Household Income Drops from Historic Spike, Spending Bounces off Historic Plunge But Remains Low. Income from wages and salaries remains crushed.
By Wolf Richter for WOLF STREET.
The $2,400 in stimulus that a couple received in April made a great down-payment for a car in May. If it was used as a down-payment, the loan itself multiplied the consumer-spending effect. Instead of spending $2,400 on other stuff, the couple might have spent $24,000 on the car, with rest of the money being borrowed. But it’s the $24,000 that counts as consumer spending in May, and the $2,400 that counted as income in April.
And so, consumer spending in May jumped by 8.2% from April, to a seasonally adjusted annual rate of $13.16 trillion, according to the Bureau of Economic Analysis this morning, as households spent this federal money-from-the-sky. But compared to May last year, spending remained down 9.3%, after having collapsed by a historic 12.6% in April. The May bounce, as magnificent as it was, brought spending back to where it had been in March 2017 and reclaimed only about one-third of the decline since February:
Income is a federal-money-from-the-sky story that has begun to unwind in May and will unwind further in June and July unless more federal manna gets dropped on the people.
Household income in May dropped from April. April was the month when many households had received their stimulus checks – $2,400 per couple and more if they had kids. And those who’d gotten laid off started getting the extra $600 a week in federal unemployment compensation, in addition to their state unemployment compensation. For many laid-off workers, this increased their total unemployment compensation beyond their actual earnings. This combination of stimulus and the extra $600 a week had produced a record spike in household income in April. In May, income began falling back to earth.
In March, income had dropped 2.2% from February because people were getting laid off in mid-March, and the stimulus checks and unemployment checks had not arrived yet. In April, the federal money started dropping from the sky onto the people, and income soared by 10.8% from March.
In May, that federal money was still dropping from the sky, but at a reduced rate as many people had already gotten their stimulus checks, and income dropped by 4.2% from April. In dollar terms, income in May fell to a seasonally adjusted annual rate of $19.84 trillion, from the stunning federal-money-from-the-sky record in April:
Without the stimulus manna, personal income just from wages and salaries had dropped in April by 7.6% to the lowest level since September 2017. In May, it ticked up one tiny bit from those low levels to a seasonally adjusted annual rate of $8.73 trillion:
The stimulus funded many things, from food to garden supplies and bicycles. Many of these retail categories have soared in March, April, and May. A lot of it was spent online. Since vacations to distant locations were off the table, this money was mostly spent in the US, though much if it was spent on imported goods.
The stimulus money also allowed people to pay rent and make mortgage payments. The unemployment compensation, particularly the federal $600 a week, also helped households maintain or even increase spending, now that many people were making more money than they’d made while working. This is a bizarre world.
The labor market had a setback. Over 11 million gig workers on unemployment insurance. But four states, including Florida, still can’t process federal PUA claims. Read… “V-Shaped” Recovery Not Now: It Gets Worse, 30.55 Million on Unemployment. Week 14 of U.S. Labor Market Collapse
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Mortgage forbearance jumped for the first time in 3 weeks.
Another bullish sign no doubt.
Dollar is still strong so the fed will keep printing.
The Fed’s balance sheet has now declined for the second week in a row.
Lotta Fed news late in the week,
Volcker rules loosened…then bank payouts/buy backs capped, anybody at top coordinating policies?
The caps probably make some sense (albeit fairly late sense) but the Volcker loosening seems to push in other direction (maybe some regulatory tripwire was quietly set off and rather than amplify issue with public announcement/restriction, it was thought to be better to loosen reg…weird in any event)
What was it? Twelve billion. Next week it will be cut be one billion?
Keep your eyes open folks. If you blink you will miss the tightening cycle.
Raymond Rogers,
I don’t actually expect “tightening.” Just an end to QE, which means the Fed’s assets will no longer grow. This zero-growth is down from $586 billion in one week at the peak.
In addition, as I pointed out, part of the Fed’s lending now goes to prop up consumption, not asset prices (PPP, municipal facility, main street facility), thus diverting funds from propping up assets.
This crazy overinflated, wobbly market cannot stand on its own legs. It needs a constant inflow from the Fed. And that inflow has stopped.
Does the Fed have a choice to end this round of QE when the Treasury is ordered by lawmakers to fund the next Coronavirus/ Infrastructure bill. I expect it to be no smaller than two trillion.
My guess is it will be 2.38 trillion. Just a guess.
Yes.. it’s shrinking. But they will print soon when they see the dollar surging and markets tumbling.
If the world demands dollars they will print. What else can they do!? That is their only tool..
The alternative much worse.. much much much worse. They will print to save pensions and state budgets. Capital` gains is the lifeblood of tax man. The higher assets go the more tax revenue for the states. They will keep printing till inflation is so bad that beggars ask for $5 bills. Recently they started rejecting my spare quarters and dimes.
People blew their stimulus checks buying stuff online, probably a lot of things that were manufactured overseas and had to be imported. More stimulus checks would be a good way to get dollars out into the world and lower their value. Creating dollars out of thin air and giving them to Americans to spend until the dollar is weak enough that we can start building automated factories in the U.S. is the best, easiest, and most fun way to screw over China for running a perpetually huge trade deficit with us.
And stocks are dropping.
If the Fed promises to give me $2000 a month for free, I’ll promise to buy $1000 a month in stocks and leave it there. I’ll even spend the other thousand a month and stimulate the economy.
Someone needs to get on this. I want to help the stock market and fix this economy, but, the Fed doesn’t seem to want to make this happen (they must really hate the stock market and the economy). If they want, they can give me access to infinite money at 0% interest rates and I will give the stock market new highs. The ball is in the Fed’s court, they clearly don’t want the Dow to hit 100K. They must be a bunch of commies or something.
Don’t count on it!
Fed can dump another 3 Trillions any time to make indexes shoot up, any time. They did it in March and they can do it again.
fyi
Pressure builds on Senate Republicans to move in direction of $3 trillion coronavirus relief measure favored by Democrats
Marketwatch
To me, it’s pretty obvious what will happen. The Fed can’t simply print money in the future to stimulate the economy. The wealth effect isn’t working. The masses are facing a job and income crisis. The only way to remedy that is with meaningful fiscal policy that has the unwelcome side effect of consumer price inflation. This will result from high spending (stimulus) and continued low production.
This will force the Fed to raise interest rates and destroy asset values, a result that should have been foreseen from the start of this Fed policy debacle.
I think asset prices will drop hard sometime over the next year or two, and stay low for many years, but the timing of these things is hard to predict. Much of it depends on how much patience the public will have as stupid policy decisions drive them into a helpless dependent condition.
Agreed, I’ve been saying the real estate and equity bulls have been popping the champagne way too soon. We’re still in the second inning.
Cash will be king by late 2021, all of 2022.
sc7: How would gold compare with cash, in the next two years?
It will continue to appreciate vis-a-vis major currencies, as it has recently. How could it not, given that the central banks will continue to degrade those currencies in desperate efforts to prop up markets and prevent deflation?
@JLS it’s anyone’s guess.
But here’s how I think about it.
-Every fiat currency will eventually die. Maybe tomorrow, maybe 300 years from now.
-There is no limit to fiat currency units per unit of gold, so the intrinsic value gold in fiat is also unlimited.
– Physical Gold has been a financial asset for thousands of years.
– Maybe gold hits $500, maybe it stays the same, or maybe it hits $50,000. Good to be prepared to benefit no matter what happens.
– Yes it could hit $50,000 but I’m not saying it will or when it may.
– I don’t keep physical gold on my property as it’s a life/safety risk for the family. Be creative how you store it.
We are entering a deflationary period. As a rule, gold falls in value along with other assets during deflation, and increases during inflation.
You cannot spend to buy food unless converted to currency at that time.
GOLD is NOT religion to me, just a TRADE apart from some gold=ETfs (NOT GLD!) ETF and miners. Similar to OIL.
I earn the $$ which more useful in the real world by trading options on gold and miners. If one puts enough, some money & effort in learning OPTIONs as a tool in managing a portfolio, one will NOT fear BEAR.
Money will be made by going against the mkt with proper (tactical trading) hedges in the coming decade, which many are NOT trained, informed or have No inclination or guts since Fed’s put carried the day until this February! Corona is a game changer!
(Been in the mkt since ’82,retired 15 yrs ago)
@ Jdog
Re deflation -disinflation and inflation
It is the EXPECTATION of inflation is more damaging than the inflation itself, at least, initialy.
There is DIS-inflation going on sectors except in the assets in the mkt, education and housing. Many don’t believe the Fed re 2.0% inflation number.
Now look at the debt spending from the Govt since ’09! deficit over 1 trillion, National DEBT 26 T and growing. Fed’s balance sheet is nearly 7 Trillion. The expectation is that Fed continue to print digital $$ out of thin air to combat the ill effects of corona on the economy. DEbt has been used LAVISHLY as a panacea for all the financial problems public/private all over the world.
Fed has stated that ZRP will remain until 2022. The inflation boogey has arisen and the price of gold is inching up. Once breaks the resistance at 1800, next resistance at 1900!
So it is the ‘expectation’ of inflation which is prevailing in the investors mind now, hence GOLD is getting the attention!
I think gold should do well, given the US gov’t should be announcing extended fiscal stimulus shortly via unemployment extensions, cash payments, infrastructure spending, or other forms of bailouts.
I already have 5-10% gold in my portfolio, which has done well, so I am looking for other alternative strategies like holding ST foreign debt (unhedged) or foreign currency. When they announce the next installment of stimulus, the USD should drop some. I’ll also note the US already has much higher deficit spending than any other advanced nation, and I’m surprised the USD has held up so far.
Anybody have some good ideas to hedge the USD? The unhedged bond funds I’ve seen come with a 1% management expense ratio, so that absorbs all your interest income. What I’d really like is a low-cost option.
Yo Bobber – How to hedge the USD? Buy physical gold!
It is, however, not for trading, but for the long term, and do not put all your eggs in one basket.
@JLS – Gold is much more fun to fondle than shuffling piles of paper currency. Then there’s the surprise of “commission costs” to sell, and the shipping and insurance costs. And the safe. Of course there is also the risks of boating accidents. If you anticipate Medicaid it’s one asset they can’t trace.
sunny- you are 100% incorrect. You absolutely can buy food with gold. You can buy land, labor and equipment with gold. You can pay your rent with gold. You can buy almost anything with gold. You can do all this in the current “economy” – although I think it’s a lot smarter to be accumulating rather than spending it right now.
Ideas like “you can’t eat gold or buy food with it” is an example of the idiotic things people say and think about gold and silver, and the fact that Americans believe this is why less that 1 of 10 owns any precious metals and why accumulating now is such a terrific opportunity.
@ Happyman
I trade GLD (gold miners -GDX) options both long and short and have made money, WITHOUT having to keep the physical gold with me! A lot easier, flexible and practical. I can get in, out, (open-close) positions. But option trading is NOT for every one!
Been happy with that! Been in the mkt since ’82. Seen it, been there and done it! Same with OIL and all other commodities, they ALL are just a trade!
Right Now loaded gold ETFs (SGOL, IAU, RING, GOEX++) in all my portfolios + Call options!(+few puts as hedges)
To each his/her own!
Yes.
But we can’t give any Federal money to the R states becuase they are the baddies with the mostest Covid new cases to the moon, and B states don’t want to pay for the R state bad choices choices just because R folks want to buy voters.
And we can’t give any Federal money to the B states because they are responsible for their retirement underfunding mess because B folks want to buy voters, and the R’s should have to pay for that, either.
Maybe we should give back all the Federal moneis back to the states and close the Fed govt down. But not the Federal Reserve beucase we need that to make the stocks go up for their next reporting showing we are the mostest wealthy-estist nation of all.
You will realize at some point that the decisions that matter are made by Independents.
The B vs R is a last century feature.
No, by those of us who are reality based :-).
And you will learn at some point that we, the reality based, don’t get to make the decisions. Those who pull the strings of the B vs R do.
As usual, the value of everything is set at the margin. Which is pretty funny as all the votes (of the living at least) converge on 50%.
Funny. I thought we WERE closing down the Federal Gov’t, or at least the parts that matter in fighting the virus.
With interest rates at 4000 yr lows, and the Fed being able to borrow at these false rates..
what is the answer to the failed states who say..
“hey federal govt, borrow some money for us at zero and bail us out.”
No govt should be able to borrow at zero…for the debt they will create will implode the entirety.
To me, it’s equally plausible that in the modern economy jobs make things more expensive by increasing the number of middlemen involved. Fiscal policy will be deflationary for CPI and inflationary for asset values as people are just beginning to wrap their heads around what it means for fundamentals not to matter anymore. It means every investment is just another currency. Apple stocks are just another currency competing against gold and REITs. Value is whatever you want it to be. It seems like we may be facing a future of asset hyperinflation, and I don’t know how that’s likely to play out.
Remember that debt default is deflationary.
I am not sure which will win.
‘with meaningful fiscal policy’
Good luck!
Have you NOT noticed that the so required ‘fiscal’ policies have been replaced by MONETARY policies by Fed with insane credit creation & infusion since ’09 if not since 2000? Deficit is now over a Trillion or more and the National debt is 26 T going towards 30T.
Asset prices are slowly going down as the virus is NOT going away, earnings decline, defaults of loans of various kind on the way. Tourist industry including Cruise lines, airlines and hotels are already toast. Mass sport activity/Music festivals+, Broadway shows and big city tours are NOT coming back, any time soon! Absolutely NO fundamentals to support the stocks. Corp credit mkt is supported openly by Fed, for now!
Vaccine news are all hype and will NOT here until mid next year. too much hopium news are being aired by the financial industry! Fed cannot the virus epidemic directly, cannot produce jobs or make earnings grow.
Btw the MKT indexes are NOT reflecting the deterioration of the Economy on the ground. More investors will lose big, than in GFC ( been in the mkt since ’82)
They will print. Not raise rates.
Raising rates creates the problem of interest payments that cannot be paid therefore the defaults occur. That’s too ugly and triggers too many events. Inflation rots from the bottom… more hidden
unfortunately for the rest of the world, they have no other option than the US dollar at the moment. so we’re going to abuse that privilege. As Connolly said years ago “it’s our currency, your problem”
The only saving grace is that gold is only 100% higher than where it was in 1980, so go get some.
Bobber,
As the Fed has stated (and Wolf has reported), interest rates won’t budge from current levels for two years. The Fed will however attempt to start shrinking the balance sheet in the interim. BOE says it will attempt to follow the same blueprint.
But you’re correct that the Fed’s money laundering isn’t providing any benefit (other than to Wall Street). The Fed cannot print jobs or cash flow. $2.7 T conjured out of thin air and GDP likely hasn’t budged and unemployment remains stuck at 20%+.
Yes, fiscal stimulus is required but this Admin is clueless on how to go about this. The (Who) CARES Act tipped the scales at $2.2 T but roughly three quarters of that amount went to Wall St while the serfs got crumbs. Won’t stop the Oval Office nor Congress from proposing another round or two of “stimulus” which will do nothing for the real economy and everything for a number of bank accounts in the Cayman Islands.
Can’t wait to see how the hopium, daytraders, ever so rational market spin this one as positive. So far market is not reacting positive to it but day is still long, might end up closing higher today, if not perhaps Monday, call it a delay reaction. If the number look like this now, with no more money coming on the immediate horizon and more white collar layoffs, things are going to go off the rail the next couple of months.
“And so, consumer spending in May jumped by 8.2% from April, to a seasonally adjusted annual rate of $13.16 trillion, according to the Bureau of Economic Analysis”
Robinhood has spent most of the heisted loot. Some over did it and didn’t consolidate their gains while chilling in the Sherwood forest.
They are over leveraged. The aristocrats have been watching from a distance, and even helping the hood at times recognizing exactly where the most stops were located, and attacking them. This was the high probability play then, but things change.
There are easier picking on the way down for now, and the hood will have to sell to satisfy margin calls.
It is about the money and probabilities; Just ask the machines.
The Sheriff of Nottingham has started to counterattack. He has given orders to aim their arrows between the eyes . No prisoners will be taken
Facebook and Google erased a combined $100 Billion of investors’ value just this morning. Need to print money faster I say.
Time to call Hasbro. Since people aren’t buying Monopoly board games like they used to, they can surely provide some of those paper money printing capacity to help out this country.
Don’t worry, there’s always Shopify.
Now that’s truly a lunatic stock if there’s one. Tesla territory. And if not that, well there’s always Draftkings. No sporting events, but hei no problem, stock price has gone up 200% plus? Every insider’s selling to the Robinhood traders. I wonder if buying stock counts as part of “spending”.
Facebook’s getting hit by multiple companies doing virtue signalling.
Google’s got a huge anti trust hurdle to overcome.
That douche David Portnoy runs a powerful fanboy cult, that surely help explain these lunatic stock popping like it was 1999.
Ah, love the smell of napalm from the market in the morning. Sweet patriotic justice
Well, even if backhanded, it is nice to see an acknowledgment that the markets do occasionally crater…a *lot* of “Fed Saves Rich” posts on this board (to the point of pointlessness, zero incremental value add) and very much crickets when markets do actually fall significantly.
I am very much of the “market is very overvalued” camp…but at least I can acknowledge when mkts move downward in correct direction.
For the more political posters, their empirical observations seem to end at the Party’s edge.
True, but I’m always interested in the new devices with which the Fed is screwing us. The unprecedented number and variety of such devices I find entertaining. Most of us are non-elite there is nothing we can do about it.
There are a lot of different Fed “programs”…but the only Fed power that matters is “print”.
There may be a program to buy each asset class…but they are all funded by “print” and at the most macro level it is only the gross printing that really matters.
Who and how 10% get bailed out tends to pale in significance to the 90% being literally “debased”.
Wolf, is there a way to measure the trend in new unemployment coming from white collar versus the servant economy?
All anecdotal evidence points to a higher % of white collar layoffs moving forward, but haven’t come across data showing it yet.
If the BLS jobs data were trustworthy, there would be interesting data points in it that touch on this topic tangentially and probably provide some clues. But the BLS has been way off last month. When the June jobs data comes out, and if it looks reasonably accurate, I’ll dig into it.
Thank you!!!
> But the BLS has been way off last month
Do you think the lower collection rate for the employer survey had to do with it? Went down from 75% to 69% y/y.
BTW similar drop happened to the household survey:
The response rate for the household survey was 67 percent in May 2020, following rates of 70 percent in
April and 73 percent in March. For comparison, the average response rate for the 12 months ending in
February 2020 was 83 percent.
Yes, and they also changed the collection methods due to social distancing. And then they had questions that the interviewers didn’t properly explain, and so the respondents replied the wrong way, etc. etc. It was a gigantic mess.
I find the information from Challenger, Gray and Christmas indicative of the true state of higher-level employments.
other things in the consumers sky? looking at recent escalations i wonder if damp, tropical, humidity may be a player w/c19 affording some matter for it to stick to and hang in the air/environment longer. what about more arid environments? arizona/cali etc, la south to border has its june gloom fog/marine layer, sf same? Arizona maybe h2o misters in peopled areas? shade those peepers! utah? hmm… hu-mitt-ity? (sorry) perhaps that warm sticky feeling we have isnt just from blaming it on the kids after all? and yes, its Friday, and time for someone to buy another round.
For whatever reasons, it appears to have been controlled more easily in warmer climates, and I am talking Thailand, were I am, as an example.
Were packing plants such problems because they are refrigerated?
I’ll take another,Hit me again Jerome.
He has vaporized the blue pill, but is digitizing out a less potent illusion than in 2008. Collective consciousness not feeling it as much; the black swans are flapping the smoke screen away.
What can be done… to remedy what needs to be remedied?
Here is an oddball prescription that lets each person create and work-out their own solution. And that coincidently benefits others, too.
1. Find and read [Google or any source] at least 2 different accounts of the 1924 “Leopold and Loeb” case. Then read further as much as you want. The result will be to clear your head of a lot of extraneous distractions and collect your attention units . That is a sobering and useful effect.
2.Look-up the words “justice” and “fairness” in any reputable dictionary or two.
3. Consider how justice/fairness, effects the situation.
Change seats or shoes and fairness and justice can have opposite meanings. i,e anarchists and patriots, freedom fighters and terrorists etc…
Layman’s definition of fairness and justice in simple terms: Decision in your favor.
Justice is a delusion of the middle classes. The poor have none. The rich need none.
Wolf,
Another great article.
It would be great to know how much “Money from the sky” there is.
When will it run out? Need to know! LOL
I always hear of the Fed printing “money out of thin air” which is not true. There is a limit to the amount of atmosphere surrounding the earth. There is no limit to the number of the Fed’s right-hand zeros.
Lisa_Hooker,
The problem with Challenger’s numbers is that they’re layoff announcements by US companies for their GLOBAL operations. You don’t know how many of those are in the US. So when Uber announces 3,000 layoffs, 1,000 may be in the US and 2,000 may be in its non-US operations. And from the Challenger data, you wouldn’t know. But it does give you some direction.
Good point that I will take into future considerations. At least it’s another data set like ADP that’s not government. Thanks for the heads up!
The Fed’s plan…..
1) Debauch the currency with Keynesian policies.
2) Destroy people’s propensity to save, and mock the concept of
delayed gratification.
3) Heavily tax productive citizens and businesses.
4) Subsidize nonproductive, shiftless citizens.
5) Destroy existing culture through illegal immigration
6) Prosecute average citizens for minor crimes for profit.
7) Allow wealthy , well connected sociopaths to run governments and escape punishment for crimes committed.
So what does the landscape look like when all 7 steps of the plan have been executed?
Exactly whats going on right now
Destroy people’s propensity to save…
I agree with you TPTB are attempting to do this with the near zero/zero/negative interest rate policy. But I think it doesn’t factor in human behavior properly.
They are stealing from me the income stream my savings is supposed to be generating – it has to be replaced. For me this has meant two things.
1. I’m 70 but as yet have not started withdrawing from my IRA. If zirp had never occurred I would have started withdrawing when I turned 62.
2. I have determined that I can get by on 2/3 of my Social Security check. The remaining 1/3 is being added to my savings to help compensate for zirp.
So, i my case, zirp is having the exact opposite effect of what was intended.
Either human behavior is contrary to the goals of zirp or I’m brain damaged.
When problems mount in every direction, society has a choice to face those problems or to ignore them. The easiest path to to take is to rationalize them away or pretend they don’t exist. Create an entirely new genre of fake-believe that spends it’s entire time discussing topics that are totally irrelevant to the major problems at hand. All to to extrapolate the impossible and give the sheeple a false sense of confidence.
RR, I am 76 with a real ill 75 year old wife. We can’t quite make it on SS alone so we are pulling from our IRA’s. No pensions here. We used to be able to cover our IRA RMDs with dividends and interest generated within, but that’s not the case anymore.
So we are really feeling the effects of ZIRP. Plus, DW’s prescription costs are increasing rapidly (screw you drug companies!). We are both on Medicare with good supplemental plans and that is a blessing, but those premium costs are getting higher each year. We pay more now for medical coverage than when we were both working.
Fortunately, the bureaucrats haven’t figured out how to legally kill us yet, but they are working on making us poorer.
So sorry to hear things are tougher for you. I did not mean to imply that everyone was able to do what I’m doing. I’m a life long bachelor and in great health. It’s easy for me to tighten my belt as only I suffer the consequences.
My point about human behavior applied to your case would be this. You don’t have the luxury to do what I’m doing. But if you did, would you or wouldn’t you?
Don’t give up hope! I believe what TPTB are doing is creating a deflationary maelstrom. Prices are about to become much lower real soon. You and your wife have purchasing power in the form of your IRAs. All you have to do is survive TPTB and you’ll be able to spit on their grave.
Regarding IRA RMDs – I lucked out! This year was to be my first but TPTB upped the age to 72. Seems they don’t want me withdrawing IRA funds from the markets. I think that’s how close to the precipice I think we are… HANG IN THERE!!!
“prescription costs are increasing rapidly”
One thing to look into is the “family” of medications someone is prescribed.
It is very common for 5 or 6 chemically similar FDA approved drug alternatives to exist…but be patented over a spread of 8 to 10 years.
Unfortunately, drug companies, drug reps, and all too many Drs. work very hard at keeping the maximum number of patients on the “latest and greatest” of patent meds, while very similar off patent generic alternatives exist
Statins are a good example…but it applies to various high blood pressure meds, biotech anti inflammatories, etc.
The drug companies aren’t dummies…they know how to reverse engineer meds and develop analogue drugs…which should create more competitive price pressure than it usually does.
RedRaider, you’re not brain damaged you are suffering the reverse-wealth effect (as am I). Powell’s drop to zero is going to cost me 9 or 10 hundred dollars a month in lost interest and that was just keeping up with inflation. I don’t have to have it to live but it was nice to know it was coming in every month. I have a modest pension and am now saving around 25 percent of it, all frills are gone, any leftover funds in my budget each month go to my online bank. I was thinking of taking some of the interest money I was making each month to take a trip out west to scout areas for relocation but with this drop and covid-19 that’s up the spout as the Brit’s say. Nothing to do but renew my lease for another year and sit tight. I want nothing to do with the market and put a put a large chunk of savings into one year CD’s at 2 percent. I don’t know what else to do now. I’m still way better off than a lot or poor souls out there.
Please advise where one can find a 1 year, 2% CD. Thanks!
Stephen C., I opened these CD’s with online banks just after Powell annouced the one and half percent rate cut to lock in the rates, they’re gone now. Sorry
Powell might consider me an enemy as well!
I cracked the numbers and figured out that with forever ZIRP, a 15% savings rate for somebody my age should be increased to 65% to make up for lower returns.
I’m aiming at saving 81.5% for June, I’m enjoying it! I’ve discovered that avoiding all non-discretionary consumption saves me something much more precious than money: TIME!
I used to only save around 30% before cracking the number. Didn’t feel safe enough.
@leanfile_Queen
Right on, similar experience here. Due to the harsh economy and spiraling costs, in order to hit our financial goals years ago my family cut all non-essential expenses. No Cable TV, no eating out, no travel, no buying things we even went with no car (while living in a suburb) for a year. No cell phones for 10 years (and I work with big data for a living).
As we cut way back we discovered that every single possession in the house, large or small, is actually a time drain.
Shocker! we survived and thrived with our children.
Financial conditions are still extremely harsh we have only relaxed a little bit.
Unfortunately folks, ”it’s the worthless money!”
Grandpa vowed to live on his SS, initially $100 per month in 1958, now approx $890 per BLS inflation calculator???
He lived on his home made sailboat at anchor, so no prop tax, etc; went to the marina for mail and 5 gal of fresh water once a week, free,,, and 5 gal of gas every 20 days, put one quart of gas into the generator each day and ran it dry for all ”needed” electric for ”anchor” and lights for reading at night, and the radio; similar for kerosene stove and fridge.
Other than that, he was always friends with everyone, and would share what he had, especially his skilled labor, for fresh fish, etc., etc. and was in very good shape.
He made it 15 years before getting bored, etc., and deciding to tap his capital savings, moved to the rocky mtns to ”get as far from salt water as possible in continental USA.
One smallish comfort…
The internet tends to promote a much higher level of gvt transparency, which tends to work against the long-standing operational pathologies of the past.
Unfortunately, the internet may have come around 20 years too late for the US.
Before the internet, there were really just the MSM sphincters, squeezing out a fairly uniform pro-statist narrative that saw perpetual gvt growth (regardless of pathology) as the only “enlightened” solution for almost any problem.
Good point C10, and actually my main source of ”hopium” going forward, IF and only IF WE the PEEDONs can somehow manage to ensure fair and equitable playing fields for the free flow and availability of ALL information on the internet for all folks.
SO much more information NOW, and I do think we are, as a species, continuing to develop better ability in general, to evaluate and discriminate, albeit we still have a long way to go if for no other reason than that sincere and competent well trained scientists have serious differences of opinions.
While most of those differences can be resolved in the ”hard” sciences through rigourous application of scientific methods, even in those disciplines and especially in the social sciences, political and economic pressures are distorting reported results and opinions.
And we needn’t even discuss ”The Dismal Science” on this site, since one of the benefits of WS is the relatively polite and well moderated level of discourse, a discourse not usually associated with the alleged science of economics.
Learn your history. Keynes was the most accomplished economist of the twentieth century. It was not his policies that led to today’s decline. It was WILFUL ignorance of them. Keynes’ policies succeeded brilliantly to help end the depression.
Unfortunately, a new generation of economists from the University of Chicago led by Milton Friedman had some crazy new ideas and everyone jumped on board with them once rich people decided these crazy new ideas were in their own interest.
“Chicago macroeconomic theory rejected Keynesianism in favor of monetarism until the mid-1970s, when it turned to new classical macroeconomics heavily based on the concept of rational expectations.”
Sorry brother, it is going to be increasingly difficult for you to whitewash history in future. There are simply too many alternative sources of information for your psychological tormentors to erase. Don’t get mad, it ain’t your fault you’ve been brainwashed by the rightwing lunatics. You should quit these silly ideas now before we all die to regret it.
It was World War 2 that really ended the Depression, Herr History Lecturer. Get your facts straight, especially when you write nonsense about “psychological tormentors.”
Agree with you B… but, meantime, it was the WPA and similar programs that provided guv mint paid work for folks that would not accept the ”dole”, as well as the distribution of food, from the back of small guv mint trucks driving through rural areas, to people who had eaten their horses and every other source of protein and were starving.
Many of the rural people of all races were not allowed into the towns and small cities because they were so pathetic, and many died very early.
His or herstory behind us, the question WE the PeedONs must be asking today, based on the current quality of leadership and the clear lack thereof at all levels of guv mint, SO very similar to the events of 1930 era, is IF the same or similar process has become inevitable once again, leading us, sooner or later, to WW3?
Bead, it was the WW2 ethic that the comman citizen did without many essentials, rationing of rubber, metals, and other resources, along with the common people saving by buying war bonds that paid interest from the Government, add to that the huge increase in Federal Debt. The psychology effect went well beyond Keyne’s theory. It was the beginning of Neo- liberal/conservative policy in finance. After the war the rebuilding of Europe and military might in the U.S. along with consumer spending and debt increased as did G.N.P..We as a people became gatherers of assets and their liabilities.
Yes… it’s always the right wing lunatics. No mention ever made of the left wing lunatics.
Keynesianism has never been followed more than 50% in practice (amazingly the more government spending part is always adhered to (greatly enhancing politicians’ power) but the less government spending part is never implemented).
Keynes was smart, worldly, and knew politicians for what they were (mostly scum)…but his blase “in the long run we are all dead” attitude made ruinous gvt debt a certainty…he simply didn’t care relative to the immediate problems of the GD.
But *societies* don’t have to die…unless their pathologically self-centered gvt elites murder them.
Keynesianism in practice simply hands political class sociopaths a justifying rationale for their personal intellectual laziness and greed for power.
Right on! If we can just get more leftwing lunatics elected/appointed everyone will have free money and stuff! Our children and grandchildren will be so productive they will have no problem paying off any amount of debt.
Makes sense based on what I’m seeing locally
Florida reported almost 9,000 new COVID cases, setting a new record. Am not sure where hospital spending fits in. Some insurance plans pay less than 100%. A hospital in Homestead reached capacity days ago. In Houston they started sending adults to a children’s hospital. An Oregon hospital has enough beds, but not enough staff as some staff left to help in the city. People crossing state lines to work may not have earned enough quarters employment to collect unemployment in the new state, if they become laid off.
Another conflicting signal? Freighwaves is reporting that freight volumes have been bursting. “Large asset-based carriers have begun to rapidly reject contracted freight. This is putting upward pressure on spot rates”
Restocking wave? Customers putting purchases on credit cards?
The retail stores around here are jammed with people buying all kinds of goods. CC cards are good and with some, you can get 1.5 – 2% back.
Anticipating another lockdown, load up on products for curbside pickup maybe?
I think that’s what is going on around here right now (we are in the Houston, TX area).
Went out to buy certain garden hardware yesterday at a major wholesaler, the kind of place contractors go, not a consumer retail store. Many bins, shelves, were empty or had only a few units.
Small metal items are usually Chinese and Taiwanese origin. Plastic stuff usually U.S. made. Asked an employee where was stock? “Everything has been on back order for weeks.”
My advice to DIYourselfers, handymen, preppers; Make a future wish list and get stuff ASAP before the supply lines dry up.
Wolf, Thank you for your writing and research which is simple, clear and brilliant. The first paragraph of this essay should be mandatory reading for every English composition student, and definitely for anyone still studying the Dismal Science of economics.
Things are becoming very serious. The world can remain evil and disgusting longer than we can stay alive. A person does need to to have the discipline to walk away and prioritize their time and energy in a sustainable way or get sick and die from the constant bombardment of modern culture and technology. The mind of man or any sentient being was not designed to integrate this many perspectives this fast. It is unsustainable and for your own sanity you have to learn your limits before the violation of them desrtoys you.
Just been reading exactly that point being made in an ancient Taoist text -don’t let the impacts of life destroy your inner energy.
This is also a Stoic viewpoint, if one knows how to interpret Stoic philosophy correctly. The wise of East and West have always thought alike on this subject.
Modern social media and the MSM probably constitute the greatest attack ever made on human energy and sanity.
Limit exposure strictly…..
There are a lot of people in for a very rude awakening in the near future.
Speaking of need for more stimulus. As I predicted a couple of days ago here on W.S. Nike has announced upcoming layoffs just a day after their earnings report came out. But the CEO says they will have nothing to do with the fact that sales dropped almost in half, or that the losses are pushing up towards a Billion $. They are just about improving efficiency and simplifying things. Maybe Jerome needs to start buying shoes to stash in the Fed’s Bunker.
“Sales dropped in half…and the other half was looted”
Sorry, I just couldn’t resist that.
With the looting, wholesale sales should improve! /s
Nike is an evil corporation. I lived in OR until the early 2000’s and never met a group of more arrogant people than those that worked for that outfit.
Haven’t purchased a Nike product since 1998… and never will.
I’m celebrating those moral poseurs’ massive earnings hit myself.
Redfin announced they are resuming their home purchase program in Dallas, San Antonio, Orange Co and Los Angeles. They resumed in several other cities including Austin, Denver and Atlanta in May. Kind of a weird thing to do if there’s a housing crash on the horizon, huh?
Just Some Random Guy,
Redfin has lost a TON of money every year. And so they’re now trying make money in house flipping. Why should I trust their analysis or judgment about the housing market? They don’t even know how to run a profitable real estate brokerage!!!
I love how some people simultaneously think a massive everything crash is coming and also say buy gold. Crash = deflation = gold collapses. You can root for a crash or you can root for gold. You can’d do both.
Gold holders assume that when things crash gold retains it’s value. Gold holders also assume that they will always be able to find someone to accept their gold for things they actually need. Neither assumption is guaranteed.
I don’t hear a lot of bobbing head parrots chirping about the consumer being +70% of the economy. I am waiting for the “green shoots of recovery” theme to start making a delusional debut soon. I really miss Big Ben and the fond memories of “moral hazzards” and “normalizing” interest rates and “tightening” and withdrawing liquidity , as one parrot of days past on msnbc said ,”sopping it up like gravy with a biscuit ” . I literally watched , in real time, Big Ben and the Fed kill the gold rally at $1900 with them whoppers.It’s amazing what you miss from the “good old days.” My wife and I felt a little un-deserving of the $2400 we received . We don’t feel that way now. Gimme.
‘Consumers being +70% of the economy’
Apparently 50% of the that (70%) is done by top 10% with 88% of Wall St wealth( h/t Charles H Smith).
The bottom 80-90% consumption is predominantly DEBT dependent! When the showers of easy-peasy’ stops or reduced, one will get a clear picture out of the all distorted feed back by the Trillions of Money being thrown. But Fed cannot create jobs or make the earnings go up!
My guess is the reversion to mean continues in June with a drop of another 4% in personal income, and a moderation of the consumer spending increase to around 2%. With no more $1200 stimulus payments and with additional unemployment stimulus ending in July, the markets and economy are looking at a crash if no additional fiscal and monetary action is taken. With the increasing Covid numbers accelerating the dynamic, the questions are (1) how far are the markets looking ahead?, and (2) when will the Fed provide some more juice?.
@DR DOOM, – that’s what I have been thinking about – “the consumer being +70% of the economy”, and believe it is fact.
With that said, then all the stimulus money has kept the markets, businesses, and workers “on stilts”, and there will be a point when the Gov can no longer do that.
Henceforth a drop in spending, and a drop in markets has to happen – 30 million unemployed, 100k businesses bankrupt, COVID-19, etc, etc – one little nudge and she collapses like pick up sticks, the way I see it.
I hear this statement all the time – “that the market doesn’t represent the economy” and to me that statement is the same as – “it’s different this time”.
I think we are aware of what happens next, and I heavily shorted the markets yesterday, because the “perfect storm” is upon us.
Interesting experiment Wolf…trying to hit her rudder? Naval Intelligence has a flotilla assembling to track her and move in for the kill. Planning to write “10 Easy Ways to Sink the Bizmark” or just edging for a simple Distinguished Flying Cross nomination? Let’s hope she’s not just laying smoke trails for an evasive maneuvering.
Non-related ; My Wife said I spend too much time on this site.This coming from some-one who responds to the “ding” of her I-Phone as if it were a feeding cycle in a Behavorial Electrified Floor Cage for lab mice. I don’t think Wolf is shocking me to visit his site …..YET. I only have a flip phone.
Just replaced a several-year-old WineII flip phone with a much older, simpler Kyocera DuraPro, built like a tank. Goodby today’s cheepie Chinese junk …
One of these days I’m going to get another phone. Probably after my Nokia e63 I bought in 2009 stops working, or the last replaceable battery dies.
Sorry off topic. sort of, but funny.
This is via ZH which has some good stuff including from WS.
The piece is titled: Who is the next Wirecard?
It goes on to list 20 symptoms: here are a few.
14. Possible Narcissistic Personality Disorder on the part of the CEO. Additional points if he/she uses Twitter a lot
15. Large cabal of outcasts/weirdos/bloggers/Twitter groups who have been saying for years that everything is amiss but just get a lot of criticism because the stock keeps going up ergo they must be idiots
16. Slowing top line growth rate despite all the hoopla and supposed “growth stock” status. Evidence of competitors rapidly eroding unsustainably high market share.
17. Loss making. Ideally never made a profit, but pretends to.
PS: Wirecard is the German fintech outfit whose supposed 2 billion in a Singapore bank doesn’t exist. CEO arrested.
What is Tesla?
Sounds like it to me but he is careful and never says the name. Another symptom (approx) ‘board members cronies of CEO, ideally relatives.’
Remember the Gold Reserve Act under Financially Delusional Roosevelt? Massive deflation, resulting in an attack on gold, failure to produce inflation and Homestake Mining stock blew through the roof. And foreign countries flocked to sell gold to the US at the inflated price of $35, so when all the dust settled the US had so much gold they could return to a gold backed currency.
“If you wait by the river long enough, the bodies of your enemies will float by.”
Sun Tzu
Why is Roosevelt your enemy? From what I know about the man, he was one of America’s finest presidents. Roosevelt led the allies to victory in WW2.
He instituted fiscal policies that were inspired by Keynes that first helped alleviate, and then end the depression. (Look above for bit of history about Keynes too many wannabe historians and economists either don’t know or have been brainwashed to the contrary by self interested lunatics.)
I don’t see how cornering the world’s gold supply could make you hate him so much. You must either love or hate gold very much. You really need to learn more about economics.
Gold is important, but it’s not everything. The daily work done by billions of hardworking citizens creating wealth all around the world is of far greater importance than gold.
Mining company stocks blow through the roof all the time, big deal.
Whether massive deflation is good or bad is in the eye of the beholder. If it allows you to buy a house in the middle of a depression, then it’s a good thing.
What’s the story with all this revisionist crap? All past generations have claimed FDR to be one of the greatest presidents. Why do you think he’s so bad? The subtext to my question is that what you wrote was disjointed and didn’t make much sense.
Sat Chewer,
I think you completely misread Michael Gorback’s comment. So read it again and see if you catch it.
FDR is another statue waiting to take a fall.
Golly, wait until the Scoobie Gang of the MSM discover that FDR was President during the Japanese Internment…
A Gigantic “earn while you learn” experience for Central Bankers.
And they will depart (ala Bernanke and Yellen) to speaking gigs and inflation protected pensions….courtesy of us.
But what of us?
Hi Wolf,
as I said in one of my former comments so far it is paradise in your country. The companies get bailed out and the people get more money as when they work. Concerning your short trade by the way how long they will get this 600 $ federal compensation ?
The $600 extra is supposed to expire at the end of July.
That mean f.e. the worker who get unemployed on 24th of July will get the extra 600$ for only 1 week or he still will get it for all the time of his unemployment compensation ?
Unless Congress extends the benefits, no one will get the $600 a week after July 31.
This week, the traffic in LA started getting heavy. Clearly, economic activity is picking up fast and this will not show in the numbers for a few weeks. The media is trying to start a COVID scare … I think they don’t want to see the economy bounce back. I wonder why ….
Traffic has been back to normal for me for a month plus. Also nobody wears masks and everything is open. Total number of cases in my county of 200K….wait for it….300. Not 300 daily, 300 total. Don’t believe the 2nd Wave lies.
“Also nobody wears masks and everything is open.”
I’m so proud of you for displaying your noble manhood by not wearing a mask and thereby wilfully endangering others around you. Kudos!!!
Please don’t kill me.
Wear a mask.
Patience. It’ll get there.
Starting to wonder if JSRG and SocalJim is the same person, if not their views are sure align with each other.
They’re not the same, different parts of the country :-]
@SocalJim – So you base your COVID-19 epidemic and economic analysis on how many cars you see on the LA freeways?
Wolf, barring more Fed intervention, do you have in mind a rough target number for your SPY short?
Joe in LA,
I don’t. I’m going to ride this until the ride gets too rough for me and I figure that I need to get off. This goes both ways. Also, if we get too much volatility, as we saw in March (such as up 10% one day, down 10% the next), I’m outa here. I think it’s possible, but not highly likely, that the market will break through the March low sometime this year, but I’m not counting on it.
Dow 12,000, S&P 17-1800 by two weeks after the election, maybe before, maybe in January is my guess Wolf. Still consider that JP had it right when he said you never could know the top or the bottom beforehand, but fun to watch with no skin in the game, and I sure do appreciate the volume and quality of your reporting!!
I am very interested in seeing your analysis and opinion regarding ”tax free municipal bonds” when ya can do it.
Thank you,
Dow 12K is what I think Wolf would say as going down in a straight line.
In order for that to happen, Powell would have to have a heart attack or something and he forgot to tell someone the password to the money printing machine.
Bead, it was the WW2 ethic that the comman citizen did without many essentials, rationing of rubber, metals, and other resources, along with the common people saving by buying war bonds that paid interest from the Government, add to that the huge increase in Federal Debt. The psychology effect went well beyond Keyne’s theory. It was the beginning of Neo- liberal/conservative policy in finance. After the war the rebuilding of Europe and military might in the U.S. along with consumer spending and debt increased as did G.N.P..We as a people became gatherers of assets and their liabilities.
You say that the fed’s balance sheet will not expand any time soon. And you are counting on this for your short trade where your timeline is a few months. What if Congress next month passes a new $2 Trillion package which the fed will pretty much have to monetise thereby expanding their balance sheet further? Don’t you think this is a significant risk to your short position? Congress has already said they will pass another bill so wouldn’t you think you have shorted a little too soon?
Jack,
For this short, I’m counting on the stock market to decline. There are a number of reasons why I think it will decline. I’m now one week into this trade, and the fundamentals of the trade have not changed, and the market has declined. If the fundamentals of this trade change in a meaningful way, I will get out, as I did last time, when the Fed started ramping up super-QE.
Random guy, it will be deflation 1st and then inflation, right now it’s deflation. You can’t keep printing money out of thin air and think that there’s no consequences for it. Nothing stays the same.. that’s why you should hold gold, not as an investment, but as insurance..and you shall need it.
It’s hard to practice paper trading when stocks always go up. How are you going to be able to understand shorting the market? I shall practice shorting when they do start crashing. Also I have noticed that when the market was implodes, some of the platforms freeze up when they try to get out. That scares me very much to even try to trade. Credit spreads have my interest though, less risks and less payoff.
“…when the market was implodes, some of the platforms freeze up when they try to get out.”
I’ve always felt the same about gold – you try to find gold buyers (at a reasonable” price) and there aren’t any. You need that buyer when you get hungry.
me 2 Lisa,
When I was holding PMs, it was always silver, and the smallest ‘non collectible’ that I could find. Luckily, when I did want to gamble, there was a small ”coin” store that was making a market based on the close of the spot price, and I could trade daily if desired for 2%.
These days, with the same general situation happening re challenges to the fiat paper, similar, but the local coin store just closed their doors and disappeared???
Wonder why, eh? And meanwhile, my belief is if the banks close, gold will be close to worthless unless one has reliable place to change it into much smaller denominations as used to be done when folks would just cut apart the eagles, etc.
It also seems there are other commodities that will be much more desirable/functional than any PM if we do have another massive failure.
Wolf, did your “debt out the wazoo” phrase come from this 2000 etrade advertisement?
(Money out the wazoo.)
Ha, no. I just came up with it one day and started using it. “Out the wazoo” is not exactly the most original phrase.
I believe it came from the use of the Wazoo Federal Bank in Baltimore which continuously maintains a number of wire transfer VPNs to the Cayman Islands. Hence, “out the Wazoo.”