs a FedExit. Because…

    2). Alan Greenspan says it’s only a matter of time before the Fed does negative interest rates.

    3). If so, I’m going to need a bigger mattress because I’ve got a lot in CD’s and Treasury Direct that mature at end of this year/beginning of next.

    4). If a bank stops being a bank, a safe place for your money and starts stealing it broad daylight instead, officialdom have become as corrupt as they possibly can be.

    Time for a revolution…

    • Anon1970 says:

      While you are at, get yourself a good wheel barrow. Remember the early Weimar years from history books?

    • char says:

      4) What is the difference between negative interest and interest below inflation? I don’t see it.

  38. Bert Smith says:

    Wolf, I enjoy reading your columns but am trying to make prudent investing decisions as a layman. In light of the everything bubble you write about, do you think it’s a good or bad idea to put money into vehicles that will short the market? I am also considering selling my home in the SF bay area until things crash and then perhaps purchase again. If you are at liberty to say, are these steps you are taking?

    • Wolf Richter says:

      Bert Smith,

      For me, shorting is way too risky. I don’t like investing in anything where I can easily — and likely will — lose all or more than all of my principal. The odds in shorting are always stacked against you unless you have a megaphone big enough to make the market move in your direction, at least briefly.

      Muddy Waters and others work on that basis, and it works if you’re big and fast. But that’s market manipulation … and I’m not big enough to be able to do that, or else I would do it :-]

      Shorting the little guy’s way is betting and gambling, with the odds stacked against you, and I no longer feel like doing that.

  39. Anon1970 says:

    If you are counting on an annuity from an insurance company as part of your retirement benefits, you have something else to worry about. When my former employer closed out our pension plan at the end of 1984, members of the plan were given an annuity whose monthly payments could start as early as age 55. In 1984, interest rates were a lot higher than they are now. Even a 14% 30 year Treasury bond issued in 1984 went to bond heaven years ago. Life insurance companies are very limited in the percentage of common stock they can own, so they aren’t really benefiting from the run up in stock prices in recent years.

    Then there are the poorly funded pension plans (defined benefit) like those run by the City of Chicago and the State of Illinois and the grand daddy of them all, Social Security.

  40. Unamused says:

    Do you ever get the feeling sometimes that you’re being set up to take a fall?

    How trusting. Such a gullible species.

  41. Craig Thompson says:

    Greenspan and central banks are getting desperate of losing control. According to this guy, too much old people with too much money is the reason for ever falling interest rates and negative bond yields. What a bunch of B.S. and double speak. It is them doing all this financial engineering of lowering interest rates and taking people’s savings through inflation and lost interest.

    If even every person took all their money and put it in stocks and real estate etc. and not in bonds they still would be lower interest rates. They better be careful since they always mention confidence as a buzz word if confidence gets lost in digits money which is really what we have today then it is done.

    I have been buying gold and silver coins with 25% and 75% portions starting when it was $6 and $250 each for the last 20 years taking all the bond interest money to task. Gold for $3,000 an ounce is coming and it is central bankers doing.

  42. james r says:

    The Fed will be the last byer of bonds and ultimately cause the dollar to crash hence creating hyper-inflation.

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