Treasury Market, Gold Go Haywire as Fed Struggles to Contain What’s Turning into Financial Crisis 2

If the Fed hadn’t spent a decade inflating such a mind-blowing Everything Bubble (that had already begun to wobble), the financial reactions wouldn’t be nearly as chaotic.

By Wolf Richter for WOLF STREET:

The sell-off among US Treasuries with 10-year maturities is seriously rattling nerves. The 10-year yield spiked to 1.22% early this morning (when the price of a bond falls, its yield rises by definition). The problem began Monday morning last week, March 9, when suddenly the 10-year yield started rising from its historic low of 0.32%. In the eight trading days between early March 9 to early March 18, the yield spiked by 90 basis points, having roughly quadrupled!

As I’m writing this, the 10-year Treasury is very volatile, currently trading at a yield of 1.14%. And this madness is happening even as the Fed has rolled out historically huge financial-crisis bailout measures in part to get control over the long-dated Treasury market. In the chart, also note the spike yesterday:

The sell-off in Treasuries further up the maturity scale has been even sharper: The US Treasury 30-year yield has spiked by 1.1 percentage points from a low of 0.70 early March 9 to 1.82% early this morning. In highly volatile trading today, it then fell to 1.58% only to re-spike to 1.79% at the moment.

This is happening even as the Fed has recommenced its all-out QE, now maybe called QE-4 or QE-5, by buying Treasury securities of all maturities, including long-dated maturities, and by buying mortgage-backed securities, and by having restarted other Financial Crisis corporate and bank bailout measures.

Gold dropped 2.6% today, to $1,486 per ounce at the moment, and has plunged 12.8% from its multi-year high on March 8 of $1,704 per ounce.

Treasury securities and gold are seen as haven assets that investors flock to during rough uncertain times, when other asset prices around them plunge. And this buying pressure normally drives up the prices of Treasuries (yields fall) and gold, and it did until the wee hours of March 9. Then suddenly it got serious.

So why the sell-off in long-dated Treasuries and gold, even as stocks are plunging and as the housing market in many areas in the US – particularly where it had been the most inflated – has essentially shut down due to lockdowns and other restrictions?

Here is my theory. The reasons fall largely into two categories:

One, in terms of Treasuries, there is the expected tsunami of supply as the government will implement stimulus and bailout packages that have to be funded by selling Treasury securities. The rumored amount of this stimulus package keeps growing. Treasury Secretary Steven Mnuchin said that it was already over $1 trillion. Others have called for $2 trillion. That’s a heck of a lot of debt to issue in a short time.

The Fed will be buying those securities. But who else will be buying when yields are still this low? That’s the fear among potential buyers – that yields would have to rise further before this becomes attractive for buyers in the future, and current buyers would lose money. And so potential buyers other than the Fed are stepping back.

Two, in terms of gold and Treasuries: Margin calls are going out, as the continued collapse in stock prices and the sell-off in junk bonds are putting pressures on leveraged portfolios, forcing people or entities to sell their liquid assets. Those that hold Treasuries and gold (“paper gold”) would choose those assets because they can be easily sold in large quantities and because they have done very well recently, and sellers can lock in those gains and deal with the margin calls.

Both gold and long-dated Treasuries have had a phenomenal year. Gold has soared by 33% from June 2019 to March 9. And Treasuries had a great year as well.

For example, this 10-year US Treasury note, CUSIP 912828YB0, was sold at auction by the government on Aug 7, 2019, at a price of 99.81 cents on the dollar with a coupon of 1.65%. Investors who bought it in November could pick it up for 95 cents on the dollar. But as the 10-year yield plunged starting in January, the price rose. Even after the recent spike in yields back over 1%, this particular Treasury note is quoted at 104.6 cents on the dollar today. For those who bought in November, this marks a gain of around 10% and those who bought at auction, it marks a gain of nearly 5%.

But this sell-off in long-dated Treasuries and gold also shows to what extent this market is under stress as the whole financial house of cards is threatening to unravel into what I will now call Financial Crisis 2.

This Financial Crisis 2 was not triggered by mortgage lending or consumers or banks, but by the overripe historic mind-blowing Everything Bubble, including the biggest corporate credit bubble the world has ever seen, being hit by the efforts to slow the spread of the coronavirus. But if the Fed hadn’t spent a decade inflating such a mind-blowing Everything Bubble (that had already begun to wobble), the financial reactions wouldn’t be nearly as chaotic.

Chapter 11 bankruptcy that wipes out shareholders is the correct solution for collapsing share-buyback queens. US airlines already know this from experience. It works. Read… After Blowing $4.5 Trillion on Share Buybacks, Airlines, Boeing, Many Other Culprits Want Taxpayer & Fed Bailouts of their Shareholders

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  205 comments for “Treasury Market, Gold Go Haywire as Fed Struggles to Contain What’s Turning into Financial Crisis 2

  1. 2banana says:

    Gold/Silver spot prices and what you can buy the real physical stuff, if you can find it, have diverged. By at least 50% mark up.

    Typically, was around 5% of spot.

    “Treasury securities and gold are seen as haven assets that investors flock to during rough uncertain times, when other asset prices around them plunge.”

    • Chris P says:

      2 banana is correct. So that leads us to the point that metals are being hammered with the Feds big hammer to protect their $$.

    • number1gi says:

      Called APMEX this afternoon…selling random year uncirculated Silver Eagles for $21 to $24 range depending on quantity and payment method…buying at spot plus 35 cents, i.e., $12.35 at the time…WTF?

      • Lisa_Hooker says:

        Similar to depositing money in your bank at 0.5%, then borrowing money from them at 7%, or your credit card at 18%.

      • nobody says:

        That’s simple prices dropped. There not having a rush on physical gold and silver. They bought high they can’t sell low. All they have for sale is the high markup bullion. They can’t sell silver for $13 when they payed $16. They have to refurbish there supply’s at a cheaper price. That’s also why they all have delivery delays.

        On another note the FED is gonna tank the dollar. All that ammo there shooting and none of it is holding. The dollar was toast 12 years ago. RIP

  2. KPL says:

    “But if the Fed hadn’t spent a decade inflating such a mind-blowing Everything Bubble (that had already begun to wobble), the financial reactions wouldn’t be nearly as chaotic.”

    That is what you would say! No one else could have seen it coming. And even if they were the Fed and all and sundry (Hussman comes to mind) were laughed at as the market reached for the moon!

    Though it is proving to be scary (looks likely a market holiday is in the works because at this rate you may not have a market in 2 weeks), Oh boy am I glad the Fed is now running around like a headless chicken. Just retribution for the Fed who thought they were gods and can do anything and get away with it with impunity. It has brought the swag of power without responsibility to its knees!

    • Social Nationalist says:

      Bernanke has been worried for 5 years.

    • Bobby Dents says:

      What did you blame in 1907, 1893, 1881, 1873, 1857, 1837, 1819…..?????

    • Sadasivan says:

      In the wake of the 2008 GFC,the Derivatives problem was not addressed,to. Persisting!This is the result of that.The USFR used the wrong medicine.

      • mike says:

        The “Fed” bankster cartel should be made into a real government agency by requiring its now insolvent owner banks to give convertible bonds to the US social security administration convertible to 999% of outstanding banks’ shares in exchange for any loans or government help. Take back our democracy from the financiers’ coup as discussed in Simon Johnson’s “The Quiet Coup ” in The Atlantic magazine!

        Given their persistent derivatives and RE gambling, all US banks are now legally insolvent.

        • mike says:

          They are now legally insolvent, because if they sold all assets at current FMV now, they could not repay all of their creditors all of the sums they owe. Also, the 999% share-convertible bond in exchange for any bailouts rule, should be applied also to all financial institutions or credit card issuers or insurers or HMOs, which are parasitic entities preying on most Americans.

        • Sadasivan says:


    • ng says:

      So, now Trump is trying to blame coronavirus for his trumponomics (how convenient) but still continue to pump a bubble

      • fajensen says:

        Trump is a businessman. And as a businessman you’d be an idiot and a moron if you don’t leverage the new opportunities and simply blame Coronavirus for every dead investment still to be written off and a few yet to come!

        There are bailout’s in the water, get as much written off as possible now, then look like a genius the next 3-4 years.

    • John Hope says:

      Brilliant comment KPL ‘ It has brought the swag of power without responsibility to its knees ‘ . Just brilliant.

    • Trinacria says:

      As the Bowery Boys, Abbott and Costello and the Three Stooges at they FED has been saying all along….”we don’t see any bubbles out there”…and to think many of these guys have PhD’s ….really does mean “piled high and deep”. What can you expect from guys who have never had a real job in their lives!!!

      • Ghassan says:

        They see the bubble and they know how big it is but choose to lie to the public, it’s in their best interest and when it explodes they don’t lose as much of the rest of us nor their rich masters.

        • Trinacria says:

          On the bright side, I am hoping this will deal globalism a deadly blow!!! Using china as a manufacturing platform, especially for Rx, is really sleeping with the devil. This needs to change post haste.

    • VeryAmused says:

      I love Hussman’s market commentary, it is ridiculously well written and informative as are his twitter remarks.

      Watching the Fed running around like a headless chicken is hilarious, exhilarating and terrifying all at once.

    • char says:

      Everybody could see that house prices were way to high compared with wages in 2008 and everybody can see that the share prices were way to high compared to profits in February so the no one else could see that is simply wrong. They did not want to see it but that is something else.

  3. phathalo says:

    VXX, from which I was bleeding over the past year or so, just keeps going and going, probably faster than VIX as I suspect more and more people are pilling up to profit/hedge their positions.
    Oil a hair away from $20.
    Something is bound to blow up somewhere.

    • Nat says:

      I haven’t been following VXX, but I have been following UVXY, which I think works similarly. These VIX based ETFs roll themselves along by selling front month VIX futures and buying later ones. In the normal VIX term structure this is a loss (front contracts sell for less than further out contracts cost) so these ETFs constantly decay relative to the VIX. But the market upset right now is so big and so prolonged that the entire VIX term structure is currently inverted. This means the front month contracts are worth more than the later ones and so the decay of these ETFs has been reversed temperarily, they go up with the VIX and also just appreciate over time as they roll contracts.

    • Wes says:

      Anyone who took an early position in the VXX are now looking like geniuses.

  4. Bobby Dents says:

    This is driven by the virus triggered demand crash forcing foreign oil producers into selling us treasuries to raise dollars. Nothing surprising there.I

  5. Raging Texan says:

    Measures of madness: Yield on 3 month treasuries is less than 10%. Yield on 10 year treasuries is less than 20%. Yield on 30 year treasuries is less than 30%.

  6. Mean Chicken says:


  7. Tinky says:

    While I ain’t no fancy, well-educated economist, I can’t for the life of me understand why the Fed hasn’t tried throwing a trillion kitchen sinks at the problem yet.

    • MC01 says:

      You can only print so much digital money with that Apple III Jerome Powell has in his office before it overheats. He has been asking for a Lisa for a year to increase his printing power now but fears this may be reconstructed as a request for a call-girl has resulted in all his requests being stonewalled by the Fed purchase department.

      • MCH says:

        Ha ha, that is utterly hilarious. Lisa as a way to increase printing power. That’s either a call girl or sweat shop labor. Either way, it can’t be good.

      • nick kelly says:

        Seriously, during the GFC (GFC 1.0?) the US mint had to farm out some printing of the $100 bill to Switzerland as demand exceeded capacity.

        Maybe the percentage of digital transactions has increased since then.

    • Sydney Collin says:

      At least in kitchen sinks you could wash your hands & curb coronavirus spread.

    • Cruiser says:

      Central banks will do exactly that eventually but once markets catch on such action will be neutralized by price inflation. Under such conditions stocks and bonds suffer deep long term losses in inflation adjusted terms.

      Tangible assets will offer refuge.

    • Cruiser says:

      BTW I wouldn’t put much or any faith in cloistered academic economists, although I was initially trained by them. Macro theory is confounding nonsense for the most part but they actually don’t understand that.

    • char says:

      (Non-)Banks don’t lend money if they fear they wont be repaid. Fed can only can not force the banks to lend and that is the kitchen sink they need

  8. Sadasivan says:

    Physical Gold and Silver are still priced higher.Noticing low paper Silver Price,I went to buy some,on 16.3.20,but the Jeweler demanded 13% more,than the Paper/Futures Price.I have stopped tracking Futures Price of Gold and Silver.

    • Nat says:

      Buy contracts and ask for delivery then.

      • Sadasivan says:

        Thanks.I would try.

      • Noelck says:

        @Nat – Why do I get a feeling that they would not make delivery easy :)

        • RagnarD says:

          but, if this was a real market, shouldn’t real traders be arbing the living F out of it? And thus bringing the financial world to a quick end? By that I mean: demanding delivery of physical, then when delivery can not be made by the exchange / counterparty without all going bankrupt, physical price skyrockets.

          This IS what should be happening right now.
          It’s a game over, but they’ve been able to kick the can a bit further, once again.

    • RD Blakeslee says:

      At APMEX this morning, I watched the price of $100 face value bags of junk silver going up – total over 24 hours, $100/bag.

      And it’s something for us oldsters in lockdown to do – watching volatility in this-or-that market.

      You can watch the real-time Dow chart shimmy up and down and imagine you are watching the aurora borealis …

      • Brant Lee says:

        Most bullion websites are sold out of silver except for the really high premium stuff. Even silver 1oz rounds are $10+ over spot.

        However, there are some silver Chinese Panda’s available on at the moment for about $22 people are overlooking. Panda’s are absolutely the best silver bullion coins to own even though from China. But beware, most Panda’s are fake so buy from a reliable dealer. Drop the coin on a wood table about an inch to get a silver ringing, not a thud. (of course, don’t damage the coin!!)

    • Paul says:

      The same is true of a lot of commodities, but the other way. I have a geologist friend that told me he can’t get the WTI price for oil

  9. Gandalf says:

    As I posted before, in terms of world reserve currencies and “safe haven” investments, there is an ongoing world economic competition- who can recover from the pandemic first, with the least government debt requiring the least QE and money printing. It probably won’t be the USD.

    To me, the rising 10 year Treasury yields are the first signs that the market is beginning to recognize that fact, especially with the chaotic American response. Spring breakers partying at packed Florida beaches!

    I’m predicting a $3 trillion US Federal deficit MINIMUM after this – from the unnecessary corporate tax cut, the coming recession/depression, and all the corporate bailouts out the wazoo that are sure to come.

    • Bobby Dents says:

      Nah, it’s the lack of dollars globally. Your trying too hard. It’s also why metals have sold.

      • Gandalf says:

        OMG, Of Course! What was I thinking! It’s

        the World.Dollar.Shortage.Crisis

        Actually I had no clue what your many posts here about “dollar shortage” were about, so, always eager to learn, I googled it and discovered this website – – claiming that the World.Dollar.Shortage.Crisis first started in the 1960s. The authoritative source? Somebody with a website called “Eurodollar University”. Their other authoritative source was a young blonde woman allegedly working as a JUNIOR portfolio manager.

        Investopedia had a better explanation of “dollar shortage” – it basically happens on a short term basis to some countries in economic crisis, unrelated to anything going on in the US

        Sorry, I think I’ll ignore you now.

    • Stephen says:

      The 3T or more is just the 2020 Fiscal deficit. Need to add this to the tab of the last 10 years of parties. Unfortunately, the 2008 Crisis only gave the financial system a partial enema.

      • sierra7 says:

        Yes, a partial enema from the GFC.
        Now we really need a good dose of Castor Oil!

  10. endeavor says:

    Even the ship that rides out the hurricane is battered and broken in need of new sails and spars. Cash, gold and treasuries are the only provisions for this cruise, but if she founders…….

    • DR DOOM says:

      Aye , matey if she founders fill the shore boat with booty and rum and skuttle the worthless skow and set er’ afire to light the way to the beach.

  11. Mean Chicken says:

    BTW, I hear there’s a shortage of $US. Apparently developing country currencies are weakening as consumer demand craters?

    • Bobby Dents says:

      Yup, the reserve currency country must act like pigs. The fight is over how the money will be spent.

    • Sadasivan says:

      $ shortage is also due to low Crude and Commodities [paper].Recall The Petro $!

      • Nat says:

        Wouldn’t low crude and low demand for crude reduce dollar demand because fewer dollars will be needed around the world to buy the crude needed?

        • Sadasivan says:

          But the Businesses will NOT have MORE $s than they used to.It is a paradox.$ needs velocity to reduce shortage and higher prices of Equities Crude and PMs..

        • Michael Gorback says:

          Yep, and that means less petrodollars coming home to support bond purchases, which would decrease bond demand and pressure interest rates to rise.

          That would support the dollar but destroy the US bond market.

          Then the Fed would buy the bonds to drop interest rates and eventually Triffin’s Dilemma kicks in.

      • Mean Chicken says:

        Good point.

        • Sadasivan says:

          Imagine Saudi losing Billions of Petro $s due to low Crude.Add others.Then low Equities,PMs……Saudis will have LESS $!That is $ shortage for you.Add all other Global Crude producers etc….Global Traders less $ due to low Trade.

    • gert7to3 says:

      Would another currency offer a safe haven?

  12. Tinky says:

    Given the spike in the USD, gold is actually holding up rather well. And in many other currencies (e.g. the GBP), it remains at or around all-time highs.

    Don’t forget that it also went down initially during the ’08 crisis, and for the reasons outlined by Wolf. When the dust settles, though, watch how quickly it will rise.

    • Wes says:

      In 2008 gold went from $1030 to $640, then peaked at $1920 in 2011.
      In 2008 silver went from $21 to $8.40, then peaked at $50 in 201l.

      Will the dollar hold out?

  13. Francisco Ruiz Demans says:

    & Who stated that 2008, was a “one off event”, Wolf?

  14. Nat says:

    Wolf, totally agree with your assesment. I would add though that a third issue for treasuries and gold may be a foreign dollar shortage. The dollar index is taking off like a rocket and none of the FED’s money injections are slowing it down much, hence the hypothesis that the shortage is foreign as only the FED’s FX swaps can aleviate foreign dollar demand meanwhile repo and CP are domestic fixes, and are not being used to capacity (look at how little of the 500 billion repo is being used).

    An intence foreign dollar shortage has similar effects to a margin call – those foreigners who are missing dollars sell treasuries, stocks, gold (and especially sell palladium apparently), etc… to get hold of any dollars they can get their hands on. A seconday effect of this is that it drives up the purchasing power of the dollar, which further decreases the value of everything else when priced in dollars (except tresuries, as those are kind of “future dollars”).

    • Sadasivan says:

      Ironically low Crude and Commodities reduce the need for the $!But low Global Trade ,aggravated by COVID-19,reduces the $ [Liquidity ] with Businesses.

    • DeerInHeadlights says:

      Thanks for the analysis. Makes sense.

  15. Paulo says:

    This entire unfolding scenario reminds me of store security cam footage when a big earthquake hits. What should rational beings do? Duck and cover, then move outside away from danger. Then, look after survival needs.

    Trying to forestall the eventual damage by doing remediation work while the earthquake is going on doesn’t make much sense. We need some steady leadership that talks of compassion and being united. When the virus is under control we can rebuild. Meanwhile, INDIVIDUALS need food and shelter, comfort, and hope. We can worry about going back to work when it is feasible to do so. Really, airline bailouts? A Boeing bailout? Retirement funds? The Market? I think we’re way beyond that right now. People may never again be able to afford air travel like they have taken for granted these past 20 years. This money…borrowed money which may spark insane devaluation (even inflation), might be better spent creating a different arrangement for citizens.

    Who knows what this will lead to, but I would bet money (ha ha…your future tax dollars) we will never ever go back to what existed even 2 months ago. Ever. Now, we will see if our peoples have lost their resolve and determination, or compassion, if there ever was much to begin with? These guys might as well stop trying to fix what just broke. It’s over. Time to rebuild and do it better.

    What will we need going forward? It sure as hell won’t be Teslas or Cadillacs. We need the basics, starting with food, potable water from community taps, accessible medical care for all citizens, education, and a chance for people to start over. This economy is being ravaged, like a WW2 fire bombing raid. It’ll all be different when it’s over, for sure.

    Just about everyone on WS knew the economic situation was fragile and ready to collapse. Guess what, no one really needs their nails done, tattoos, their dog walked, meal deliveries, or pre-prepped meal kits. It’s over.

    • 2banana says:

      Water from community taps?

      Did the germans just bomb every water treatment facility in America?

    • Ghassan says:

      Even before this crises it seemed to me that people are more concerned with how many country they have visited or how many restaurants they have dined in and many other superficial activities they have done compared to others instead of planning a reasonably safe future. Not only people don’t need their nails down or drink in bars or…. But also I never understood how ppl buy houses with only %3 down payments, I think even %20 is too low, or leasing cars and losing thousand every year an repeat in three years.
      So many expenses are unnecessarily in our lives but I doubt that people will learn, once they get their hand on some of fed’s newly printed money, they will repeat it again.

      • Borgia says:

        Even 3% is too much for such a volatile illiquid asset. I would buy on sale with no money down, and dump into the lienholders lap when things go south. The government will bail them out anyway. Waiting for the real estate market to turn…

      • sierra7 says:

        You probably have not experienced better water anywhere in the US such as comes from Hetch Hetchy….I live about 30 miles (probably) downstream from HH one of it’s first delivery points.
        Nothing “tastes” better…..
        Wash anything with it, for example a vehicle…not residual spots……….don’t need “water softeners” in your dish washer, etc.
        The closest any other water comes to HH is/was spring water system in Bonnie Doon (above Felton CA) that we had back in the 1930’s.
        Can’t really “trust” bottled water. That’s been proven time and again by many good tests/articles.
        My family can’t believe the water up here. Most of the Bay Area water systems are ok even coming from HH to Spring Valley where it ends before distribution. But it is not pure HH when it gets to come out of the taps.

        • Wolf Richter says:


          So you’re the one that is tapping our water pipe! In San Francisco, we now get a “blend” of Hetch Hetchy and whatever other water they can find, because there isn’t enough Hetch Hetchy water to go around. This includes efforts to get SF ground water involved, as I heard a couple of years ago. Not excited about that one. But SF water is still the best city tap water I’ve ever had.

  16. John says:

    In the news this morning: Yellen & Bernanke hollering that the FED needs to buy up all the stocks! Haven’t those two done enough damage? Why don’t they shut up!

  17. Bobby Dents says:

    Another side effect of the oil bust and global dollar raising is it’s lifting real interest rates on corporate debt.

  18. Stephen says:

    Just for clarification, we are in Financial Crisis 2.0 and the sins of the fathers are being visited. This is the everything bubble demolition. No stopping it.

    • Bobby Dents says:

      Eh, no. This is a corporate bond bust. Subprime is where the debt was at this time. It’s why the FED is getting rejected. Basically investment patterns since 2010 will be getting changed. The 2008 crisis was 25 years of the primary dealers expanding debt with the Boomer demography, ending explosively.

    • Phoenix_Ikki says:

      Sure feels like it, although the price of housing will still remain to be seen if they will dip back down to post financial crisis 1 level. For sure it will stay frozen for a while but afterward who knows. Just saw on my zillow feed more houses listed for sale in OC/LA area and still asking for ridiculous price as if what’s going on right now is a separate reality to them. Understand that housing market is a much slower ship to turn but I for one do hope home prices tank just as hard so all the house humpers can finally STFU about how their asset is bulletproof and only up and up.

      • jon says:

        Housing would take some time to show the impact unlike Stock market and general economy.
        The everything bubble has been popped and housing has one of the bubble.

        It’s gonna be interesting spring housing season. I know a lot of people rely of stock gains for housng..

      • economicminor says:

        Unless there is some way to permanently freeze loans in their current place with no interest or penalties for years and maybe more, then the price of real estate is going to go waaaaaay down. There is just no conceivable way that people/businesses can lose many months or a year of income and not have that fact reset asset values, including or especially real property.

        And as those reset, so will the income from property and sales taxes. The government’s delusional feel good, Power of Positive Thinking only works on the stairs up. This is the express elevator down and their incomes are going to be dramatically slashed. This is the big one and it has been coming for a really long time. The Big Minsky Moment when all of a sudden RISK is relevant again.

        • char says:

          Not if you expect government money printing and an extra 30% inflation soon. Historically this has not been uncommon with significant epidemics. But deflation also occurred and none really in the modern age.

      • char says:

        You can’t sell a house now because you can’t move at this moment in time so why change the price. Besides nobody is buying. And houses need inspections so offering it for 80% won’t work either as it is more a sign of a lemon than of a bargain.

      • TownNorth says:

        If you have a drop in income, real property with mortgage debt could become a burden because of monthly cash flow required to carry it. Even free and clear property in high tax states, unless you have lots of savings.

        Recession = fewer jobs to pay mortgages + taxes + insurance. So more sellers trying to get out from under and fewer buyers, because fewer will qualify for mortgages.

        Then there are the people who thought it would be clever to stretch themselves and get a second or third home so Airbnb would pay their mortgage. They’ll tire of subsidizing those quickly.

        So yes, home prices will drop. Maybe quickly.

  19. Geoff says:

    We’re going to need a bigger boat (TARP).

  20. Sadasivan says:

    But the Businesses will NOT have MORE $s than they used to.It is a paradox.$ needs velocity to reduce shortage and higher prices of Equities Crude and PMs..

  21. Trent says:


    It can’t be a sequel if the first one never ended…….

  22. timbers says:

    Please Mr Fed, don’t blow up the stock market just yet.

    Because when it goes to Zero, I want to OWN it.

  23. David H says:

    Wolf – my market timing model still indicates a sell, not least of which I am watching the bond market to see how wide the spreads can go on BBB debt and the wider market. They hit like 8-9% in the GFC and only less than 3% today

    What do you think of Goldman’s target for 2000 on S&app 500? Are you going to stick it out until we see corporate earnings in the spring ? It’s hard to imagine that after the massacre of today (down 10%) we are still not even close to the bottom ! I wonder if 2000 represents at least a place to start going long

    • KPL says:

      Looks like Goldman got a 0 wrong! Assuming market is not closed soon. If you can’t make a market go up, close it and open it when it is ready to go up. This is how capitalism is supposed to work.

    • Wolf Richter says:

      We’re in totally uncharted waters. We haven’t even seen the business and economic numbers yet. 2/3rd of Q1 is going to reflect January and February, which were not too terrible. Q2 is going to reflect what’s coming next. So it will take months for the numbers to reflect what is going on. This was so sudden — without much of a transition. I have no idea how low this will go. It took the Nasdaq about 2 years to lose 78%. We’re just 19 or so trading days into it.

      • David H says:

        Agreed – if you go to Yahoo and look at Nasdaq with the “max” button pressed it goes to show how much further this could fall

        I agree as well regarding Q2 numbers. When do they come out in earnest? Might as well put the dates in the diary….!

      • Erich. says:

        Here in north Texas (DFW area) they’re closing malls, movie theaters, gyms and any other place where more than a few people can gather. Restaurants can only offer take out or delivery. My bank has closed all it’s branches and told everyone to use their bank from home web app.

        FULL STOP.

      • Cas127 says:


        I wonder if corporates are going to load all the misc “big bath” items into just qtr 1 or split them with qtr 2 (I would incl later qtrs but that defeats the purpose of big baths).

        For the general audience, “big baths” are when public corporations take advantage of bad news to lump in a ton of accumulated business write-downs, so that they get lost in the chaos of the original bad news.

        Almost every corp plays a lot of accounting f*ckery-pokery games, deferring necessary write-downs and losses, so as to spread/hide their impact.

    • Gandalf says:

      The SP 500 Shiller PE has been a good benchmark for stock value and asset inflation/deflation

      In the Before Greenspan Era of Fed intervention, the Shiller PE hit as low as 5, in 1932 and 1982.

      In the Dot Com bust, the Shiller PE only went down to 22. In the GFC, the Shiller PE went down to about 15, with the SP 500 dropping to about 900.

      So, extrapolating to this current market, the SP 500 is at about 2400 and the Shiller PE at 22.71 today, to get to a Shiller PE of 15, the SP 500 is going to drop to 1585.

      Differences? In the GFC, there was a greater delay with lots more haggling and resistance to doing bailouts, stimulus, and QE.

      And, the GFC was fundamentally a bank failure and liquidity crisis which the Fed was able to reinflate back to life with zero interest rates and QE.

      Things are different today. No banks or companies have failed yet and the Fed has already dropped rates to near zero and done a massive amount of QE. Bailouts out the wazoo are happening…..

      Except… how is that going to solve the demand AND supply constrictions caused by the pandemic?

      I rather suspect the headlong rush to cure the economic collapse caused by the corona virus by throwing money at it are not going to work, and that the echoes of this profligate further waste of money will cause delayed problems with dealing with a ginormous Federal debt and another vast vast expansion of cheap debt

      • Gandalf says:

        P.S. For the Shiller PE to drop to 5 as in the Before Greenspan Era, the SP 500 would drop to around 500

        • Cas127 says:

          In the aftermath of 2009, the PE went to wacky heights for the year or two of truly bad earnings…apparently investors expected a rebound and the perceived net asset value of corps put a sort of floor under valuations (causing the PE to go crazy).

          Not saying that will be the case here, but just recapping recent history.

          In the long run, I am much more worried about two decades of asinine, politically corrupt money printing meeting unprecedented supply constraints – causing real world wildfire inflation the Fed can’t do shit about.

        • Gandalf says:

          The Shiller PE looks at the cumulative 10 years earnings to smooth out those wacky disruptions. That’s why it’s considered a reliable standard of stock market value/asset inflation vs. just looking at the simple P/E

      • char says:

        Spain is closing so i would call Iberia failed. Not financially but as what they do to make money. I don’t think tourism will come back this year to its normal level.

        Then there are businesses that use the problem to close failed parts of their business. Like what Uber did yesterday with Uber Pool. They used the excuse to close it down but everybody can see that it wont be restarted.

        How many AirBnBs trow in the towel and start to go rent long.

        I would say a lot of businesses have failed already.

      • KPL says:

        “Except… how is that going to solve the demand AND supply constrictions caused by the pandemic?”

        You and I understand this. Accepting this is the first step to coming up with a proper solution. Instead the Fed thinking they are gods will follow Einstein’s definition of insanity and use the only 2 tricks it has thinking it will work. But then the Fed has met its match and is screwed.

        Pre-Greenspan era and Post-Greenspan era might have different PE. This person is singularly responsible in creating the perception that printing money and cutting interest will cure any disease, making the Fed the 2-trick pony that is today. Throw in the fuel of moral hazard be damned, always there to bail out (gun to the head-employment, economy etc.), illusion of market can only go up that the Fed had provided, enabling taking on DEBT to shore up share price with buyback and creating everything bubble to this, PE at low single digit may well be the last stop.

        Moreover the often touted V-shaped recovery may just go missing. Hopefully it will burn up the Fed as it is now, a market manipulator and a wall-street stooge.

    • char says:

      How much of that BBB debt is now in reality DDD and not yet re-appraised

      • Cas127 says:

        All of it?

        Anybody have a good free site that tracks cash position/debt maturities for multiple companies in one go? The free stock filters tend to be very Ltd as to the financial metrics you can filter on.

        Maybe just a Google search on “companies holding the least cash”…

      • David H says:

        Yup that’s truly terrifying and as far as I’m aware completely unprecedented in history

  24. Bobby Dents says:

    The Fed is practically useless. Banks don’t need to swap and their not really ‘ money injections’ are being ignored. It’s how US corps want to package their bankruptcies which politically will be a mess and with 2008 in mind, less forgiving.

  25. Everything post 2009 has to be unwound. Rates should be higher, the Fed should set rates in order to price risk? Hank Paulson harangued REPs into buying into the bailouts, with the notion of “tanks in the street.” Hey now we are all self-quarantined. Who cares?

    • Cas127 says:

      Absent a mass exit from the USD, DC will never raise rates…although it has been in the long term interests of the US for 20 yrs.

      Doing so would mean that the “calm corruption” that DC needs to survive would be ended by wrenching reform.

      Wrenching reform would mean mass pain for the 3 to 6 million political class members in DC.

      They will sell you into Chinese slavery or watch you starve due to inflation before they endanger an ounce of their power/status.

      Sooner or later, the American people are going to find an alternative to the dollar that works for the 80-95 pct of the American people not in the political class.

  26. DJW says:

    The fat cats on Wall Street have been front running the Fed for years in the bond market. Fed has been broadcasting its rate cuts every time. Bond funds buy them ahead of the Fed cutting, now Fed panics and drops rates to zero. All those bonds I bought I can now sell back to the Fed. Why because they told me they are going to be buying them. The Fed never knew what it was doing. Now all the bubbles created by them have caught a virus.

  27. Michael Church says:

    Emerging countries short of dollars and selling precious metals to buy the dollars they need. Gold and silver holders don’t seem to be able to get their heads round this. Worse is to come as the collapse starts with the third world and ripples to the centre – the USA.

    • Tinky says:

      From Feb. 20th, the DOW is down >30%

      Au is down 9% in USD; 9% in JPY; 6% in EUR, and UP 3% in GPB, etc.

      This relatively good performance has occurred in spite of liquidations of hedge funds to pay margin calls, the sharp rise of the USD, as well as other factors like the one that you mentioned.

      Gold lost 30% in value during the early stages of the ’08 crisis, before soaring. Do you expect a different result this time around after the bailouts and QE, etc., make ’08 seem like chump change?

  28. Lance Manly says:

    Not just the fed but OECD central banks in general.

  29. SocalJim says:

    The backup in 10 year yields as well as consumer staple shortages are an early indication of inflation. You have to be nuts if you don’t think food prices are not headed higher. TBills and well located real estate is the right answer.

    • Wolf Richter says:


      In terms of inflation, I agree. I think an increase in consumer price inflation — that initially will be covered up by a temporary drop in energy prices — is something the bond market will have to deal with. The Fed has already said it will let inflation run hot, and in the current environment, it’s not going to do anything to slow inflation. This will be a sideshow for a few months, given the fiasco we now have, but once things settle down, it may no longer be a sideshow.

      • MCH says:

        I wonder if this is going to lead back to the stagflation of the mid/late 70s. I believe they had very nice long term CDs that were yielding 10+% at that point. That would not necessarily be a bad thing in the long run. Although I doubt if we can get there.

      • Wes says:

        Mr. Richter, exactly right, inflation will eventually come and the devaluation of the dollar will be part of it. The last thing Congress and the Federal Reserve want is deflation. Could you imagine Congress and all the other debtors having to pay back their debt binge in real dollars?

    • sc7 says:

      I’m sure well located real estate will do well in 20% unemployment. Already know landlords with tenants that can’t pay due to layoffs.

      Open house traffic has disappeared and the 10 year rising will hurt interest rates. Real estate is good if you own it, as I’ve been saying, I would not acquire more right now. Maybe after this crisis puts significant downward pressure on prices, there will be a buying window.

      I’m seeing increases in MAJOR price increases. The flipper working on the house next to me in Boston went from Mon-Fri 9-5 to 7 days a week, 7a-11p. Looked very stressed when I saw him last.

      • sc7 says:

        *major price decreases

        Will be interesting to see pending home sales at the end of the month.

      • Ghassan says:

        In Boston comparing to other major cities One shouldn’t expect big decrease in prices if last crises (2008) is any indication.

        • sc7 says:


          Agreed, Boston is remarkably stable when it comes to pricing. Looking at Case Shiller, it never “bubbled” up in the last bubble, so it didn’t crash, but rather modestly corrected and cooled off (as it did after 1987). Boston isn’t subject to crazy speculative increases since it’s already expensive due to supply and demand (can’t build east of the city), which makes it less vulnerable to crashes. A great place for long-term investment (away from flood areas).

          My guess is a return to late 2016, early 2017 prices, which would be a 12-15 percent haircut from today’s valuations. I do think there will be a period of slow growth following. The big price cuts I’m seeing now are on listed homes trying to sell before the recession sets in. Typically, in places west of the city (Newton, Waltham, Natick, Wellesley), price cuts are usually done in small increments (in the $700k and under markets), like $10k. I am seeing $25k+ price cuts.

    • Cas127 says:


      Would appreciate some other practical ideas – agree with TBills…but RE has been insanely overvalued due to ZIRP…and they can only turn that trick so many times…it isn’t like the knowledge of how to construct an additional supply of bldgs has been lost to the mind of man…

    • wkevinw says:

      Yes. Buckle Up. “W” recovery? How about “WWW” recovery.

      • SocalJim says:

        W recovery is possible.

        1) Virus gets tamed by warm weather, so a big stock market rally.
        2) Virus returns in fall because no vaccine yet … market drops again.
        3) Vaccine arrives, another big rally.

        Note that margins will get squeezed as higher input prices enter the production chain because of de-globalization.

  30. SocalJim says:

    Typo … The backup in 10 year yields as well as consumer staple shortages are an early indication of inflation. You have to be nuts if you think food prices are not headed higher. TBills and well located real estate is the right answer.

    • Social Nationalist says:

      Nope. I see little signs of inflation. Foreigners are raising cash which is raising interest rates. Classic enforcing deflation. with more deflation. You need a larger panic to get yields higher(lower).

      • SocalJim says:

        Right now, you could raise food prices by 50% in LA, NYC, and Boston, which are the three markets I know, and the shelves would still be bare. Same with cleaning supplies. That is pricing power. Certainly the corporate CEOs will take advantage of that. Home Depot will be seeing shortages in some items from the broken China supply line by April. American’s will be poorer and prices will be higher.

        • VeryAmused says:

          If corporations raised prices for staple food right now, in any meaningful way, they would be eviscerated from all angles. They do not want that type of publicity.

          However, I agree that broken supply chains will and have ignited appreciable inflation on certain non-essential items.

        • economicminor says:

          People aren’t eating any more. Maybe cleaning a little more. Current demand is total panic mode. Unless the supply of food drops way off which I guess it could happen as much of the food you eat is manufactured?? Otherwise, once the panic phase is over there should actually be an abundance of food in the stores. Especially fresh food. What do you think, all the organic farms are just going to shut down and walk away from their crops?

          I’ve been in many modern homes. There isn’t storage for food. Most modern kitchens are pretty sparse as cabinets and counter space is the most expensive part of a home. People don’t have huge freezers either as there is a store right down the street..

          So chill out.. The panic phase will soon be over and there will be food. What there may be a shortage of is cash… in a month, unless the helicopter really does run over your neighborhood.

          It takes a shortage of supply and an excess of currency to get true inflation in prices. Honestly I don’t see either yet.

        • char says:

          You can raise prices for the next three weeks by 50% and loose you customers for the rest of their life. It is not worth it for a supermarket.

        • SocalJason says:

          I would discount new reports about how “shelves are bare.”

          Other than toilet paper, I’ve had zero issue at all buying basics (milk, eggs, bread, meat, chicken, produce) in Los Angeles, Santa Monica and Culver City. Trader Joes asked everyone to limit to 2 of any one item, a very reasonable approach. The bare shelves make for a nice TV clip, but I don’t think they reflect the reality on the ground. This AM the Santa Monica farmers market was in full business-as-usual mode (with some social distancing) and farmers indicated crops were still growing as expected.

          I don’t see an ability to raise price +50% at this time. I see a well functioning market outside of a few items (Purell, TP). Direct suppliers (farmers) had same prices as last 3 months.


        • Wolf Richter says:

          Came back from Trader Joe’s in San Francisco a few hours ago: Lots of bare shelves: no coffee, no meat, no pasta, no marinara sauce, almost no wine, no butter, nearly out of eggs, almost no frozen fish, very little cheese, no tofu…. like I said lots of totally empty shelves. Though it seems slightly better than a week ago. Plenty of fresh fruit and veggies though.

        • MarkinSF says:

          From what I hear 8 people have already been arrested in San Diego for price gouging. Really don’t know the details or accuracy but it is sickening that people think in terms of profiting off of the misfortune of what is primarily those of us least fortunate.
          If they enforced laws banning war profiteering we would not have squandered our national treasure to these grossly immoral wars in the middle east.

        • SocalJason says:

          Wolf – thanks for your view from SF. Very interesting to see how stock levels vary wildly for the same multi-unit retailer. Perhaps the “2 per customer” rule they had at their Culver City location was keeping demand to a reasonable pace.

          I can only guess the overbuyers will hit physical constraints soon (refrig/freezer capacity) with their pulled-forward demand.

          If Two Buck Chuck is running low, we are in trouble :)

      • Pedro says:

        Inflation by definition is the increase in money supply.

        Food price inflation begins when demand exceeds supply. Eventually demand will taper for food as no one can eat all that food.

        Toilet paper on the other hand could become a currency substitute And hence strip supply bare for many months until price rises or rationing begins.

        Welcome to USA! Toilet paper rationing in2020

        • Wolf Richter says:


          “Inflation by definition is the increase in money supply.”

          That’s just one definition. There are many others. The most common is the loss of purchasing power of the currency when compared to consumer products. This can have a variety of causes.

    • Jeff Relf says:

      The 15oz “Stagg Chili” I bought 6 weeks ago
      from Amazon is now unavailable;
      and there are no alternatives
      that aren’t 6 times the price.

      Same for other products I usually buy.

      Congratulations prepers,
      your “one year supply of food”
      idea appears to be rather precient now.

      • MCH says:

        People are pulling forward demand. So, I would suspect for some companies like Costco, the Q1 numbers are going to be frigging awesome. But of course, with their no question return policy, if and when the time comes, there will be a quarter in the not so distant future where there is a tremendous down side when tens of millions of rolls of toilet paper and other stuff are returned en mass to Costco and other stores.

        • backwardsevolution says:

          MCH – “People are pulling forward demand.” Exactly. One guy beside me today was filling his buggy with chickens. Another guy I saw had a buggy overflowing with milk cartons. People were berating them for what they were doing.

          This will all end once people feel they have enough. Besides, people are losing their jobs. Their ability to keep spending will be severely limited.

          What I noticed is the fruit/vegetable section was fully stocked; no panic there. The only place I saw hoarding behavior was in meat, toilet paper, flour, sugar, rice and beans.

          These people will NOT be shopping like this in a few week’s time. Their pantries will be full.

        • char says:

          Also food items?

          ps I have never been in an American supermarket.

        • char says:

          Can you also return food items? Weird

        • SocalJim says:

          I just saw a sign at Pavillions in Newport Beach that notified that no returns would be allowed.

        • Wolf Richter says:


          Most (I would say all) retailers run on a fiscal year where the first quarter = Feb, Mar, Apr. So if panic buying took place in Feb and Mar, and the hangover hit in Apr, then it might wash out in Q1. And Q2 would look lousy.

  31. Cruiser says:

    A multi decade secular scale global financial bubble is coming apart at the seams and central banks can’t push short nominal rates meaningfully lower to foment another financial mania this time, meaning decades of monetary distortions are going to be wrung from the system. Balance sheet insolvent governments and associated central banks are now left with only two dreadful options; deflationary collapse or inflationary collapse. With all currencies utterly fiat we can safely bet on inflationary collapse over the next decade plus.

    Tangible assets, eventually, offer refuge; particularly liquid tangibles, meaning precious metals.

  32. Wendy says:

    This time is different.

    • Cruiser says:

      Only in that the collapse we are witnessing can be expected to lead to a decade plus long secular financial collapse rather than an interim cycle such as those we’ve experienced over the last four decades. And this secular collapse may well be the worst in modern financial history given the magnitude and global nature of underlying monetary distortions.

  33. Anmol says:

    Wolf, they announced reserve requirements are zero. With this in place, how can banks go bust?

    • Wolf Richter says:

      In some countries, reserve requirements are always 0%. In the US, post financial crisis, there were at 10%. This is different from capital requirements. This is the percentage of cash derived from bank deposits that the banks must keep on the deposit at the Fed — instead of buying Treasuries or something else with. This is supposed to keep the bank liquid when there are a lot of deposits flowing out. During a crisis, when banks are supposed to lend, though it is hard to lend, this isn’t a bad move. Banks bank now borrow from the Fed at the discount window at 0.25% — so they don’t need this liquidity buffer anymore.

      • Anmol says:

        So zero percent reserve will make no difference if
        a. There is no solvent borrower to lend to and
        b. There is capital impairment due to the crash..

        I found this info – In the U.S. adequately capitalized banks have a tier 1 capital-to-risk-weighted assets ratio of at least 4%

    • Wolf Richter says:

      The reserve requirements were cut, not the capital requirements. “Reserves” is cash that banks keep on deposit at the Fed instead of investing it in Treasury securities or lending it out. Capital requirements, which is what a bank needs when loans or derivatives go bad, have not been cut.

  34. A says:

    Tl;dr the FED and politicians played a confidence game on the world, making them think a house was worth millions of dollars and stocks would go higher to infinity.

    Then mother nature brought a heavy dose of reality and the house of cards collapsed.

    Turns out houses were never worth millions and stocks won’t go to infinity based on fabricated bullshit earnings.

    • Cruiser says:

      For decades central banks distorted the most important set of prices in an economy; rates of interest. As a consequence consumers and investors have been making choices based on misleading information. Those choices will now prove unsound with predictable consequences for asset prices. Central banks are up against the zero bound now so this process is going to run its course.

      Human nature doesn’t change, hence the power of economic analysis…in those rare instances when it is practiced properly.

      • Raging Texan says:

        . . . And the manipulation of interest rates continues, more and more manipulation. And the people and both parties cheer for more interest rate manipulation, cannot get enough!

  35. gorbachev says:

    Who would have thought fiat currency is the

    best thing to have right now.

    • Cruiser says:

      Because currencies are fiat the inbound secular financial collapse will be characterized by price inflation. Those holding the fiat will lose wealth as a consequence, although less than they would holding fixed rate assets.

      Tangible assets will offer refuge during the secular financial collapse during the next decade plus, not fiat currencies.

      • char says:

        Most people are negative cash and most of those that don’t own more in none fixed price assets or have no assets and are better served by a better working economy.

    • Fat Chewer. says:

      I did.

  36. historicus says:

    “If the Fed hadn’t spent a decade inflating such a mind-blowing Everything Bubble (that had already begun to wobble), the financial reactions wouldn’t be nearly as chaotic.”

    That’s the lesson. They never withdrew the initial “temporary” stimulus, but instead over fed the market.
    In Oct 2007 when the market made its high, 14K, the balance sheet was 850 Billion and Fed Funds were 4%.

    Now the Fed’s starting point to save the markets once again…
    4.5 Trillion balance sheet
    and .25% Fed Funds.

    Markets seek their own level, eventually.
    And these academics with fists full of theories, know how to get in, but cant get out, dont know how.
    Traders always wonder the way out on the way in. These egg heads with no market experience are children with power.

    • Social Nationalist says:

      Dude, they aren’t that meaningful, nor is its balance sheet. It has some bonds on it…………ooooooooooooooooooooo. Sure, they should have dumped all at once, let the chicken little’s panic and then rebound. The Fed’s balance sheet was always a big nothing.

      The lower interest rates were somewhat a problem, but they were pretty low in the post-war era up to 1967 in points as well with no debt boom., but during the metal currency days, interest rates would crash into the boom then surge after the bust. Maybe the Fed should jack up rates to stop the wild west financial markets where rentier CEO’s just rape the system mad. Then the economy wouldn’t grow at all hurting.

      Maybe, it is just the way capitalism works. Debt markets are fragile and always have been to shocks.

  37. David Hall says:

    A ship tossed about upon a sea of red ink.

    Last year a Noble Prize winning economist uttered, “1929.”

    A NYC investment banker recently reported, “95% chance of a recession.”

    I remember 1982. People were hungry looking for work. In 2012 a young couple was squatting in a Florida foreclosed home. There were “For Sale” signs in yards everywhere.

    Will gasoline go to $1.00 a gallon again? What sovereign wealth funds are selling gold?

    Remembered Wolf Street and sold some stocks in time to save the ship. There is portfolio damage even as far as my bond holdings. I took losses, but will survive. Thank God I overstocked my pantry with food. Food is not losing value.

    I wait for someone to tell me it was only a bad dream. I started to buy in, then they dumped more securities on the market. They will start buying again. Someday?

    Bitcoins have fallen almost 50% in 30 days. Cyber money vanished into thin air. The preferred currency of cyber criminals, smugglers and tax evaders is not too real.

    • char says:

      Covid-19 has its good points
      Bitcoin could not survive this.

    • Ensign_Nemo says:

      “Will gasoline go to $1.00 a gallon again?”

      Not in Pennsylvania. State and federal taxes combined are 72 cents per gallon. I don’t think that the gas stations, tanker truck drivers, and refineries can survive with just 28 cents per gallon left to pay their operating expenses.

      I just read that retail gas is now selling at 72 cents per gallon, which means that these taxes are equal to the cost of getting the oil out from the ground, transporting it to the refinery, and refining it into gasoline.

      • Debt Wazoo says:

        It doesn’t surprise me that the cost of building the roads is about the same as the cost of producing the fuel.

        One is funded by gas prices, the other by gas taxes.

  38. Iamafan says:

    Scoreboard this afternoon for the Fed::
    Outright Treasury Purchases: another $ 40.006 billion (same as yesterday)
    Total Repo for h.4.1 (est): $ 391.945 billion,
    but we went through $ 776.95 billion. Holy moly.
    Fed gone wild.

    • Social Nationalist says:

      Doesn’t matter. Its on a computer screen going nowhere. The banks are with main street are with this one.

  39. Rcohn says:

    Based on the real Treasury yield curve,inflation rates for the next ten years will be 72 basis points/ year. I would appreciate it if anyone could point out any 10 year period with inflation rates so low.
    Today the long term bond etf had a range of 15 points.

    • Wolf Richter says:


      That’s not an “inflation rate.” That’s the reaction of a spooked and frazzled market.

      • Pedro says:

        Right now the market is signaling asset deflation.

        Consumer prices will likely also deflate as most people will stop buying non essentials.

        Perhaps food and utilities rise. But man all I see is deflating forces for many months or years.

        • Beardawg says:

          How can anything from toilet paper to real estate “deflate” when trillions of $$$ are released into the economy? I get that demand may be reduced for some things, but if a wool sweater is $100 today and a retailer sells 10 per month, but 3 years later the average buyer of a wool sweater makes $75,000/yr instead of $50,000/yr (QE / Helicopter $$, forced Min Wage increases, whatever) – why in the world would the sweater be sold for $50, even if only 3-4 are sold per month (reduced demand)? I guess I have alligator brain on understanding how deflation can occur in this forthcoming monetary environment.

        • Wolf Richter says:

          I certainly see asset-price deflation at the moment ;-]

    • cb says:

      Inflation can only be calculated after the fact, looking backwards over a period of time.

  40. Wes says:

    Mr. Richter, we have had price suppression for a decade. How long will we have real price discovery like today?

  41. Iamafan says:

    Re: For example, this 10-year US Treasury note, CUSIP 912828YB0, was sold at auction by the government on Aug 7, 2019, at a price of 99.81 cents on the dollar with a coupon of 1.65%. Investors who bought it in November could pick it up for 95 cents on the dollar.

    CUSIP 912828YB0 was auctioned on/as ($) with high yield:
    August 10 Year 99.587149
    September 9-Year 11-Month 98.965031
    October 9-Year 10-Month 100.316063

    How could investors pick it up for only 95 cents on the dollar ??? That’s too good a deal.

    In November 06, 2019 the Auction high was at 99.462502.
    Did the price in the secondary fall suddenly? It has not even paid its first coupon of Feb 15, 2020.
    Or, is this just a typo?

    Remember there were customers who bought this at auction at a LOW yield of only 0.880%; meaning they paid a fortune (premium) to own this note.

    I’m quite confused.

    • Wolf Richter says:

      Don’t confuse daily market prices with sporadic auction prices. Auction prices of new issues depend on the coupon interest rate they’re offered with. If the government were to auction off 10-year notes today with a coupon of 2%, they would sell at a huge premium to market price in order to get near the 1.18% market yield.

    • A ten year bond is like a ten year LEAP option. Not only do you have to be correct about price, you have to be correct inside the time frame of that investment. 10Yr TIPs are at a market low Break Evens, something less than 1%, that gives the investor a whole lot of upside. Buy fixed at these yields you are betting on ten years of financial apocalypse. Yields are already pushing back, and Treasury needs to sell a lot of paper, while investment capital is shrinking (being destroyed). The next problem is government spending , if they want to monetize directly or pay bond buyers what the market demands. Either way is okay with me, I am holding my TIPS.

      • Ensign_Nemo says:

        Since we just got ZIRPed, there is a very real possibility of getting NIRPed next.

        Are the I series bonds a better deal right now than the TIPS?

        The bond rate chart for the I series shows that the interest rate at sale is usually tiny. It was between 0 (zero) and 0.5% from May 2009 to 2020. The inflation rate went negative twice in this time frame (May 2015 and May 2009), but the interest rate paid overall did NOT go negative. There appears to be a floor of zero.

        Buying a bond with a floor of 0% interest rates is a more attractive proposition than buying a bond that could have a negative interest rate.

        If I interpret the following correctly, it’s possible to have a negative interest rate for TIPS.

        ‘Real yields on Treasury Inflation Protected Securities (TIPS) at “constant maturity” are interpolated by the U.S. Treasury from Treasury’s daily real yield curve. These real market yields are calculated from composites of secondary market quotations obtained by the Federal Reserve Bank of New York. The real yield values are read from the real yield curve at fixed maturities, currently 5, 7, 10, 20, and 30 years.’

        If they used the data from March 6, for example, all of the bonds used to calculate the TIPS rate had a negative “real” interest rate, so I presume that the TIPS would have a negative rate under such a scenario.

        Please correct me if I am wrong, but it looks to me as if TIPS can have a negative interest rate.

        If there is a bank failure, they can “bail in” any depositor now. It would be more prudent to have any spare funds of up to $10K in I-series bonds, and at least be certain that they wouldn’t be confiscated.

        • TIPs do better in low interest rate environments. That is because inflation tends to be less volatile than bond yields. A good example is rates at 1.5% and CPI at 2 1/2%, and lets say your fixed was locked at 1/2%. Your return is 2X fixed. Rates and CPI tend to correlate after both reach 5%, so then you want to own fixed because you might expect inflation to revert to the mean. When inflation expectations are low buyers usually get a discount, especially on reissues. If interest rates rise and inflation does not, these bonds will do poorly. The other case, inflation rises without a concurrent rise in rates (the Fed stays behind the curve) is more likely. Fed is in LaLa land believing they can continue to print trillions without raising inflation, that was an historical one off, where we traded good dollars for cheap labor. The world is moving toward a standard wage. China is one huge labor union.

  42. Job says:

    Bank wired for gold this morning closing out an “on-line” account after learning my State bank was limiting withdrawals to $5K a day. So it begins.
    The on-line account no longer currency deliverable. Duh!
    The foreclosure king Mnuchin firing up Primary Dealer Credit Facility (PDCF) again as the cash-for-trash facility starts mop up ops on Wall Street.
    8.9 Trillion during GFC1. GFC2 only getting started.

  43. Tony says:

    Guys, stop trying to predict the future and determine where the money is being spent. Complaining about the federal reserve is like beating a dead horse. I took some Call trades on all delivery services, Grubhub, Blue Apron, etc. All have double in the last few days. Also I’d keep an eye on gun companies as all the doomsday people start freaking out around this time. There’s profit to be made off of the sentiment.


    • DawnsEarlyLight says:

      …and may you choke on it!

    • MarkinSF says:

      So people are dying, the country has declared a national emergency and you want to profit from it? Hopefully, the national response will be to turn back the tide of globalization and financial engineering and begin to value what each individual has to offer the world through their unique talent and industriousness.

  44. WES says:

    Today was an interesting day in the central bank’s market.

    Everything, whether fake or real sold off heavily.

    Certainly proof that this is not the actions of a “free” market.

    Maybe a day where central bankers were caught “pushing on a string”?

  45. andy says:

    Yellen, Fed Chair, June 28, 2017

    “Does not believe there will be another financial crisis in our lifetimes.”

    Ho hum….

  46. DawnsEarlyLight says:

    Nothing better than a hyped up crisis, to fleece the public!

  47. Jeff T says:

    If you want to see a market that went to heck in a straight line. I was slowing selling diamond inventory under one carat to wholesalers. Started in February with the real bad stuff, the next step up in early March. Today I called to sell the better quality material and he said the diamond market has seized up all around the world and there are no buyers. Just glittering rocks.

  48. joe says:

    Thanks. Well thought out commentary.

  49. I forgot says:

    Now that the Fed is irrelevant to the outcome of this crisis, we will all see what has been obvious for quite a while. The fed never really had any influence over the outcome. This goes much deeper than what the inadequate tools of the Fed can fix.

  50. TBP says:

    How about a little research into markets and govt responses during the crash/panic of 1919 (from Oct 1919 – June 1921). From my perspective, that is the closest analogue to our situation. Coming out of war and a pandemic seem to fit what we are coping with.

  51. Ozzie Lurker says:

    Qantas just announced they are effectively shutting down. Almost all employees (30,000) have been released, and all international flights halted.

    Virgin Oz is doing similar. Air NZ has chopped 85% of international flights.

    It’s unravelling fast now

  52. Collateral calls as people unwined their derivative pos, and sell their rehypothicated collateral. You also have to keep in mind the synthetics (derivatives constructed agaisnt UST meant to track euro sovereign trash).

    It aint over folks :D

  53. Pedro says:

    Everyone one is hoarding dollars Like toilet paper. This is sucking the life out of asset markets. Foreign markets are being obliterated because of the race to dollars to deleverage debts. That is the first act of this play.

    The second act is when those dollars scramble for hard assets or equities that seem cheap. That’s where things get whacky. Amazon and google could be a $4,000 stock if they dominate this new world order and investors want their dollars in a winning business.

    Car companies will all consolidate under government ownership

    Oil companies will have their own Government department led by the Secretary of Energy.

    Sending everyone freedom dividends will be America’s first taste of Venezuela. Don’t work! Just wait for your govt check to buy your govt mismanaged services. There will be no more quality control for anything, just wait in line and don’t complain.

  54. Iamafan says:

    The Fed thinks it can save everyone. Let’s see how that works.

    • DawnsEarlyLight says:

      The FED thinks it can save its banks, at the cost of everyone else. It’s been working for quite some time.

  55. sierra7 says:

    Funny how “cash was trash” just some months ago……Now “cash is becoming king” again!
    Remembering the Great Depression when cash was almost non-existent which caused such great hardships. All my adult life I remembered those times and always put aside small amounts even in jars of change……Advised my kids just at the upheaval time of the last “08-’09 GFC to try to have cash in house for those who had the ability. Take some out of the banks then; was fearing a true “bank holiday”.
    Didn’t happen then; might happen this time around.
    I see European CB flinging just under 1T into the system even for buying up stocks/securities! Next stop: US????
    I also fear mass layoffs such as what was mentioned by another commenter above re; the airlines…….much, much to loose here. We will now be into, “Duck and Cover” mode.

  56. Rubicon says:

    What needs to be done is to end ALL stock buybacks, dissolve The Fed, put the US Treasury back in operation *before* The Fed took over, and have the US Treasury immediately initiate the growth of public banking for citizens. That would go a long way to start a much more equitable growth for America.

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