“Speculative Energy in the Market is Incredibly out of Control”

“It is a mind-numbing exercise for investors who see the cognitive dissonance”: CIO at Guggenheim Partners.

By Wolf Richter for WOLF STREET.

This market has been an astounding experience for people who’ve traded through the prior stock market bubbles and the last three crashes, who’ve seen a national and several regional housing bubbles form and implode, who’ve seen the subprime-auto-loan Asset Backed Securities bubble blow up in the mid-1990s and again during the Financial Crisis, and now it’s starting to head the same direction again. But no one can remember ever having seen markets like these that have formed the Everything Bubble.

It’s a phenomenon where nearly all asset prices are inflated. It’s not a secret. There are signs all over the place. Yesterday, the government sold 30-year bonds at a yield of 2.06%, below the rate of inflation as measured by CPI (2.5%). The Fed is fixated on driving inflation higher. But to beat the current CPI with a little bit of a margin that might evaporate over the next few months, you have to take fairly big risks and go to the low-end of investment-grade corporate bonds, to BBB-rated bonds, which are just above junk bonds (here is my plain-English cheat sheet for the corporate credit rating scales), and their average yield is 2.96%.

Earnings growth has been lousy, for the companies that even have earnings. And one issue after another comes along, and markets just continue to inflate, and markets that normally balance each other out, with one going up while the other is going down, such as the bond market and the stock market, have been going up in lockstep.

And now comes the coronavirus. China’s and global reactions to it are in the process of taking down temporarily much of the second-largest economy in the world – with many factories and stores closed, with the transportation system partially shut down, with entire mega-cities locked down. US companies have started to announce that this will impact their revenues, their earnings, their supply chains, etc. Yet, nearly all markets have risen, bonds and stocks in lockstep.

This is a particular issue for money managers.

Money managers – at least those with some experience and open eyes – see this too. But they have to invest their clients’ money. They can’t just send it all back. And they can’t just put it in Treasury bills and earn less on them than they charge in fees. So what should they do?

They can lament, but they have to play the game. Scott Minerd, Global CIO at Guggenheim Partners, which has over $275 billion in assets under management, eloquently expressed his frustration with this puzzle, particularly the credit market, and particularly the high-yield segments of it, such as junk bonds and leveraged loans, that I have been marveling at for a while.

“The cognitive dissonance in the credit market is stunning,” he started out his letter to clients to put them into the mood.

“In the markets today, yields are low [bond prices are high], spreads are tight, and risk assets are priced to perfection, but everywhere you look there are red flags,” he wrote. “The latest red flag is the coronavirus.”

The reaction in China and around the world to the virus is whacking China’s economy. “Our estimate is that China’s Gross Domestic Product (GDP) growth for the first quarter could be slashed to -6% annualized,” he said. And given’s China’s size, it would slash global GDP growth by about 2 percentage points.

And the markets? They shine brilliantly, driven by “cognitive disconnect between current asset prices and reality.”

Here are some excerpts from Minerd’s lament:

“The average BBB bond yields just 2.9 percent. A recent 10-year BB-rated healthcare bond came to market at 3.5 percent and subsequently was increased in size from $1 billion to $1.7 billion due to excess demand.”

“For those investors who perceive the disconnect between risk assets which are priced for a rosy outcome and the reality of the looming risks to growth and earnings, any attempt to reduce risk leads to underperformance. It is a mind-numbing exercise for investors who see the cognitive dissonance.”

“The frantic race to accumulate securities has cast price discovery to the side. In the world of corporate bonds and asset-backed securities, issuers are launching deals and then tightening spreads to Treasurys by 25 basis points or more relative to where the last similar new issue was priced just a day before. They are also upsizing deals, as it has become common to see new issue bond underwritings ten times oversubscribed.”

“The giant flood of liquidity is driven by virtually every central bank in the world injecting reserves into the system.”

“And many investors today don’t even buy individual bonds, they purchase a basket of bonds that can be traded via an exchange-traded fund (ETF). The quality of the bond doesn’t matter; no one is actually negotiating a rate or a price.”

“In the ETF market, prices are set by pricing services that frequently use stale data when no price discovery has occurred. The result is a non-market price determining where a security is trading and there is no additional price discovery, meaning nobody is negotiating individual bond prices. If it is in the index, buy it! This is what price discovery has become.”

“This will eventually end badly. I have never in my career seen anything as crazy as what’s going on right now. It was crazy in 2006 when I was pounding the table saying we were going to have a financial crisis of biblical proportions. And it was crazy in 1997, when high yield spreads got as tight as 239 basis points over Treasurys in October of that year, and then zigzagged their way higher for five years, until they peaked at 1,036 basis points in October 2002.”

“The coronavirus is just one example of exogenous events that could prick the bubble,” he said. But it could drag on “for another year or more” before the financial day of reckoning arrives.

“So what is an investor to do in an era of cognitive dissonance? Buy the highest-quality securities possible that reach some target threshold return. I accept the fact that we may be investing money at levels that don’t make sense, but we invest for the long-term and to preserve capital, and as the cash flows in it must be spent.”

“We are either moving into a completely new paradigm, or the speculative energy in the market is incredibly out of control. I think it is the latter. I have said before that we have entered the silly season, but I stand corrected. We are in the ludicrous season.”

My “Credit-Card Spread Index” blows out. Heck if I knew what that means, but it doesn’t mean anything good. Read…  Credit-Card Interest Rates Soar to Record High, Bond Yields Drop to Record Low: What Gives?

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  216 comments for ““Speculative Energy in the Market is Incredibly out of Control”

  1. CreditGB says:

    Pressure of cash to invest in bizarro world.

    Reminds me of the I Love Lucy episode where she is on the candy production line and unable to keep up with packaging them.

    She begins eating them and stuffing them into pockets.

    Get the picture?

    Wolf, maybe you can post a still picture of her with her mouth full, and the endless stream of candies (cash) coming off the line. Seems to illustrate today’s mad cap investors.

    • Anon1970 says:

      Yes, I definitely remember the episode. In fact, an “I Love Lucy” re-run was interrupted by CBS on the day President Kennedy was assassinated in Dallas. You can watch excerpts from the chocolate assembly line episode

    • Wolf Richter says:


      Here you go:

      • Cas127 says:

        The Fed’s poisoned candy factory.

        • historicus says:

          Good one. But the younger folk wont get it.

        • mike says:

          It does seem like the US stock market is now defying gravity. While I hope that the coronavirus epidemic can truly be handled by the communists in China, I seriously doubt it.

          While I welcome the coming disinvestment from China as these events force companies to diversify and change suppliers to other countries, no one can predict if countries like Vietnam, with much worse medical systems, will be able to control the coronavirus. Thus, companies may flee from the frying pan (China) into the fire (Vietnam, Malaysia, etc.) in terms of the coronavirus stopping their suppliers’ production lines.

          Unless all of the information that I have read is wrong, including from the Chinese communists, it appears that the communist Chinese are basically allowing large numbers of their populations to just die in quarantine. They do not have enough ventilators or oxygen, etc., so they are just putting them in mass quarantine locations for any possible infections to burn out: i.e., for those who are vulnerable to die and the others to survive, as they can, without much treatment. They are basically writing them off and only truly trying to protect those without symptoms.

          I hope that the heat of summer stops the virus. However, whatever happens, at a minimum, it will freeze the Chinese economy for months until that burn out occurs.

          There are studies that the SARS vaccine might not have been beneficial, because this type of coronavirus causes the second infection to trigger an over-response from the immune system (I.e. a virus-caused version of Lupus.) If that is the case, those just discharged might have an unhappy surprise awaiting them in the future, if they ever get reinfected.

          If that is the case, a beneficial vaccine might never come. Whatever happens, investors should have realized by now that they should just be focusing on limiting their losses now in such an uncertain economy.

      • unit472 says:

        The ‘story’ of Lucille Ball and Desi Arnez is interesting because it represents an era that has vanished. The ‘mom and pop’ or, in this case, husband and wife owned company.

        In my salad days people of an entrepreneurial bent could still found their own company and with a bit of luck become wildly successful.

        Didn’t need an IPO or VC funding. You could do it on a shoestring. For example, the Oakland A’s had a pretty ball girl in the early 1970’s who began serving ‘cookies and milk’ to the umpires. From that grew Mrs. Fields Cookies. I don’t imagine that would be possible today because you just can’t get shelf space in supermarkets or stores if you are a ‘small’ business. Corporate control has moved all the way down to virtually every niche in the American economy. My guess is they will take over ‘Food Trucks’ soon if there is any money in them.

        Small business formation ( outside of tradesman) has virtually disappeared in America so so has investment opportunity save the ‘markets’. People may accumulate sizable private funds but no place but the non market ‘markets’ to invest. Is it even possible for a local businessman to get a car dealership anymore in a world of mega dealerships?

        • Cas127 says:

          “but no place but the non market ‘markets’ to invest”

          There are a lot fewer SMB opportunities,

          1) The bigs do have enormous economies of scale (and no one should really want these to vanish) but EoS matters much less in a decent number of sectors,

          2) Regulatory burdens are another thing favoring the bigs – they can spread the costs of compliance very, very widely – small biz can’t, but is usually held to identical stds.

          3) Without public mkt liquidity (often due to regulatory overhead and finance disadvantages), minority equity holders in SMB are often trapped in oppressive relationships with no exit. So SMB equity financing is a small fraction of what it might be.

          A lot of these could be addressed, but in general the gvt much rather deal with a handful of huge companies than an array of small (look at banking – the Bigs were the most to blame…but the most bailed out, there have been almost no new banks allowed for the last 10 years, and the number of banks has fallen from 15k in 1990 to 6k today).

          In their hearts, even capitalist governments are inclined to central planning, preferring Corporatist “coordination” to chaotic freedom…it makes their regulatory work much easier and maximizes the value of their “favor” brokerage to industries under their regulation.

        • Brant Lee says:

          The infrastructure for the supply of small businesses in the U.S. has all but vanished. Especially in rural areas where the fuel prices of the early 2000s finished off most delivery and wholesale houses. Want supply? Wait until the Walmart truck arrives.

        • Shiloh1 says:

          Yes, Walmart did a number on Rural America, with help by local governments along the way. I pray that the China virus supply chain breaks will be the asteroid which takes them down.

        • rhodium says:

          I second Cas127’s mentioning of economies of scale. Even if you removed the regulations on businesses these days, which would reduce the cost gap. A lot of businesses squeeze out extra efficiencies in their business models using technological capital that only becomes cost effective at larger scale, even if that’s only something like more efficient warehouse management. If you want to start a business in one of these areas to compete on cost you essentially have to invest in a large amount of capital, not in amounts you could hope to save up yourself. This would be an extremely risky loan for any bank to make, they’re not going to do it.

          Not too long back I remember people complaining about how all these small family owned dairy farms in Wisconsin were failing. Some conservative commentators blamed govt regulations. Regardless of what those may have been, I looked up some articles about it where they interviewed some of those families and the story I was getting was that no matter how hard they tried to be more efficient, no matter how much money they borrowed and put into the farm, they just could not sell milk at the low prices that the factory farm down the road was able to sell it at. Technology is getting cheaper and broadening so rapidly, the story in many industries is not unlike foundries putting blacksmiths out of business.

      • DawnsEarlyLight says:

        Brings back many a childhood memory! My aunt was related to Vivian Vance, and as such, had many of these outtake pictures to show during family visiting holidays. These certainly ring a bell!

      • CreditGB says:

        Oh my, that is exactly the one I recall….made my day! Thank You!!

      • kevin says:

        Wolf, I already told you that its no use to keep talking down the market, even with funny pictures :-)

        With FED QE4 that is closely emulated by the rest of the world’s CBs, the real economy, real revenues and balance sheet health of companies becomes relegated to being minor factors in the equation.
        What matters now is liquidity and liquidity only.

        Anyhow, how’s your BlG SHORT coming along? Not good l reckon.
        I hope you took my advice to close it and take a small loss back in early Jan.

        This BEAST may move up even further than most would expect.
        – Potential WW3 with Iran could not bring it down.
        – (Near) Impeachment of Trump could not bring it down.
        – Now with the Coronavirus threat, it still isn’t going down.

        Hint: There are a few good ways to position yourself during such times, to make an opportunity out of every crisis, but a naked short is certainly not one of them.

        Imagine what happens once this coronavirus peters out as all epidemics eventually does. Then the market BEAST will potentially Spike UP even more based on a presumed “Recovery”. Hurray!? lol.

        • Wolf Richter says:


          “how’s your BlG SHORT coming along? Not good l reckon.” Look at the chart. It has been incredibly boring so far, up a few percent, down a few percent, then up a little, then down a little. Nothing like what was going on last year. Have you been afflicted with selective memory again, only remembering the up-days and forgetting the down-days?

          QE-4 is over. From mid-September through the end of Dec, the Fed added $410 billion. Over the seven weeks since then, the Fed has added nothing. Over those seven weeks, its balance sheet has fluctuated in the same range up and down.

    • sierra7 says:

      How many of these newer emerging companies been labeled, “Unicorn” companies with all the accepted connotations….
      Well, what about labeling this “new” economy the “Unicorn” one????
      I’ve been following these “markets” for many decades and have not seen anything like the acceptance of these conditions that seem to keep “unicorns” moving.
      This “market” is moving towards total global destruction.

  2. Old Engineer says:

    One of the most incisive and pessimistic articles you’ve ever written. It is like a metaphor for the problems afflicting the entire country. Everyone either sensing or clearly seeing the craziness, just carrying on along the path that leads to even more craziness.

    • VintageVNvet says:

      Not everyone OE: I have been trying to get my wife to sell our house we own outright that has gone up in ”market” value almost triple in the 4 years we have owned it; the question she asks, rightly IMHO, is where to put the cash until we can buy the house back ”after the crash” for the same or lower price we paid.
      Can’t do other ”dirt” right now because, as this article makes clear, ALL assets are crazy over priced. Rents too have gone nuts here in that time..
      Apparently, we are not selling.

      • Cas127 says:

        “is where to put the cash”

        Why not just keep it in cash (st Treasuries or FDIC bank accounts) for a year or two? Real goods inflation is hardly wildfire (yet) – so you are not losing much to for real goods inflation.

        I think a lot of smart people try to over optimize their investments.

        They know something is badly off/wrong about the financial mkts – but resign themselves to stasis because they can’t find sensibly valued traditional invts…with *historically* sensible yields…but that *is* the problem…the flood of fiat has raised all traditional invts well above traditional valuations, destroying yield, and hugely increasing exposure to volatility (because all assets are increasingly correlated to one manipulated variable – interest rates).

        There are much, much worse things than knowingly losing 1 or 2 pct per yr to real asset inflation – like losing 40 to 60 pct in a month on the relatively “sensible” SP 500 (which fell by half in 2009 and took yrs to be reflated by QE/Fed Fraud 1.0).

        Longer term, research more niche asset classes (certain small biz invt – diversified if possible, revenue royalty financing, etc.) and see if they make sense to you.

        Or just wait, asinine valuations always implode…and always seem most “permanent” just before they do.

        • fajensen says:

          Good Luck with that! You go to the bank with your cash and now it’s “Terrorist Money” or the cops decide it is “Drugs Money” and relieve you of all of it under “Asset Forfeiture”… which they will also apply to physical gold or silver!

          The Only Place to keep a large lump of money safely is in electronic form: Like Short duration bonds and Treasury notes. Sure, there is a fee for that. but I think it is modest compared to the alternatives.

      • Jerome says:

        Gold and gold miners.

        • nhz says:

          gold increased over 40% in price in just one year (in Euro currency). Meanwhile gold miners aren’t doing very well …
          Buying gold now seems like buying fire insurance while your home is burning down.

        • Freewary says:


          Nope, incorrect

        • daznez says:

          gold is money. everything else is worthless paper.

          buying gold now is like doing what the central banks are doing, because they know the entire financial system is going to burn down (because of them.)

        • WES says:

          Jerome:. The first part of your answer, gold is correct!

          Your second part, gold miners is incorrect!

          Example:. Today AEM announced record everything plus 14% dividend increase. Result stock drops a “record amount” of 15% or $10 from $59 to $49 today!

          Gold was up $5 today.

          This proves what Wolfe is saying! The investing world has gone plumb crazy!

        • Brant Lee says:

          Physical silver. Hide in fake sewer pipes.

        • Escierto says:

          The miners don’t believe this rise in gold will last. They are looking at a gold price in the $1300 range as realistic. Today the miners got hammered lower which is very bad news for gold bugs. Look out below!

        • WES: Assuming that the gold price continues to trend upwards (this is what unbroken trends do), then AEM is on sale. I added to my position when Mr. Market offered the discount coupon.

          If you’re asking “What kind of conditions make for a gold bull market?” — well, these are those kinds of conditions. Low real interest rates; all assets inflated; weakness in the real economy; speculation fueled by low rates and absence of yield….

      • nhz says:

        The property that I purchased in the early nineties for home and business went up about 4x within 8 years. I had to sell it in 2000 because of a ridiculous change in Dutch tax laws, and hoped to quickly buy something else instead (the new law would tax the equity gains for properties that were also used for one’s business at the personal tax rate, which was over 60% then). But despite the prior surge in prices, home prices started going up even faster because of the introduction of the Euro, so I was basically priced out of the market. In hindsight I should probably have accepted a much more modest property instead for the same money, but in 2000 prices already seemed totally insane. After 2000, Dutch RE prices increased another 3-5x (all thanks to the ECB flooding the market with money and forcing interest rates down to zero). Rents increased by about the same, for a total RE price increase of 10-20x in a little over 25 years, despite very little increase in incomes. Markets can remain irrational for a very long time …

        Almost everybody who sold in the last 30 years hoping to buy back for a lower price lost lots of money. The only way to stay ahead is emigrating or owning multiple properties. And even emigrating isn’t a sure solution because almost all developed markets are getting totally crazy. Even most remote parts of Europe that still have decent service level have seen surging RE prices, primarily due to speculators; if RE prices are still modest there often is a very good reason for that ;(

        • nhz says:

          P.S.: and of course all the idiots buying RE with huge leverage were richly rewarded by central bank policy over the last 30 years. I don’t think there is any way that this “policy error” can be corrected.

          Bankers and politicians have decided that financial prudence has to be heavily punished in order for them to keep in control, so we will end up with an economy of zombies, crooks and idiots (both private and corporate).

        • andy says:

          Perhaps you can reassure gold proponents that if you put all that money in gold you’d come out ahead still?

        • WES says:

          nhz:. I can completely relate to what you are saying!

          I am pretty much in the same boat!

          Central bankers have severely punished those who try to live within their means while richly rewarding those who choose to live beyond their means!

          Everything we learned from our parents about taking full responsibility for our actions, doing what is right, looking after our family, has been turned on it’s ear!

          We would have been much better off to have behaved selfishly and irresponsibly!

          Unfortunately, we will likely die broke long before the the central bankers do!

        • JZ says:

          The past 30 years of globalization has just ended.
          The established elites controlling capital has rent fucked the entire labor force of the entire world. They set up institutions like ECB, IMF, and they still want more power by promoting climate change and ask the mass to give them power to fight THAT.
          Populist got elected and Brexit happened.
          They still want to hang on, but coronavirus happened.
          Now everybody needs to seal their borders and shut down flights. Localization is replacing globalization.
          They better hope China is back on foot again. Other wise, real goods in walmart, costco, target will double their price. Every localized country will finally gets CPI inflation. Interest rate will be forced up.
          I don’t know about houses but I think Stock and Bonds will gets killed.

        • robt says:

          It sounds from your description that the Dutch tax laws were changed to assess taxes on imputed income, i.e. to tax unrealized capital gains even if the property was not sold and you and your business would have continued to occupy it.
          Was that the case?
          We had something proposed in Canada by the opposition Silly Party (NDP) some years ago, which would have taxed people for imputed rent ‘benefit’ because you lived in the property and had paid off your mortgage and didn’t have to pay rent. They viewed this as unfair and constituted inequality because you were living rent-free therefore it should be treated as taxable income.

        • Frederick says:

          I see Gold bad Real estate good right? Well I own lots of both but I think you’re wrong Gold should vastly outperform real estate in bubble markets anyway Gold IS money and fiat is being inflated away by everyone The Austrian school is right

        • crv says:

          The tax you describe we have in The Netherlands for over a 130 years now. As compensation they introduced a tax refund on morgage rent. Which now is called an “unfair buyers subsidy” and is reduced year after year. But the ‘rentvalue-tax’, as it is called, will stay of course.

        • nhz says:

          If ECB & friends really want to do something for the climate/planet I have a simple suggestion: rates UP! Because there is nothing more damaging that the current consumption orgy that is fueled by free central bank money (not just for the big global players, also for many individuals at the bottom of the pyramid who can live way beyond their means, for now). Producing countless millions of electric cars, heat pumps and other consumption goods that require loads of materials and energy to produce isn’t going to solve anything. There is just one solution: living within your means and central banks will fight that tooth and nail.

          Even if the CoV problems gets out of hands and inflation surges I doubt central banks will act, it’s obvious that they only care about every surging asset prices for their elite friends. If the CPI finally rises too much (of course they will first introduce more manipulation to keep it down) we will see real rates go lower VERY quickly. The banksters (and politicians) will stay the course until we burn down all their palaces.

          Yes, they would tax unrealized gains (but only for those who owned the home and rented part of it to their company). The argument was similar to what you mention, but in most cases unfair: Dutch homeowners with a mortgage have a huge advantage because of full mortage deduction from income tax (50-70% in the nineties): with a mortgage at that time you paid only halve the cost of the home, the rest was paid by the taxpayers. Many people owning a home and a business (like me) didn’t have a mortgage or only a minor one, so they were paying more income tax and hardly profiting from the tax advantages of the average Dutch homeowner. It was an easy policy change because the number of people affected was very small, mostly some SMB owners, and it really pleases the rubble on the left: “see, we are punishing the capitalists”.
          Of course taxing unrealized or even realized RE gains at over 50% is a disaster when prices are surging, unless it is applied to everyone (an option no politician would ever consider). Later on I heard some people solved the problem by making a deal with someone in a similar situation and renting each others home/office, so the tax law didn’t apply …

        • nhz says:

          the standard Dutch mortgage deduction from income tax indeed has a long history and I DO think it is very unfair and should be abolished. But that was not the point. It was about the change in the new 2001 tax system where homeowners with a business (BV) would be taxed for unrealized equity gains on their home, while the same tax isn’t applied to anyone else. The official argumentation was that they could lend the money from their company for an artificial lower rate (which could sometimes save some taxes, but far less than with the standard Dutch mortgage deduction). With the staggering RE equity gains in Netherlands (over 1000% in the last 30 years, for almost every home in my city) this new rule is totally nuts. It would be very easy to bankrupt small business owners with such rules.

          For me it was even more problematic because I owned a several centuries old mansion that gave rise to discussions with the local government every year about valuation (for local taxes), with the bureaucrats claiming a valuation that was over 4x what I paid within one year after I purchased the property. They used ridiculous rules like the fire insurance value (rebuilding a 17th century mansion is expensive and would never happen in reality), the amount of cubic ft of space or the size of the pavement in front of the building. I had to use lawyers and appraisers every year to fight their valuation, and they lost EVERY time but continues their abuse anyway.

      • sc7 says:

        If you truly believe housing is about to take a tumble, stuff it across a few HYSAs for security and modest interest growth.

      • cb says:

        Where is your house located?
        Houses in much of Los Angeles County aren’t far above where they were in 2006.

        • Cas127 says:

          Yeah…but that makes them double of what they were in 2002…

          The US gvt has never been as committed to anything, as it has been committed to reflating the housing bubble to at least its previous highs.

        • Frederick says:

          And houses in Connecticut are below where they were in 2006 with much higher taxes and insurance costs

      • Longtime Listener First Time Caller says:

        As long as you have a shotgun, a dog, and and a fireproof box, you can keep it under the mattress,

        • A says:

          Keep what under the mattress? Paper money that can inflate away to nothing in a moment?

        • Frederick says:

          Exactly “A” you definitely don’t want much cash Money in the bank is risky so I’m going with some select rental real estate and gold/ Silver Hang onto your hats everyone

    • RD Blakeslee says:


      Not so. Some of us have never “carried on along the path” and never will.

      Our path is “marched to a different drummer” – Henry David Thoreau

    • van_down_by_river says:

      These are the types of problems that occur during the twilight of a currency. When a country goes down the path of currency debasement price discovery becomes random, the world gets distorted. People are forced down that path to crazy.

      These investors are at greater risk of getting paid back with worthless currency then suffering a default. We are in the early stages of this process, expect the unexpected and be prepared to have your hopes and dreams crumble. As a nation we consume way beyond our productive capacity, people who have worked hard and saved for the future will discover it was for nothing. Expect the guilty to skate by and be made whole if history is any indication.

      In 1990’s Brazil people only figured it out after it was too late. Hard working people were wiped out. No one was ever held to account. There is no justice, never expect justice, the universe is not just. Take what they let you keep and try to move on. If you own the stock market you own something at least, it seems expensive, but the currency may crash before the market.

      How will history view Powell’s talk of intentionally fanning inflation? I expect not favorably. Confidence is fragile and after reckless policies have destroyed it there will be no recovery, history will remember him as the weak coward who debased the currency and brought economic ruin.

      • GotCollateral says:

        >When a country goes down the path of currency debasement price discovery becomes random, the world gets distorted

        The problem with the USD debasement argument is that in this dollar-based off-shore credit market, where governments and non-US corporates alike prefer to borrow in USD, there is a perpetual short on the dollar (amount of USD denom debt >>> USD cash available), that get squeezed when this dollar-based off-shore credit market tightens up… not to say that over time purchasing power wont go down as more credit floods the system, but until foreign companies and governments stop borrowing in dollars you’d be better of worrying about exposure to USD assets those folks are holding when they need to raise USD cash to paydown that debt or that of which will be sold in a firesale in a event of default.

        Many things one could do with house sale proceeds until a market corrects, but it will take some creativity and research outside from just looking up what ETF to buy unhedged like so many want to do…

        • nhz says:

          I don’t think it has anything to do with USD debasement because the same is happening all over the developed world, and often even worse than in the US. All central banks are using the same reckless policy of punishing savers and rewarding speculators.
          The word “investing” should have been scrapped from the dictionary just like “saving” at least ten years ago. Saving and investing only exist in a parallel universe now.

        • GotCollateral says:


          The nature of what is a store of value and the means to exchange it is always changing. The belief that x asset should be worth y value at z date in the future when z is “ “sufficiently” far out and backed by sufficent government garuntees and calling that saving or investing is no different from those who z value approaches zero except for the fact that those whose z value approaches 0 have less belief in the validity of those promises over time.

          Everyone is a speculator, some just dont know it untill when their beliefs blow up in their face, by hook or by crook of those who benefited slanging those beliefs like kids sellin “water” in the streets…

      • sierra7 says:

        Can’t dump all this on Powell! All he has done is catch the ball and run with it hoping somebody will come up with a better “play” after the huddle!
        This economic (let alone political!) mess has been festering for years and years…..too much narcissistic living and too much business greed. We will all pay.
        Their exists no magic formula.
        The basics of economics still hold sway.
        Don’t over spend.

  3. joe says:

    “And they can’t just put it in Treasury bills and earn less on them than they charge in fees.”
    An Ah Ha! moment for me. I always wondered why financial advisers packed retirement portfolios with high return junk and rating agencies rated it as non-junk. I thought it was for some kickback but it was just to keep their job. They were buying high risk junk to claim they were worth their fees.

    But it’s not yield you need to chase, it’s expectation value.

    An inverted pyramid with the Fed on the bottom. A perfect storm coming: Fed pumping more money and the virus reducing China’s and the world’s ability to produce the goods to buy.

    • nhz says:

      Seems like the stock market likes this perfect storm more than anything else: what better guarantee can you have that central banks will keep inflating the money supply to infinity and lowering rates to below zero? Central banksters still claim they don’t see a bubble, why would they stop printing now? It’s time to bring out the guillotines …

      • No Expert says:

        Nzh – so bad news is good news for the market because it is a signal for CB to print? Presumably good news is also good news?

    • Mario says:

      Which I think means inflation would go through the roof??? If so, it would seem gold and gold miners would be a great hedge… no?

      • Frederick says:

        Definitely but nhz is a real estate person Personally I like diversification with 30 percent precious metals but that’s me

        • nhz says:

          No, I’m not a real estate person at all and I do believe that gold is a pretty solid investment in the long run. I have invested a bit in gold and gold stocks before, just don’t like it now after the huge runup in a short time (basically same reason I don’t like Dutch RE after 30 years with ridiculous price gains and very little correction along the way). Gold has the advantage that it is financially liquid and has less political risk than RE, as long as owning/selling isn’t banned which is a real risk going forward IMHO.

  4. Wisdom Seeker says:

    The market elders were raised in a “hard-money” mindset, based on the legacy “gold standard” framing of economics. In that framing, primary money is metallic, and the supply is finite and expands slowly. Credit is built up atop that primary money, and the credit consists of contractual promises to pay in primary money. In that framing, when credit expansion and speculation run amok, the finite money supply means that not everyone can repay their loans. The finite supply triggers defaults, bankers wise up, speculative credit is no longer a reasonable substitute for money, and bubbles are popped. However – the gold standard is dead. We No Longer Live In That World.

    In today’s world, money is created by central banks and the only limit on the supply is the bankers’ willingness to create more. History shows that when credit expansion and speculation run amok, the bankers more often than not will print more money rather than pay the political price of withdrawing liquidity and popping the bubble. Speculators have far less to fear and bubbles expand.

    In this “fiat currency” world, there is a concurrent tidal wave of financial injustice: the merchant princes receiving the newly-printed money milk their monopolies and get wealthy at the silent expense of everyone else, who suffer the financial inflation in asset prices. Savers, including retirees, receive repressed interest rates due to the overpricing of bonds necessary for the credit expansion to continue. Average workers cannot afford either housing or retirement because all conceivable “assets” are overpriced.

    “Investment”, in the Graham-and-Dodd sense of “security of principal and a reasonable rate of return”, is Dead. Fiat currency killed it.

    But the gold standard will not return. Thesis; antithesis – time for a new synthesis? Or just a fiat crisis and reset? Bitcoin isn’t the answer. The nature and control of the money supply is a political problem, so the process will be messy.

    • RD Blakeslee says:

      “But the gold standard will not return.”

      I’m not sure about that. What will be the ultimate use of the gold China and Russia (for example), as well as millions of individuals, are now accumulating?

      • robt says:

        Settlement of last resort between nations.
        Despite central bankers (and all bankers and paper guys) talking down gold as a barbarous relic, if a nation’s credit is in the final distressed stage they can only get credit by putting up gold as collateral, held offshore. No gold, no loan.
        For individuals, especially in countries that people know about such things (empty shelves, worthless currency), gold means you can get what you need to survive in a crisis or hyperinflationary event. But this has nothing to do with a gold standard; it’s only what people might prefer to accept for goods unless they barter.
        I can’t see the gold standard ever returning. The reason I see is that a gold standard requires convertibility; if there’s no convertibility it’s not a gold standard or ‘backed by gold’. ‘Fixing’ international currencies’ value doesn’t work (fixed prices are almost immediately obsolete; the longer they’re fixed the more severe the distortion and correction); and a free market price relative to gold would exclude most countries’ currencies, which tend to have no value outside the country of their issue. Even if they price exports in USD, then they could use USD to claim gold, essentially converting currency/digital money/USD reserves to gold, leaving the US (as an example) ultimately with no gold.
        This is what happened in ’71 when the US ‘closed the gold window’ to prevent the draining of its last reserves after losing 60% (12,000 tons at an average of 40 bucks/oz) in 8 years.

        • daznez says:

          they have already told us what they are resetting the financial system after the inevitable worst crash/meltdown and depression ever that is coming: central bank digital currency (cbdc.)

          unlimited printing, unlimited tax/ nirp, unlimited control over every human being on earth – and they will be grateful for it (ubi! free stuff! at first.)

        • Cas127 says:

          100 pct right about gold being the next to final recourse of gvts (violence being the final).

          No one knows just how full of sh*t a government is, more than another gvt – because they know exactly how full of sh*t *they* are.

          So, when the chips are down – none of this paper money BS…it is gold or starve.

          Maduro has seen this multiple times, very recently…and he also has *oil* to trade.

          Gvts badmouth gold to their citizens to flog them into their ready-to-dilute fiat.

          There was a reason why the “free” US made gold ownership illegal during the Depression.

    • Anon1970 says:

      Sometimes the merchant princes do not do so well. Read the Wikipedia article on Louis Nathaniel de Rothschild, the one time Viennese banker.

    • Social Nationalist says:

      They don’t print money, they move assets. That is why debt servicing to GDP is huge. Once it gets so high, GDP can’t grow anymore and it doesn’t matter what a central bank does. That is not fiat currency. The bubble bursts. Just like during the investment phase of capitalism in the 19th century. The party ends.

    • lisa says:

      Very nice wrap.

      Just updated today from Mislinski-with the hypothetical annual earnings now down 11% compared to 45 years ago, and considering the distortion due to the vast “gap” due to top 1% gains over the last 20 years, and last 10 years especially,
      with CPI adjusted today’s USD of GROSS 802.00USD per week income- how much longer can the upside, even with the asset pricing upswing really last??? I don’t see how “indefinite” can be logical at all. But it is 2020.

      • lisa says:

        If the economy is really just going gang-busters, then the BLS data is not capturing anywhere near the relevant data. It data capture anomalies should start showing up in the next 6 months. If positive for the economy, then perhaps the MNE pay/money streams, and any subsequent demand stimulus is definitely not going into the pockets of US citizens, but perhaps various international non-citizens, legal or illegal. Any escalating pricing of US property assets then are probably being purchased by non-citizens, and non-documented MNE, corporate entities. That then would be definitive indicators of getting the land-sold-out beneath-your-feet-paradigm-kinda-valid-angst, as being more than just valid, but with real consequence for all US citizens, especially any progeny.

        • Cas127 says:


          “If the economy is really just going gang-busters, then the BLS data is not capturing anywhere near the relevant data. ”

          Agreed…in particular, I think the “25 to 54 employment to population” ratio’s slow crawls out of the 2001 and 2009 impact craters gibe with the true health of the US economy (very sick and almost wholly on Fed life support) more than any other metric.

          I also think you hit on a vastly under-reported dynamic…habitual trade deficits triggering real estate inflation.

          When the US runs decades of trade deficits, the dollars get sent overseas and can really only…

          1) Be recycled into US imports (but Chinese gvt largely blocks this via their domestic financial laws),

          2) Be recycled into US securities (especially US treasuries…which simultaneously buys off US political leadership),

          3) Be recycled into US real goods…of which real estate may be viewed as one of the few worth a sh*t by superior producing foreigners.

          If you spend 50 years paying your grocer in IOUs (trade deficits/securities claims) then he is going to want to collect someday.

          In a very real way, without knowing it, America has been incrementally selling its homes, to pay for decades of trade deficits (initially via securities IOUs, which are now being presented for payment/repayment in US real estate).

        • Frederick says:

          Velocity of money is still crashing so I’m not so sure things are booming Certainly not everywhere If things are so wonderful why are record numbers of people killing themselves with drugs and booze ?

        • Malthus says:

          We just rented a nondescript villa in Jamaica, worth about half a million US, from a Chinese lady living in LA.

    • Cas127 says:


      I get the gist of what you are saying (more in resigned regret than in deluded faith) but…

      1) Even the “endless fiat” perspective says nothing about individual stocks, sectors, or even entire asset classes – relative underperformance can cause violent shifts across already overfilled asset bathtubs (precisely because each individual stock, sector, asset class is already unmoored from rational valuation metrics) – when everything is anchored to irrational interest rates, the latent volatility in the system increases.

      2) At some pt, the asset inflation becomes real goods inflation (see housing) and creates enough unavoidable suffering that there is heavy political blowback (“The rent is too damn high” is only waiting on “Because Fed money printing creates huge real estate speculation” to punch a hole in DC’s bullshit money factory).

      But as you say, that is a political process and therefore takes time to coalesce. But…the resurrection of Bernie style socialism – only 25 to 30 yrs after a rather crushing real world refutation…and during an ostensible “boom” in market value and employment…tells you that there is a lot of pressure already pumped into the political system – like everything else DC’s phony fiat is buying a lot less political calm these days.

      • nhz says:

        We already see something like that in Netherlands: our CPI last year was 2.6% (for those who believe in fairy tales …) and because our government can borrow money for below zero, they decided to give selected groups of government workers (e.g. teachers and healthcare workers, a very significant chunk of the worker population) a pay raise of over 10%, and probably their managers get a pay raise that is even higher. You can bet this seeps into the real economy. One of the arguments for this policy is that we have a lack of teachers and healthcare workers especially in the metropolitan areas and one of the reasons is that these government workers can no longer afford to live there due to home prices. I doubt the 10% raise is going to help much with purchasing RE in metropolitan areas, but it sure will drive up prices even more outside the cities. The average income in Netherlands went up by the highest percentage ever registered, outpacing official CPI (but in reality, I don’t think the average worker sees any improvement because CPI is vastly understated and the income gains are evaporated with new taxes).

        People on social security and new Dutch arrivals are living in homes that are often worth 250-500K on the free market; before long everyone at the bottom will be a Euro millionaire. Yes, these people don’t own their homes but that only means they don’t have to pay upkeep and taxes while they enjoy the same benefits that people have who pay those 300-500K out of pocket. When I was young we used to joke that if you wanted to be a millionaire you should move to Italy. Within a few years, every African who wants to become a millionaire should apply for asylum in Europe. Even if you have no credible reason to apply as a refugee, no one is deported (not even war criminals and IS commanders …) and they all get free housing etc. etc. thanks to Ms. Merkel and her ilk.

    • andy says:

      Hard to explain then how all the amazing bubbles still happen when gold was money.

      • HowNow says:

        Andy, you’d have as much luck trying to get the conspiracy theorists on this webite to take a hard look at history as you would training pigs to fly.

      • nhz says:

        that’s true but in older times (like Tulip Bubble mania, South Sea bubble etc.) most assets outside a very specific one, or outside a specific area, were hardly affected. The current bubble is almost universal and that is a BIG difference because people are basically forced to play. Nobody forced you to buy tulip bulbs in 1635 Netherlands, and if you didn’t play your capital was unchanged a few years later when the bubble had run its course.

      • Sam Lowry says:

        Historically, even when gold was money, banks have enjoyed a privilege the rest of us do not. They can pretend that money is owned by more than one person at a time. It used to be called fraud. Now it’s called “fractional-reserve banking.” The short version of the story is that banks have always teamed up with government to gain monopoly privileges to avoid the need to compete with each other for the trust of their depositors. They do this in exchange for financing government debt. And it began long before the creation of the Federal Reserve.

        There are many good history books that cover this stuff. But your government-run schools are never going to introduce you to them.

        • NBay says:

          That’s a lot like my take, but since bean counting has always been boring as hell to me, I won’t bother to expand on it. I liked all sciences better, especially Biology. It’s more “real”. And I’m current, which means I’m not at the mercy of the health industry, barring traumatic injury, just forced insurance and putting up with minimal doctoring to get weak pain pills for a back destroyed by sports and construction. In fact, I’m not at the mercy of many industrial skills, from home building to auto repair, so I figure I can lose my small savings to whatever, maybe even pass some on to loved ones, and maintain my bare bones lifestyle until I decide my body or mind are no fun anymore. So far so good, in fact I do get a kick out of all the boomers here figuring out different ways to whine about why they are becoming poorer.

  5. Jdog says:

    The bottom line is that while debt fuels inflation, default on that debt is equally deflationary. At some point, all the foolish debt based investment will begin to default on its debts and all that money will simply disappear. The Fed while being able to buy some assets in the past to prop up markets, will not be able to buy everything, when the everything bubble begins a cascade of debt default. This will be the biggest crash anyone alive has ever seen, and there is nothing the Fed or anyone else can do to stop what is coming. Be prepared.

    • Frederick says:

      A lot of that money has already disappeared Look at the Velocity of money M2 chart for proof Decades low 1.4 something

      • HowNow says:

        Remarkable chart (FRED, Velocity of M2)! No inflation in sight! Gold bugs better wake up and smell the tailings. The thing that I’d guess is holding up gold prices is the huge cost (energy, equipment, labor, transportation, chemicals to leech, toxicity of same, risk of theft, etc) of getting gold out of the ground (off the ocean floors). Figure is takes about 3 tons of ore to make one thin wedding band but can still be viable for miners at 5/100th’s of an ounce of gold per ton of rock.

        My uneducated opinion on this is that we’re more likely to experience deflation than inflation.

        • nhz says:

          You are right about increasing cost of gold production which is for a big part caused by inflation (rising cost of energy, metal constructions, wages etc.). This is a major reason why gold stocks are not a good investment in the long run. Production cost could change with new technologies like using bacteria to concentrate gold from lakes or oceans (I looked into this about 15 years ago, technology still isn’t there yet but becoming profitable for some other rare metals).

          I don’t see any sign of deflation, except in the quality of most goods (food especially)…

        • Cas127 says:

          Tell it to the sick needing doctors, students attending college, or anyone who wants to live indoors.

          You can’t find inflation because you refuse to see it.

    • Trinacria says:

      Yes indeed !!! Gird your loins!!!

  6. Paulo says:

    I do think this Virus is a big deal. There is just too much information lacking and those in charge are not trustworthy, imho. Not the WHO, or CDC, but the politicians.

    But here is where I am at with the negativity. The other day I was working on a greenhouse and thinking about how I see the economy and many of the WS comments, articles and personalities that seem to emanate from those comments. Then, I thought of family members and other people I know who believe the economy is strong, unemployment is low, and full steam ahead. I had to ask, “Is it just me”? and “Am I just seeking out an echo chamber”? I did conclude two things. Yes, I am comfortable in the echo chamber of like minded individuals, but, I’m still going with what I know. And what would that be? This relative prosperity we take for granted in our pampered world is very very brief in the scheme of things. It’s like the roaring twenties on steroids and all our expectations have been going on a long long time, so much so, people think how we live is normal. And now, MMT has replaced almost free energy with endless debt. The Fed is painted into this corner, and many leaders and influential drivers are actually pretty stupid and owned outright by corporations. When the counterweight to this only talks about free this and free that in the midst of all this upheaval, I figure any time this circus ride is going to start shutting down.

    I go back to my Great Depression era parents and their stories of being poor in Minnesota and downright destitute in New Brunswick. My Canadian mom had one dress and a pair of gumboots. The family had no money, whatsoever, but they were inventive and thrifty and survived. Same with my Dad. They ate a lot of fish, pork, and farm produce. “We always had lots to eat, we just didn’t have any money”, said my Dad.

    You know what else they did not have? Debt. When the Great Depression hit they just sucked in their belts and mended their clothes. They worked harder. Life went on. In today’s world it is going to be cataclysmic. 80%+ of North Americans live in urban areas and are just handy enough to tie their shoes, run the washer and dryer, and order in meals. My folks were farming stock and knew how to work.

    This won’t be pretty, imho. Now, tea break is over. Back to the concrete mixer and the new greenhouses.

    • Deanna Johnston Clark says:

      My grandparents in Dallas had a little house near SMU…my aunts said they never knew who was going to be sleeping in the living room or on the dining table…sometimes whole families.
      My other grandparents had a Piggly Wiggly during the depression. The told poor families, especially black ones, to come round the back (save embarrassment) and they passed food out…sweet Christian people…never occur red to them to do anything else.
      They grew tomatoes, the sewed, once grandmother actually picked cotton. They were pioneer folks…
      Now everyone is horrified at the sight of a clothesline or cloth diaper…they may have an education in store for them.

    • 91B20 1stCav (AUS) says:

      Paulo-sagacious, as always. As a fellow rural denizen, your observation of 80% urbanization of the population zeros-in on the issue of ‘what part of your life have you developed chops to actually do for yourself in hard times’ vs. ‘how much of your life has been surrendered to ‘services’ from others’? Granted, true and absolute self-sufficiency is rare and difficult to achieve (thus the rise of human societies, the huge subsequent growth of a high-consumption human population, and the concurrent reduction in the availability of arable land), but there IS a level of personal resilience baked in to reducing the level of those things one is willing to grant to others to do for them. In the end, TANSTAAFL.

      and, may we all find that better day.

  7. KurtZ says:


    Oh I have wanted to say that for so long, as a die-hard socialist, but you can’t argue that in the Bubble of Everything, where the pigs at the trough of the Central Bank liquidity have gotten so fat that they can’t even stand up to eat, that we have anything left that resembles a free-market system.

    We never really had anything more than Monopoly Capitalism in the last 150 years, with a whole cast of doupolies dominating markets – IBM / Microsoft – GM / Exxon – Boeing / Southwest. When all the mini-Mitt Romney’s started coming out of the Ivy League schools with their MBAs in LBOs ( that’s what stock buybacks are anyways ) then we got the wholesale destruction of these titans who once had working capital and pensions. Now they are stuffed to the gills with debt.

    And since 1987 and really after LTCM fiasco, every time the credit markets blow up, these lil demons have gotten bailed out, allowing their leverage schemes to grown exponentially, like the spread of Covid-19. Now we are chasing these Tigers, Hedge Funds with quadrillions of dollars of side bets, leverage and whatever other vehicle they have cooked up to keep the game afloat.

    Will the Fed be able to engineer 750 Trillion dollars of loans like they did after 2008 to these Death Machines? Because ultimately all of these schemes and scams are backed up by the good faith and force of the Pentagon and its ability to park one or so of the 11 nuclear-powered aircraft carriers within shooting distance of say, oil-rich targets like Venezuela and Iran.

    We can not let the Kissinger System explode because oil is priced in dollars and the dollar is worthless without its ability to control the energy markets around the World. The Empire would collapse as would the Everything Bubble.

    • Cas127 says:

      Actually, more or less – yes.

      If the internet had come around a couple of decades sooner, the country might have been saved.

      The MSM would not have had a monopoly on the megaphone and its crimes against common sense would have been called out.

      Instead, we got just enough state affiliated MSM to end the country.

  8. historicus says:

    I think people who have traded for a long time see that emotion and reason have been removed to a great extent by quants and algos.
    They have profited mightily from this as they have discounted every “fright” and boldly stayed long when others feared not to do so.
    But others feared not to do so because of experience, and such things as geo political events can not be programmed into algos .
    For all those who have caught the great ride up this year, 8K Dow points from Dec 5, 2019…..do not whine if the engine that drove the market up flips and begins selling at any price and hitting any bid. Live by the AI, die by the AI.
    Not predicting here, but there are times when the unexpected actually does occur.

    • Deanna Johnston Clark says:

      The danger is that quants, algos, and everything computer are only the PAST.
      Originality, creativity, vision, trend prediction are the future.
      Computer inventory using past sales has destroyed retail stores. The computer has NO RECORD of what customers asked for or couldn’t find. Without human conversation, counting last years beans will destroy any enterprise.

  9. Freewary says:

    “It’s a phenomenon where nearly all asset prices are inflated”

    Ok let’s talk about what’s NOT inflated, I can only think of one thing, but I don’t dare say it.

    • Freewary says:

      . . .And in celebration of this article by Wolf describing the nuttiness of today and 30 year UST recently selling with just 2% yield, I sold the last of my individual junk bonds (for a terrific) moments ago. To free up some capital to invest into something deeply undervalued- what? I know hee hee do you?

      • nhz says:

        maybe buy some 50-year Greek government bonds at -1% or so ?

        just saying … ;(

        • Freewary says:


          Greek bonds are VERY tempting thanks but sailboats are extremely undervalued right now. I’ll be island hopping and deep sea fishing in the south pacific on my new ETAP with my hot wife and won’t come back until there’s something worth investing in again.

          Sailboat is absolutely the best investment right now!

          See you 10+ years good luck with your shorts and longs

        • nhz says:


          I hope you purchased the sailboat used but in good condition; they always tell me here that they lose 20-30% of value right away when purchased new. Lots of posh yachts silently for sale here in the harbor, but very few of them are real (ocean-ready) sailing boats. Have fun :)

      • Wisdom Seeker says:

        Good for you!

        The bad news is, there isn’t much of a healthcare system in the South Pacific, so if you run into issues you’ll have a challenge.

        Good news is, they don’t have the fubar US healthcare system, so if you do have a health issue, at least you won’t have to sell the boat just to visit the ER!

    • Jeff Relf says:

      Don’t build mansions on shifting sand dunes.

      The richer and more educated a nation
      becomes, the lower the “fertility rate”
      ( babies per woman per lifetime ).

      I stopped trusting women
      back in 1988, when I was 28,
      after she took “my” kids.

      So long as you don’t need a woman,
      you don’t need (much) money and
      the government becomes your slave,
      not your master.

      • andy says:

        How so? Can you expend?

      • gary says:


      • Bet says:

        Hmmm funny. I find men can be very expensive. My ex took me for about everything. Worked 20 years paying off his farm and debt. I too would just like to live on a boat. Although my brother who owns five , (all sailboats). tells me to make friends with those who own a boat.

        • fajensen says:

          Good advice. When I was a regular at a boat club, there would always be someone needing a crew member for a trip so you can do a lot of sailing just for being sociable and at the same time doing research on what kind of boat you like the most.

          After a while you will be assimilated: Someone will find a boat for you and a place to keep it at a price you can afford..

      • Frederick says:

        Wise man but there are still good women out there A couple anyway

        • HowNow says:

          Don’t know about you, Frederick, and Jeff R., but I’d trade 5 men for one good woman (make that 10 if the woman is particularly good looking) any day, or night, of the week.
          What are you saving yourself for? Caves can start to stink. I guess the upside is you won’t need much soap.

    • WES says:

      Freewary:. Yes, sailboats!

      My brother has friends who live on an island in the Carabean.

      After being whacked by several hurricanes, there were hundreds of wrecked sailboats.

      One poor couple had a big sailboat crash through the front of their home hundreds of feet from the ocean! And the owner of the boat simply abandoned it so they had to pay for it to be removed!

      My brother was looking to buy a damaged sailboat (minus mast) and moor it to live on during the winter months but the local government started cracking down on these moorings so he gave up on that idea!

      Now he is focusing on Vietnam instead! The coronavirus looks like it is going to put a crimp on travelling to Vietnam to see his girl friend as almost all flights go through China and are currently banned from landing in Vietnam!

      Anyways hope your plans don’t encounter rough waters! Good luck and happy sailing!

      • Paulo says:

        My wife had a friend who was a liveaboard. He described it this way. “Imagine you live on a boat and are taking a cold shower, again. As the water runs down the drain notice the five dollar bills floating in the stream. That’s what living on a boat is like.”

        Some old colleagues of mine lived on a sailboat. It lasted one year and then they bought a condo and a travel trailer. In the winter they pull the trailer down to the San Diego area.

        As for resale, good luck on that. My brother had a beautiful glass and teak boat. Around 40′. He sold it just before the 2008 crash for it’s insured value…and not a dime more. After the RE implode you couldn’t give boats away. He was very thankful. Moorage and upkeep was expensive. Every time he traveled away he had to get someone to check on his boat. It was a pain, basically.

        • Cas127 says:

          Old, old observations on boat ownership –

          1) Two happiest days of boat ownership – the day you buy your boat and…the day you sell it.

          2) Water travel offers all the advantages of being in prison, with the added benefit of possible drowning.

          Upon reflection, I think the appeal lies in the assumed sunny lifestyle more than the mandatory barnacle scraping.

          With that in mind, the ideal may be to move towards the equator (currencies weaker than USD), 20 minutes from a continental coast (to avoid the extortionate pricing on literal beachfront property).

          Islands have to have everything shipped in, greatly hiking costs of many items…and land is comparatively scarce and therefore expensive.

        • Frederick says:

          Boats are the first thing to go when TSHTF no doubt but they are fun and relaxing and you don’t always lose money on them if you buy right I had a thirty foot sailboat in the early 80s and sold t after having a child and needing a house in the suburbs Wish I had kept the boat lol

        • investment sailor says:

          Been there did it. Bought a brand new ocean cruiser in 1990 ( sold 2009 ), sailed around the world almost 20 years, yes harder than hell to sell, for much less than I paid. Don’t forget outifitting the boat is 2x what the boat cost.

          No such thing as cheap moorage, unless its moored alone at anchor, then you have a security problem.

          Spent 90% of the time single-handed, I think generally you will find that is most common, wives or gf’s seem to board as a holiday. If you really want to be on the ocean you will find you just just go alone. Most passengers will bail the first landing, especially for women they don’t function well at sea. Lot’s has been written, but women tend to be land nesting creatures.

          Can get real lonely, especially if you do say go to the south-pacific, and find that island; What you will find is locals, and they’ll gladly sell you fresh fish, then what? Sure you can go anywhere on earth and find a ‘bar’ and get a beer, but you’ll meet the same kind of drunks that hang at the bar anywhere on earth.

          It’s a dream; also I thinks its a younger persons dream; hauling up a real anchor, pulling up real sails, going forward in rough sea to pull down a jib; It’s all work. Tying a harness around your body, being thrown into the ocean, pulling yourself back aboard in cold violent water, takes strength. Wearing a mustang suit everyday, vomiting; Never getting sleep unless its calm, getting run-over by large ships who don’t see your radar reflector, because they’re not looking.

          Sailing at night so you don’t get sun burned, heave-too at day and sleep so you don’t get blown ashore. When you do run a wind-vane, you got to worry about hitting logs at 6 knots while sleeping.

          Been said that sailing is 5% terror, 5% pleasure, and 90% boredom; got to do it; done it; I do miss it, but it so much harder outfitting a boat in the 3rd world than say outfitting in San Diego where you can buy the ‘kit’. It’s a dream, owning your own boat, sailing around the world, do it, don’t wait, nothing worse than old guy who owns a boat never leaves the port, and sits all day at the bar over-looking the marina with other drunks.

          Now live in the mountains near the equator growing rice, when I do travel to the ‘beach’ I find too much consumerism, and real-estate development. If you find a woman in the 3rd world, they want to be near the family, not at sea;

          Good books Tristan Jones, and “Alone at Sea” by Slocum are the best, both these guys were sailing the oceans in their 60’s

          Learn to fight, learn to decoy weapons; Lot’s of good people, but also 90% of the world see’s your boat as floating treasure; Always understand that you will have to pay someone to watch when your gone, always watch your dinghy like a hawk.

          Expect to spend weeks at sea, followed by days on a beach alone, if you do meet other boats, chances are they’ll not trust you. Maybe hanging out at yacht clubs is ‘social’, but in the real world 99% of fishermen are in a motorized canoe. I never belonged to a yacht club, and I think if you study any real men who have been on the sea, they didn’t either. Most land, refuel, water, store food, and back to the sea. You never stay in one place long, more than three days you will be robbed.

    • WES says:

      Freewary:. I see you have just received a wealth of information on sailboats! Enough advice to last a few lifetimes! Cas127 has it about right!

      P.S. If I may, them sailboats are dam hot and stuffy to try and sleep in!

      My boat is hanging in my frozen ice bound boathouse! I am hiding in my house in the big bad city until summer comes! Ground hog says early spring!

      • Freewary says:

        @ Wes & everyone

        Thx for the great advice and jokes We’ll be fine on our boat we are both ham operators. My wife is from boating family in SE Asia her Dad might come with us for whole trip or visit us now and then. Maybe some other guests too, maybe meet some new people its an adventure.

        Love that quote about cold shower and $5 bill lol and the drowning prison

        Not worried about the $$ at all, cheaper than staying home! USA getting crazy expensive! You worry about boat expense! Have you seen what the tile guys are charging on your non-moveable house! You need repipe! Time to rewire! Oh new truck! Oh oops new transmission in truck! I’m more worried for you than for me! And meds way cheaper in other countries ya’ll need to get out- most fun places other than USA you just go to pharmacy and buy what you need no script needed. You can be your own doc nowadays with internet. And hospital care? Dr make mistake they stick you in rehab facility for months! You really want that!? no thanks just give me a pill and bury me at sea. Ya’ll scaredy cats.

        I like being outside a lot. All day. Need to try something wildly different, bored with USA life. All the cities here copy each other and look the same. I like fishie too yum yum.

        Seriously cash out and buy boats and take a break people. There’s almost nothing worth investing in. Everything is priced so high I would have to spend 40 hours a week searching for undervalued worthwhile investments and that amount of time takes all the fun out of it. I don’t want to work 40 hours a week at this! Even BRK is giving into the madness and buying sp500 at mt. everest valuations! If you cant do the boat thing just go traveling around and enjoy life.

  10. nhz says:

    – official CPI: 2.6%
    – interest rate on savings accounts: 0% (0.5% NIRP coming in April)
    – Government debt selling at minus 0.3% or even lower

    “It’s a phenomenon where nearly all asset prices are inflated. ”

    More correctly: where fiat money has lost most of its value in a very short time. Because who believes that Central Banks will ever hover up the tsunami of liquity they produced and let asset values fall back down to earth? It’s far easier to put savers against the wall, manipulate the CPI numbers and pretend everything is fine with pensions etc.

    The value of euro currency, measured in gold, is down more than 85% in 20 years. The dollar fared slightly better, but the difference is academic. My private banker (from the largest Dutch bank) is urging me to invest my savings in the stock market because (they are right about that), with a savings account in Netherlands you lose at least 5% purchasing power every year and I have been doing that for too long ;( They are projecting a yearly 4% gross ROI on average for the next 10 years for their investment plan. Subtract the 1.5% management fee, the 1.7% Dutch wealth tax and 2.6% inflation and you are still running 1.8% negative every year, if you believe the projections. Plus you have a very significant risk of capital loss (like minus 30% or so in the Financial Crisis). I have decided this is madness, as at my age I would never recover from such a loss (and I’m expecting the next crash to be a lot deeper than minus 30%). Nowhere to hide :(

    All this is starting to feel like the Weimar Republic, when wives of factory workers were waiting at the gate to spend the wages of their spouse as soon as possible, on anything they could buy with the money before the shops closed for the day. Because they knew that the next day the money would have lost over half its value. The current depreciation is not at that level yet, but the Weimar Republic had just 10-20% inflation in its first year of rampant money printing, probably not much different from the actual inflation we have nowadays in Netherlands for most necessities (excluding food which has seen very little cost inflation, but lots of quality deflation …). Madame Lagarde doesn’t see any signs of bubbly markets, I guess she will still claim that when real inflation is over 100%; the Gucci fanclub is happy, everything is awesome ;)

    • Anon1970 says:

      When I started a modest stamp collection as a youngster over 60 years ago, some of the cheapest stamps to acquire were German ones issued in 1923. In Reichsmark terms, I was a billionaire before the age of 10. It was my first lesson in economics.

      I used to buy bonds as investments until the Fed ruined the market for average investors. My last purchase was in early 2011 when the market effect of Meredith Whitney’s bad prediction for California bonds began to wear off.

      • WES says:

        Anon1970:. Your mention of stamp collecting reminds me of my experiences trying to sell my Father’s and my uncle’s stamp collections both started when they were boys.

        They each spent thousands on these collections! I went to several stamp dealers here in Toronto and none would even make an offer!

        One said he would buy one collectiofor $10 to give to his son!

        My wife had a friend who was a stamp collector and dealer. He looked a the two collections. He said to remove the un-used stamps and use them to mail envelopes! The most valuable item he found was a envelope postdated just before the fall of Hong Kong in WW2 which he sold for about $65!

        So cross stamp collectioning off your list of valueable items to sink your wealth into! (Unless you really want to sink your wealth say from your ex?!)

        • Cas127 says:

          Almost everything is about supply and demand…

          re Stamps/Coins-

          1) Think about the millions and millions created for their initial purpose…

          2) Then think about the dozens of people who would want them for any other purpose…

          Unless it is a one in a million stamp/coin (usually mis struck/never circulated/tied to a historical event) it is never going to gain in value just bcs it is old…unless it is a thousand yrs old. Too much supply hangs around and too few value it.

    • Willy Winky says:

      Money represents energy. If it takes more and more energy to extract and produce energy, you have less nett energy left over.

      Obviously your money is going to buy less. Adding more money to the system will not fix the problem.


  11. Petunia says:

    When an ex Bear Stearns executive says he’s never seen anything this crazy, that’s really saying something. Run.

    • Freewary says:


      Where you running too?

      • Petunia says:

        I’m not in the market, wouldn’t be even if I had the money. There’s a reason Buffet is in cash. The worst the crash the more your money will buy.

        • Paulo says:

          Amen to Petunia’s point. I totally agree.

        • w.c.l. says:

          Ditto Petunia, for me it’s duck and cover in online banks and Treasury Direct. I can’t afford to take losses at my age and there will be bargains later.

          Off topic, but Wolf I was watching Thom Hartmann’s show on Free Speech TV Thursday and in the third hour he was talking with professor Richard Wolff about the rising level of consumer debt load being taken on and he mentioned Wolfstreet.com by name and your posting about subprime auto loan delinquencies as one of his points of concern. Just thought I’d let you know your fine work is getting out and being heard.

        • Shiloh1 says:

          The Aw Shucks Billionaire Next Door who somehow always gets tomorrow’s newspaper delivered on his front porch the day before yesterday.

  12. gorbachev says:

    The willingness to print has to lead to massive asset inflation.

    But to the vast majority they don’t care about the price

    of city bank.iin mid sized America most people can afford their house

    and rent. When it hits food and clothes etc. then it will hit the fan

    • Social Nationalist says:

      There is no printing. Your simply not getting it. It’s a subprime debt bubble fueling(or are we moving into the was part of it????) Fueled a prime asset bubble, albeit not a historical impressive one. Subprime debt peak will break the prime asset bubble. Patience. Then core inflation will decelerate, you will get mad.

  13. Dan Romig says:

    Wolf announced he was shorting the market on 30 December 2019 and on 31 December, he commented, “The risk is that in addition to losing money on the trade I will be mocked for being stupid.”

    I responded that he is not stupid, but the Shiller P/E was 30.9% at the time and the historical high of 44.2% leaves room to go up.

    The Shiller P/E is now at 32.23% – which is still leaves room to go up.

    I think the line from Scott Minerd, “The giant flood of liquidity is driven by virtually every central bank in the world injecting reserves into the system.” sums it all up. “Injecting reserves into the system.” is a diplomatic way of saying “printing money” I reckon.

    CreditGB puts it quite accurately, “Pressure of cash to invest in bizarro world.”

    • Social Nationalist says:

      PE is irrelevant. It’s all about debt. If it can’t grow, it’s over.

  14. Trinacria says:

    We don’t want to confuse the market nor the FED now with “facts and logic”, do we? Tulip mania from around 400 years ago has nothing on these markets. If Trump is re-elected, though now I’m not as sure, by second half of 2021 he may well be know as Donald “Hoover”. Although, in all fairness to Hoover, he was in office less than a year (his term started in March of 1929) when things started collapsing. I have to believe the damage in the coming years will be monumental as a result of this debt orgy that has been going on for far too long. Will there be initial deflation followed by FED pumping to the moon which then helps to bring inflation….??? A serious appointment with destiny looms out of the FED and Wall Street and big indebted corporation making.

  15. DonPelon says:

    “Wherever the crowd goes, run the other direction. They’re always wrong…” – Charles Bukowski

    • andy says:

      Yeah, following that advice is the quick way to lose money.

    • Patrick says:

      Not if they’re chasing a central banker. At least until what he’s printing becomes worthless.

  16. Willy Winky says:

    China’s and global reactions to it are in the process of taking down temporarily much of the second-largest economy in the world – with many factories and stores closed, with the transportation system partially shut down, with entire mega-cities locked down. US companies have started to announce that this will impact their revenues, their earnings, their supply chains, etc.

    Yet, nearly all markets have risen, bonds and stocks in lockstep.

    “The cognitive dissonance in the credit market is stunning,” he started out his letter to clients to put them into the mood.

    I don’t think this is cognitive dissonance as even a moderately intelligent 8 year old could be made to easily understand it does not make sense for markets to be rising.

    What I think is at work here is ‘don’t fight the Fed’

    Let’s say you managed $5 billion. Your brain tells you that the global economy was on the wane before the virus – yet the markets smashed higher over the last year.

    You ask yourself why?

    You come up with two reasons:

    – CBs are feeding cheap money to corporations who are buying back epic amounts of stock (year after year)

    – CBs are feeding epic amounts of stimulus into the global economy including maintaining low interest rates

    – CBs plunge protection teams are almost certainly buying up the market

    Btw – there is a Tracker Index on the Hang Seng Index — guess how that got started — in 1998 during the Asian Financial Crisis the HKMA defacto central bank BOUGHT UP A HUGE CHUNK of the market to stop it from collapsing – and rather than flog the shares afterwards they created the Tracker….

    So if you are a smart manager of money, you have seen that the CBs are not messing around here. Whatever it takes MEANS whatever it takes.

    So when you see this virus thing and realize that it is serious stuff that threatens the global economy, you IMMEDIATELY go LONG the markets.

    Because you KNOW that the CBs are 100% definitely going to deploy everything in the arsenal to make sure the virus does not tank the stock markets.

    Essentially you front run the stimulus.

    And you keep on front running. Even if you see that the China factories are not opening and the virus is spreading like wildfire you BUY BUY BUY.

    Because the worse it gets, the more the CBs will step in.

    China could be one massive ghost town with every factory sitting idle, yet the global stock markets will hit all time highs. CNBC and Bloomberg will be screeching on about RECORD HIGHS.

    And the fund managers who get this will be hailed as super stars (or a short time)

    Unfortunately, in the real world (that aside from the stock ticker) people will be starving, including the fund manager.

    It is the end of civilization as we are facing here. Did anyone really think it wasn’t going to get a bit …. messy?

  17. Nat says:

    It is all madness, but increasingly I don’t see how reality can be restored until enough debt defaults and enough debt gets sufficiently downgraded (closer to where it actually should be priced already). …and increasingly I don’t see how any of these thing can happen when “magic money” just keeps appearing out of nowhere whenever most downgrades or defaults should happen so these debts can be rolled out indefinitely. It all works on what basically works out to be the soviet corporate structure where no amount of failing companies, business models, or practices have any accountability until there is enough corruption and failure loading the entire system down to collapse the entire state propping it up. At least the soviet corporate system was honest about what it was and that every business was “too big” to fail. Honesty goes a long way it would be nice to see some these days in things like corporate bond ratings (many are openly inconsistent with what the rating companies list as their rating standards for debt to income), and the fact that there is seemingly infinite perpetual “magic money” rescues for completely incompetent and failing business (or would be failing if the “magic money” didn’t always come to the rescue).

    I sincerely hope I am wrong, but as long as money keeps being injected into the system and finds ways to percolate out into surprise rescues of all the completely unprofitable and ridiculous business practices (which seem to make up the majority of the activity in the US economy these days), then the only way I see this ending is the same way the soviet system ended. … and how long will that last? Years? Decades? It is totally insane, none of this is supposed to be how capitalism or even the most socialized concepts of the US economic system are supposed to work.

    • Frederick says:

      Very much doubt this craziness will last decades let along years but I’ve been wrong for over ten years Could this Coronavirus be the ominous “ black swan” we’ve all been expecting? Perhaps , Got Gold?

      • nhz says:

        I thought it would end after 2001 when our national economy was already totally crazy with about the highest private debts in the world and lots of nutty economic activity. Or certainly after 2009 when central banks went in overdrive and created a financial economy that is now totally disconnected from the real world. Maybe it never ends and the algo’s keep running up stocks and everything else even if the virus would wipe out all advanced civilization? ;(

        • Xabier says:

          I recall an real estate agent remarking on the insane prices for crappy little houses in our English city in 2005: guess what, they went on to treble the 2008 level – and are still selling like hot cakes.

          When the world is howling mad, be grateful for a well-stocked library, a bottle of good wine and a canine companion -sanity!

          Although maybe the dog would be pleased to see his biscuits treble for no more effort too…… :)

        • nhz says:

          I remember talking to several former RE agents and appraisers around 2000 who had stopped working because they thought the Dutch RE market had gone crazy, and they felt it would be dishonest towards their clients to continue. But the insanity was only starting then. Just like people who started “investing” in the stock market after 2009 current RE agents haven’t the faintest idea of what is “normal”. Appraisers even less, if you want an appraisal they ask you what amount they should put on the document (probably similar in much of the world nowadays …).

          I also remember endless home equity TV series in the early 2000’s, e.g. about a British couple who sold a rundown home near London to move into a grand palace somewhere in the Caribbean thanks to their UK equity gains. From what I remember they were back one year later because the local shops didn’t have their favorite brand of cornflakes ;)

  18. robt says:

    In the context of this article TSLA claimed a couple of weeks ago that no financing was needed, now they are issuing $2 Billion of shares (at 3x the price of not long ago, or 15x the price some analysts agree is a fair price).
    Goldman and others are underwriting this at 767, or 80% of the bubble (?) exponential pop, and 5% less than the current market price. (Goldman’s target price mid-last-year was $158, reduced from 200). The share price surged 33 dollars on the announcement, concomitant with the Chinese electric car market collapsing, a 2 billion dollar plant in China opening (maybe), in a country that is shut down due to an epidemic.
    Is there something in the water?
    Do the underwriters have that many patsies lined up?
    Is this peak insanity? So many questions …

    • nhz says:

      There isn’t just something in the water, there a LOT in the water even though it may look cleaner than 1-2 generations ago. Many thousands of often complex, completely new chemicals, many of them at levels way above what honest scientists consider safe (if any studies have been done at all), leading to feminization, lower IQ, new diseases, lower quality of the gene pool etc. etc. Probably Wall Street is sipping directly from the tap …

      Evolution is running in reverse now, which is evident from how the most stupid and crooked individuals end up at the top of society.

      • WT Frogg says:

        nhz: It’s commonly known as the ” Septic Tank Theory of Evolution ” where all the biggest turds float to the top. ;)

    • Cas127 says:

      “Do the underwriters have that many patsies lined up?”

      I’m sure Goldman has a lot of calls in to the valuation geniuses over at SoftHead in Japan.

  19. Michael Engel says:

    1) The German 2Y don’t move. For 3Y its in a narrow box 0.5% wide,
    between (-) 1.00% to (-) 0.50%, since Feb 2017.
    2) The Fed have no choice, but to adjust. It cannot
    control gravity between US & Germany NR. The Fred misbehave !
    3) The German 3Y is dragging the long duration down.
    4) The German yield curve is caving in the middle, inverted underwater.
    5) China via its German proxy, bend the will of the Fed.
    6) While UST rates are down, the dollar is flying with 99 balloons.

  20. RobvC says:

    By now TSLA seems to be a ‘designated survivor ‘ of the Crash of all Crashes.
    Spot the other ones.

    • WES says:

      RobvC:. I read “designated driver”!

    • Shiloh1 says:

      Boeing? Do unused fuselages fit into trailer parks? Will the Fed will back up mortgages on them?

      • MC01 says:

        The unassembled 737 MAX fuselages built by Spirit AeroSystems are being stockpiled at the McConnell AFB near Wichita.
        Good idea to keep them from prying eyes (and smartphones) but the truth eventually leaked out.

    • California Bob says:

      re: “By now TSLA seems to be a ‘designated survivor ‘ of the Crash of all Crashes.
      Spot the other ones.”

      SPCE (Virgin Galactic). Already being called ‘The Next Tesla” (per MSDW).

  21. Michael Engel says:

    robt, ==> TSLA weekly Ichimoku cloud can explain GS inputs.

    • robt says:

      Never heard of it, but it does have Candlesticks which I follow, and some extra hocus pocus. Will study up.
      Thanks for that, looks like a fun system, and I’ll follow it for a few stocks just to see how it works out.
      One very interesting one is AEM, gold producer. They reported today record-everything for year 2019 and increased the dividend. AEM has always been a well-run company. Naturally, the stock crashed 15%. But on the Ichimoku it looked a little bearish starting a week ago.

  22. andy says:

    “If it is in the index, buy it! This is what price discovery has become.”
    “This will eventually end badly. I have never in my career seen anything as crazy as what’s going on right now. ”

    But when I comment here that index investing is the biggest scam ever invented everyone rolls their eyes. Well, you go ahead and dollar-cost-average that index, every one else does.

  23. Iamafan says:

    Here’s my lala-land plan. Keep my money in Cash or NEAR cash and spend it frugally or give it away to my kids. I have budgeted enough for hospitalization and old age.
    I plan to give my kids enough so they can help me when I can no longer walk. Meantime, I’ll stay away from Wall Street so they can’t steal from me. Regardless how low the interest is, it’s still positive and it’s easy to use Treasury as your bank account (no need for FDIC).
    Luckily I have no debt and so are the kids. You can’t plan everything. But you can turn the TV off.

  24. andy says:

    Scott Minerd makes good captain obvuous.
    Jeremy Grantham predicted this two years ago, but expected it to move a bit faster to sp500 3400-3700 with much concentration at the top.

  25. TownNorth says:

    Good to know the White House is considering tax incentives for US households to buy stocks. A portion of income would be tax-free for investment purposes. Per CNBC.

    • Cas127 says:

      Gotta feed crack to the hamster if you want the wheel to keep going.

      • Ridgetop says:

        LOL! So true.

        • Cas127 says:

          And…it is the most addicted hamster that sets the marginal price and therefore market cap.

          Which attracts other “crack curious” hamsters.

      • WES says:

        Cas127:. Let me see if I got this straight!

        You had a pet hamster growing up as a kid. You also grew some weed in your closet! When your mom asked about it you told her to just water it with the house plants!

        One day when you had a friend over you wondered what would happen if you fed your hamster some green weed?

        That is when you discovered that your hamster started running on the treadmill like a bat out of hell!

        Did I get this right?

        • California Bob says:

          re: “… That is when you discovered that your hamster started running on the treadmill like a bat out of hell!

          Did I get this right?”

          Nope. Feed weed to a hamster and he falls asleep on his wheel.

    • Petunia says:

      Another bad sign. Probably the idea of another ex Bear Stearns executive, Kudlow. Run^2.

  26. Of course bonds do not rise as fast as stocks, even at a fever pitch of monetary accommodation. That may be the deal breaker. Stocks have no upper limit, but bonds do have a lower limit unless you believe that lower yields imply a stronger currency, and the loss of purchasing power in the dollar were to reverse. It will of course when prices come down nominally.

  27. timbers says:

    Speculative energy? Out of control? How can that be? I guess it’s destined to remain a mystery…a deep dark mystery. Because it couldn’t possibly be result of Powell declaration to “aggressively deploy QE” if assets don’t keep up.

  28. David Hall says:

    In 1981 inflation touched 10%. In Dec 1982 unemployment was 10.8%. Stagflation?

    In June 2009 unemployment was 9.5% after Lehman Brothers was bankrupted by real estate speculation.

    This current buying binge is not the greatest speculation ever. Interest rates are low. In Venezuela they hoard US dollars. The bolivar can not be trusted.

    Over 500 cases of coronavirus outside of China and only 2 deaths. Apple is reopening stores in China, but the Chinese have switched to Huawei. Huawei is accused of stealing Cisco router software and patented antenna technology. Huawei is the largest phone mfg. in the world.

  29. Iamafan says:

    How to manipulate the market.

    About $276.5 billion of Treasury notes and bonds will be maturing on the Fed’s Balance Sheet in 2020.
    Since the Fed is going to roll-over all of that this year, then that’s another $276.5B that the primary dealers do not have to buy to keep the Treasury afloat.

    Similarly, the Fed also increased its Balance Sheet by buying T bills (intending to do so till the end of June). As of 2/12, about $254.3 billion of what has been bought will mature this 2020. Without including what is still to be purchased till June, that is another (at least) $254.3 billion that the Fed will roll-over this year, giving the Treasury a huge break.

    Potentially, the Fed will buy an additional $240 billion in T bills from now till the end of June. Together with a $2.75B T bill maturing 2021 that’s not included in the count yet, the Fed is in the path of buying a total of about $497 billion in T bills.

    To understand the effects of all this, you need to know how this works:

    First, the Fed ACQUIRES the Treasury Security (or MBS if you want). They buy these securities from the Primary Dealers (which acquired the same from the Treasury). Since the Fed paid for these as RESERVES to the dealers, the Level of Bank Reserves go up. But remember the dealers had to have purchased these from the Treasury so they must have paid the Treasury earlier; so the Treasury’s TGA account also went up. So everyone is happy, right? The government gets more money and the dealer-banks gets to replenish their reserves.

    Second, when these Securities mature, the Fed does not need to raise money to redeem them. Why? Because the Fed simply rolls them over (or buys the Treasury Security again). The Fed directly exchanges matured Treasuries for new ones at the auctions as non-competitive SOMA add-ons. They refer to this as permanently monetizing the debt because the Fed simply rolls it over.

    In the meantime, the Treasury does not pay all interest on the securities the Fed bought because the Fed returns the interest they earned to the Treasury net of expenses.

    Because the Fed BUYS so many Treasuries, it causes the interest rate (or yield) to FALL. It’s just supply and demand. The Treasuries supply (borrow) a lot but the Fed also buys a lot (causing the price to rise), the interest rate is manipulated or lowered to the point that investors seek higher yield in the private equity, bond, and other debt riskier markets.

    • Iamafan says:

      Second, when these Securities mature, the TREASURY does not need to raise money to redeem them.

    • Cas127 says:

      I think the operational details confuse and therefore lose the vast majority of voters.

      Better just to highlight the key three steps – the essence of the fraud on the dollar holding public.

      1) One arm of gvt (the Fed) is buying the debt of another arm of gvt (the Treasury) at low interest rates nobody else on the planet would settle for, because the Treasury is already so indebted.

      2) The Fed gets the money by…Xeroxing it.

      3) The Xeroxed money still represents an unchanged number of real and financial things in the world – so the price of real and/or financial things go up by the amount of Xeroxed (and bank re-Xeroxed) money that the Fed has invented.

      Literally true, no. But it captures the economic essence of the transaction.

      The key step is the one the vast majority of Americans don’t understand – the Fed can create money at will. Once they understand that and the consequences to them personally, then you will have change.

      All of the operational details essentially exist to obscure the fundamental nature of the fraud.

      • Cas127 says:

        Exactly…the country has been run for a long time by two mafias, who are just fighting over the protection racket money/right to control the printing plant.

        Functioning economies don’t survive this.

    • GotCollateral says:

      >…causes interest rates to fall…

      Only in good times, they can’t fix credit risk and this behavior by central banks only makes debt markets and the derivitives more sensitive to credit risk repricing

      Why do you think they always step in after the shock? Why didn’t they see the slow squeze in SOFR transactions at the margin to long dated trash since april/may 2018 which culminated in ~27 trading days in a row where 25% of SOFR transactions were above 30 year UST trash yields prior to the blow up?

      Because they don’t know what money is… 0% asset (USD cash) swaps (USD) for x% yielding assets (UST) is a ccp diktakt in the face of corona virus epidemic lol

    • Fed is an government regulated umbrella organization for the charter banks, and the primary dealers. They set reserve levels for the banks. If they raise reserve levels the banks must set more money aside for that purpose. To ameliorate the impact Fed allows banks to “monetize” those new reserves as cash. This amounts to a positive cash flow for the banks, assuming they were not interested in bonds or T bills at auction (thus causing the Treasury to panic). Reserves are a red herring. In a crisis FDIC would go to Treasury and they would print the money (digitally of course). Reserves figure in bank stress tests which requires Congressional oversight, (stock market mania to aid the president’s reelection campaign). In a normal economic environment the banks could buy Treasury paper and collateralize them for investment purposes. If the bond quality drops, (interest rates rising, USG running huge deficits), the collateral value of longer dated treasuries wanes, so Fed shortened their duration to make them more cash-like, and monetize Treasury spending. The REPO thing is the difference in metastatic cancer and a skin lesion. In recent testimony there was a lot more going on here. Congress is the ultimate arbiter of Fed policy.

  30. BenX says:

    If you want to see how deadly the novel corona virus is, just watch the cruise ships. They are controlled experiments. So far, no deaths, which makes me wonder if all the scary, “leaked” videos/photos from China are some other kind of social experiment.

    • WES says:

      RobvC:. Sorry but I read “designated driver”!

    • WES says:

      BenX:. I believe one of the Japanese passengers has died! Last count 174 have the virus! (175 – 1 = 174)

      Yes cruise ships are floating labs for virus! Unfortunately the lab rats are not being allowed to leave a sinking ship! They are trapped!

      My brother in Detroit deals with Chinese co-workers and this virus is hitting them hard. All schools cancelled until March, etc!

      • Cas127 says:

        “Yes cruise ships are floating labs for virus! ”

        Fairly sure NBC is rushing to develop a reality TV show along these lines…

    • fajensen says:

      How would “we” watch the cruise ships? Like “they” would totally inform us about all the gory details (especially *if* they were gory) any more willingly than China would! It is Not gonna happen!

      My gut tells me that there must be something special about a virus that makes leaders who ordinarily don’t mind too much about running some tanks over protesters treat it like The Andromeda Strain and shut down their country over it – at a great loss and personal risk to themselves!

      Of course someone will run information attacks on top of it.

    • RD Blakeslee says:

      Experience outside China with the Wuhan virus so far indicates a truism, I think: Adequate medical care generally lowers death rates in corona virus illnesses.

  31. PressGaneyMustDie says:

    Yet another way to subsidize the Wall $treet Ca$ino$ !! Who says Bernie’s the only socialist candidate! Hooray for Prez T! This reminds me of the cartoon in which Dilberrt explains to Ratbert that investing is giving your money to someone so that someone can buy nice things for his family.

  32. Unamused says:

    Still apropos:

    “The fate of the world economy is now totally dependent on the growth of the U.S. economy, which is dependent on the stock market, whose growth is dependent on about 50 stocks, half of which have never reported any earnings.”

    – former Federal Reserve Chairman Paul Volcker, September 1999

    I have collections of related quotes.

    • California Bob says:

      re: ”

      Still apropos:

      “The fate of the world economy is now totally dependent on the growth of the U.S. economy, which is dependent on the stock market, whose growth is dependent on about 50 stocks, half of which have never reported any earnings.”

      – former Federal Reserve Chairman Paul Volcker, September 1999

      I have collections of related quotes.”

      Still true, methinks; just a different 50 stocks.

    • HowNow says:

      I do remember watching, on the news, Congressmen yelling at Volcker that he was destroying the economy, while he calmly drew smoke from his cigar.

      • Unamused says:

        Little did they know that asset inflation originated about that time and that the actual economy would eventually become irrelevant.

        “The standard of living of the average American has to decline.”

        – Paul Volcker

        Such a visionary.

  33. Augusto says:

    Its like during the fall in the Roman Empire when one city in North Africa under siege by the Barbarians, the men abandoned the walls to go watch a chariot race. 1800 years later all the problems in the world, China pandemic, record homelessness, suicides, drug use….but WOW…look at the Stock Market go up….Its just a number people, digits on a screen, its not life

    • WES says:

      Augusto:. I really liked the part where the Roman leader created “Bread & Circuses” to distract the masses!

      To provide the free bread, he took all the wheat from Egypt, leaving the poor Egyptians to starve! Not that they mattered!

  34. DR DOOM says:

    The only way I can reconcile this “out of control behavior “is that it is not driven by the “retail investor”. This is being driven by ETF and their ilk. The retail investor for the most part ,as you eluded to , been there done that with previous bubbles. The new crop have not had their clock cleaned.They will look back with painful fondness at Tesla as I do when I think of CGMI.

    • Cas127 says:

      The weird thing is that the busts are coming faster, too soon to fall out of living memory.

      Yet, “the dogs return to their v….” Again and again.

      Assuming it isn’t actually the Fed lapping it up.

      • Cas127 says:

        I was going to let it go at a brief allusion, but upon re-reading Kipling, the whole thing (written over 100 yrs ago) is simply too perfect-

        The Gods of the Copybook Headings

        AS I PASS through my incarnations in every age and race,
        I make my proper prostrations to the Gods of the Market Place.
        Peering through reverent fingers I watch them flourish and fall,
        And the Gods of the Copybook Headings, I notice, outlast them all.

        We were living in trees when they met us. They showed us each in turn
        That Water would certainly wet us, as Fire would certainly burn:
        But we found them lacking in Uplift, Vision and Breadth of Mind,
        So we left them to teach the Gorillas while we followed the March of Mankind.

        We moved as the Spirit listed. They never altered their pace,
        Being neither cloud nor wind-borne like the Gods of the Market Place,
        But they always caught up with our progress, and presently word would come
        That a tribe had been wiped off its icefield, or the lights had gone out in Rome.

        With the Hopes that our World is built on they were utterly out of touch,
        They denied that the Moon was Stilton; they denied she was even Dutch;
        They denied that Wishes were Horses; they denied that a Pig had Wings;
        So we worshipped the Gods of the Market Who promised these beautiful things.

        When the Cambrian measures were forming, They promised perpetual peace.
        They swore, if we gave them our weapons, that the wars of the tribes would cease.
        But when we disarmed They sold us and delivered us bound to our foe,
        And the Gods of the Copybook Headings said: “Stick to the Devil you know.”

        On the first Feminian Sandstones we were promised the Fuller Life
        (Which started by loving our neighbour and ended by loving his wife)
        Till our women had no more children and the men lost reason and faith,
        And the Gods of the Copybook Headings said: “The Wages of Sin is Death.”

        In the Carboniferous Epoch we were promised abundance for all,
        By robbing selected Peter to pay for collective Paul;
        But, though we had plenty of money, there was nothing our money could buy,
        And the Gods of the Copybook Headings said: “If you don’t work you die.”

        Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
        And the hearts of the meanest were humbled and began to believe it was true
        That All is not Gold that Glitters, and Two and Two make Four
        And the Gods of the Copybook Headings limped up to explain it once more.

        As it will be in the future, it was at the birth of Man
        There are only four things certain since Social Progress began.
        That the Dog returns to his Vomit and the Sow returns to her Mire,
        And the burnt Fool’s bandaged finger goes wabbling back to the Fire;

        And that after this is accomplished, and the brave new world begins
        When all men are paid for existing and no man must pay for his sins,
        As surely as Water will wet us, as surely as Fire will burn,
        The Gods of the Copybook Headings with terror and slaughter return!

        • GrassRanger says:

          Thanks, Cas. It has been many years since I last saw this Kipling gem in print. The common belief now is that progress in inevitable, but history teaches us that those occasional retrogrades are hell to live through.

    • hidflect says:

      Yes, ETF’s buy blindly and only rebalance a couple of times a year. They’re so big, they wag the dog (push the prices of the individual stocks) and also often cross hold many stocks.

      Then, in Australia for example, Superannuation funds (government mandated employer schemes) are forced to disgorge a constant tsunami of money into stocks every week and are running out of places to stuff it.

  35. Rcohn says:

    Current real yields on Treasuries,
    based on tips
    5 year=(-.22)%
    7 year=(-.16)%
    10 year=(-.07)%
    20 year=+.16%
    30 year=+.32%

    As the US deficits have exploded in the last year, real yields have fallen off of the cliff.There seems to be a strong feeling that the FED and other Central Banks will be buyers of 5 year and longer bonds.
    Deficits do not seem to have any relevance , so why shouldn’t deficits explode in the coming years.And if deficits are irrelevant than why should there be any income taxes. And if deficits are irrelevant than why shouldn’t the government assume the pension obligations of the states.
    And if deficits do not matter , than why shouldn’t the government write a check of “X” to anyone with an income below a certain amount.

    Eventually all of these deficits will destroy the value of the dollar. BUT

  36. Trinacria says:

    Wolf: would you be so kind as to let me know why my earlier post was deleted. Spoke of Tulipmania vis a vis this market and the fact that next year there is the possibility of our current president being known as Hoover 2.0 if reelected. Very benign imho…however, if you let me know the rules, I will certainly try and abide by them. Very confused !

    • Wolf Richter says:


      I didn’t specifically delete any of your posts. However, I deleted an entire argument that had broken out and had descended into name-calling among commenters. If you had a comment in that thread, it went down too automatically. Apologies.

      • Trinacria says:

        Thank you Wolf for your reply. My post had nothing to do with any other posts…it was an “original”. Sounds like the post was caught up with the others you speak of in error. Thank you for the clarification. Take care.

  37. Martok says:

    Wolf – you are right on target, and will add from what I’ve read the about the coronavirus jamming up supply lines in China, and from my investment history going “way back” ’87 crash.

    What I foresee is a delay in it’s effect, just like any other stimulus of major fiscal policy change which is about 6 months, to make a effect.

    I think the unsinkable “Titanic Group” will continue to push the market higher, UNTIL the companies that thrive on China supplies lines, that will dwindle, or disappear will panic, because moving to Vietnam, etc will take too long.

    I believe when this happens, then the “intoxicated investing crowd/firms” will wake up in a panic and sell, causing a crash – this reminds me of 2008.

    Wolf should be congratulated on his astute understanding of the financial “TRUTH” and can pass that onto us!! – Thanks!!

    -ps – many here have said that gold, silver, and Short Team Treasuries are good investments:

    ********* Is there anything else – don’t be shy ********

  38. Patrick says:

    I now look at what’s happening in terms of a swimming pool filling up with global currencies. Under that analogy, business cycles are reduced to waves and troughs at the surface; with economists arguing over which one will be the crash that empties the pool. Toss in the occasional black swan and it creates lots of waves and alarmed swimmers, but in the end leads only to more currency being added and higher water (asset) levels.

    If my guess proves correct then there are only Panics and BTFD rallies coming over the next decade. In a speech last week Powell said that downturns would be met with QE. It was the Fed’s way of saying, “If you think what we’re doing now is QE, just wait and see what we’re capable of!” And all this while Gold rises along-side the US Dollar as DXY hits 99, hellbent on a mission to make 100 the new floor.

    The first in a series of coming panics?
    EURUSD 1.00
    (Come for the initial concerned reaction and central bank placating reassurances. Stay for traders calling Lagarde’s bluff by dumping everything Euro.)

    • Patrick says:

      Sidenote: Always makes me laugh a bit to myself when I hear someone say that the ‘unadjusted’ Venezuelan IBVC stock index is 1.24 Trillion only in relation to Bolivars. Yeah, they’ll say the same thing about the Dow only being 300,000 in relation to USD as they’re chopping off 2 zeros off. Yet we’ll still be told the unemployment rate is sub-4% and GDP is positive.

  39. Xabier says:

    Weighing it all up , it seems that owning a brothel is probably one of the best investments: works in all kinds of economy, rich countries or poor.

    More legally, for now, and if you have aesthetic and historical tastes, some gold coins are exquisite and will repay you with sheer delight while you examine them by candelight, as in a fairy tale. Who says misers don’t have fun?

    The George and the Dragon on the old English sovereigns is particularly lovely.

    Carpe Diem: because we are not getting out of this mess with even the shirts on our backs……

    • Martok says:

      @Xabier – Funny but very true, probably one of the oldest and stablest businesses along with selling booze, tobacco, and probably more cannabis.

      I think our fate is locked in, so might as well party with our favorite vise, because there’s a iceberg ahead and we all are on this Titanic without life boats, and there isn’t a Part II of this story, so strike up the band maestro – LOL

  40. Iamafan says:

    By the way, the Fed also bought more than 30% of the 30 year bond auction this week, just like they did for the 3 and 10 year note.

    And now, they are also doing huge SOMA addons with T bills (used to be only limited to notes and bonds).

    • Gandalf says:

      QE out the wazoo forever!
      Until the debt bombs explode!
      And capital vaporizes!

  41. Michael Engel says:

    1) Since Dec 27 2019 the Nasdaq rise vertically 700 pt.
    2) Since 1980, the Nasdaq is up 9,600 pt.
    3) Why the mighty Nasdaq is so strong : because it has a backbone.
    4) The Nasdaq is riding on a 40 years backbone :
    take Mar 1980 (L) @ 131 to Aug 1982(L) to Oct 1990(L) @ 322.93 // and a parallel line from June 1993(H) @ 329.11.
    5) From 1995 til 2000 the Nasdaq formed a bubble.
    6) In 2009 it was overextended to the south.
    7) From Feb 2014, the Nasdaq built a branch, a tapper, which is
    a throwover above the backbone.
    8) The flight in space can cont, but the monthly Feb 2020 might become a low quality candle with a long selling tail, like Jan.
    9) 2009 and 2020 are not an inverse bubbles and a bubble.
    10) Bubbles are usually followed by an inverse bubble. If an inverse bubble will form, the Nasdaq will fall well below the 2000 peak @ 5,1332.52.

    • WSKJ says:

      I read your comments, Michael Engel: this one is readily understandable; am wondering if you have personal recollection of the 1980 Nasdaq …. :

      Your Point 10, as I read it, concludes that we may see a Nasdaq correction that would cut the Nasdaq about in half.

      Advisor Perspectives (Wolf gives link in left-hand margin) have been showing for several years now that the broader market would need to be cut about in half, as well, to satisfy the uniformitarian principle of reversion to mean.

      I have had to declare to myself the failure of my tea leaves reading which goes back 10 or 12 years; but I comfort myself with the hypothesis that the Central Banks; and especially here in the U.S., the Fed, have wrought such change upon the economy, the markets, the financial players, that the old measures do not now work.

      Not to say that I believe that the Central Banks have solved the problem of Crashes. There will be more crashes, count on it. Note to self: review portfolio. Anything needing to be sold ?

  42. CreditGB says:

    I must be getting old. I can’t recall the legislation that set up the same basis of unrealistic lending in the mortgage industry that eventually resulted in the “mortgage crisis”.

    Regardless, it seems to me that the same excuse of “we have to lend to the ‘no docs’ just to remain competitive in the mortgage market” resulted from that legislation.

    Sounds like we now we have investment firms giving the same excuse, “I have to play this game of chicken to keep my clients”.

    In both cases there has been Government based impetus for ignoring financial discipline. I suggest those that participate in this game of chicken are at extreme high risk, well beyond reason.

    I could be wrong but history is never wrong, just misinterpreted.

    • nhz says:

      Seems to me that it’s the ones who are NOT participating in this con game who are most at risk, for now at least. History shows that in recent decades it is almost always the taxpayers and/or savers who suffer the consequences, not the speculators. The speculators have already reaped stellar gains and can get still get out if they want; no such option for taxpayers.

  43. timbers says:

    All this QE, rate repression, and fiscal stimulus for the rich and we haven’t even been in a technically statistical recession.

    What will they do when something happens that actually warrants they should do something?

    • Unamused says:

      What will they do when something happens that actually warrants they should do something?

      I’m guessing they’ll go to New Zealand and hire Alan Derschowitz.

  44. Arbuthnot says:

    Will FOMO be replaced by NOMO? I think so. What else could come next? That crazy 19th century Russian “economist” whose name momentarily eludes me -X#&!*#!! – and his 80 year cycle is just a few days late but he’s on his way – believe it!!

  45. Mean Chicken says:

    A fair and wise guy once pointed out the broken worthless clock on the wall is right twice, every day.

  46. Unamused says:

    “The giant flood of liquidity is driven by virtually every central bank in the world injecting reserves into the system.”

    “When I hear complaints about less liquidity, remember there is such a thing as too much liquidity.”

    – Paul Volcker

    Wall St. and the banks will be okay. Addiction to liquidity is eventually lethal to everybody but the addicts.

    “I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence.”
    – Paul Volcker

    Who needs ‘economic growth’ when you can get asset inflation?

  47. sierra7 says:

    Have to post my position of a lifetime of “investment” and how I am fairly secure living in the mountains away from the urban areas and fairly comfortable. Grown family mostly all living in the large urban areas working hard to live decent lives.
    I’ve never, never placed back into my vestments more than half the profits. Never.
    The other half retained in cash.
    A little greed is “good”.
    Too much destroys all.

  48. Honest Broker says:

    Earlier this year, Mr. Richter announced he had taken a short position against the entire S&P500. As he pens further pieces encouraging investors to believe that the market is about to fall, which of course encourages it to fall, he should be disclosing the relevant positions he has taken.

  49. Kenny Logouts says:

    If almost everything is in a bubble, doesn’t that just mean your currency now has less buying power?

    Ie, inflation in everything except your earnings?

  50. cd says:

    its not over, a small pullback and its off to the races again. The US economy is best in the world right now, the market the same. The big boys are not letting a tax and spend liberal sheeple flocker in the white house right now…

    its too good….cyclical bull markets last 14-20 years….

    I’m literally printing money in biotech sector as the big boys are playing hard in it…

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