THE WOLF STREET REPORT: Great Time to Turn a Nest Egg into Scrambled Eggs

It just looks so tempting (You can also download THE WOLF STREET REPORT at Apple Podcasts and many others).

 

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  208 comments for “THE WOLF STREET REPORT: Great Time to Turn a Nest Egg into Scrambled Eggs

  1. MF says:

    Our overlords have spent years salivating over the money socked away in pensions and 401k accounts. The only question was how would they get their grubby hands on it?

    Now we know.

    • Yertrippin says:

      So both savers and non savers are both screwed and only the uber wealthy benefit?

      What a surprise!

  2. MarketMissing says:

    Yep. Been trying to figure out how a regular working person is supposed to put any sort of retirement together in this environment. Done ok on real estate by doing a slow property ladder living in and upgrading then selling every three years or so but everytime I do a transaction I go in assuming the property might lose 20-50% equity or become unsellable for an extended period of time and that I better be set to stay and ride it out. So far it’s the best return I can find since the gains are tax free (except 3-6% to realtors) and it shields me from market rate monthly housing costs. Feels like it’s about tapped out though.

    • nodecentrepublicansleft says:

      I just saved $15,500 on one transaction and $4,800 on another by selling properties myself. It’s not rocket science.

      Sometimes a realtor is worth the money, usually not. They are some of the most overpaid folks you’ll ever encounter for what they actually do.

      U of Chicago did a study a few years back that showed realtors take longer and get higher prices when selling their own homes.

      I’ve seen a few neighbors of mine get screwed by realtors who didn’t set the price high enough. Just something to consider…

      • Just Some Random Guy says:

        The problem is sellers pay the commission. So there is no incentive for buyers to buy private when the price to them is the same. Obviously the buyers pay the commission as well indirectly, but buyers don’t think like that, at least most of them don’t.

        And then sellers also don’t think rationally. They’ll price their house at the same price privately as the house next door using an agent. A rational seller would split the difference. If the commission is 6%, sell it for 3% less and split the proceeds between seller and buyer. But sellers almost never do that.

        And the other thing is people who buy houses are under the impression they need an “expert”, ie a real estate agent. They don’t but there are so many documents and so many addendums to contracts, that the layman gets scared.

        • Joe Saba says:

          as broker I sometime sell myself and ALWAYS offer commission to buyers BROKER(agent gets paid by broker)
          If you don’t buy right then selling at super high price is problem
          doing transaction today were I’m carrying back mortgage with 1/3 down
          no commissions on this one

      • MarketMissing says:

        Totally agree about the realtor but I gave up self selling because the folks that bid highest are usually coming in with a realtor and an FHA loan. (And sometimes parent money to cover whatever doesn’t appraise out). If I flipped as a main income stream I’d do self selling. With the inflation in housing 3-6% is absolute robbery. But so far for me the buyer has essentially covered it going over market price. I often wonder what would happen if all the false bidders got shut out of markets. I think of false bidders as people who do not have the income or assets to carry large loans but get them anyway. Without credit going to that crowd deflation would be a pretty solid bet.

        • Joe Saba says:

          consider when you go to lawyer what HE/SHE wants to take case
          no pro-bono there
          I get commissions SEEM expensive, then again a GOOD agent knows how to get things done properly 1st time
          as usual – we always here about IDIOT agents who have no clue
          never about ones I use who sell 30-50 homes a YEAR
          5% of agents do 95% of business(ie good ones)

        • Beardawg says:

          As JoeSaba says

          5% of the realtors do 95% of business. Problem is that most people have to wade through the 95% of S*** agents and the overworked 5% are good at some parts of the transaction, but typically drop the ball on other parts, despite good intentions. Unfortunately, the real estate agent business is gonna go by way of the dinosaurs.

          I have rehabbed / flipped about 12 homes in 3 years – no agents on either side of the deal for any one of them. In addition to saving $$$, efficiency from start to close is waaaay better.

      • polecat says:

        Let’s not forget those sanctioned (en)title(d) folk .. who .. often as not, search with a light touch, and paint with a coarse brush ..

      • Lee says:

        One benefit of being in Australia: RE Agents usually take only 1% or 2%. Fancy marketing and the the other stuff costs extra.

        Unfortunately the various states takes stamp duty on the selling price which is paid by the buyer.

        On a el cheapo house in Melbourne selling for $A1 million that works out to about A$50,000 (+/- 5%) paid in cash to the state by the buyer.

        With the RE market here in Melbourne basically on life support as a reuslt of the lockdown, turnover has crashed. The state gets a huge amount of its income from those stamp duty taxes on real estate so not only are they spending up big time on everything, but their income has crashed.

      • Suffering Spouse says:

        I wish Realtors were the most overpaid folks for what they actually do… After being married to one for many years, I can assure you, most Realtors put more hours into their work than any husband should be asked to endure. It really is a 24/7 job, the pay is strictly commission and the Agent’s business expenses are only a blessing when deducting those expenses at tax time.

    • Jon W says:

      As someone in their late 30s, it seems the only thing you can do is plan to never retire. That is the mindset we have. We are trying to diversify our careers (one has a more stable one, one is more random) with the idea that at least one of us will be able to continue earning some kind of income into our 80s (if we make it that far). We also expect to have a lower standard of living than we do now, probably starting to decline around 60.

      A couple of kids is also, in my view, a prudent investment. If things go really bad, they’ll hopefully not leave us on state benefits, so again, just another safety net. Also a good place to put ‘savings’ by helping them get a leg up in the hope they can be financially stable when you might need help.

      IMHO the biggest problem retirees have right now is they seem to believe they’re going to be able to spend 30 years not doing any work and still have enough income to enjoy life.

      • Drater says:

        Early retirees like myself (at 51 years old) are thankful for people like you who are brainwashed to never stop working, pay taxes/FDIC, have debt out the wazoo, and perpetually consume. Keep living the “American Dream” – cheers!

      • RightNYer says:

        Well, they would if they could make 5% on their savings

      • andy says:

        The worst place to put ‘savings’ is in helping your kids financially. Just ask Susan Orman – the best way to help your kids is to be financially stable yourself.

        • Harrold says:

          Susan Orman has no children.

        • Lee says:

          The BEST place to help your kid(s) is to pay cash for a decent education so that when they start out they have no debt.

          That way they are already ahead of most others.

          I hear numerous stories of kids in debt up to their wazoo for their so called university education that turned out not to be an education at all.

          And even if they some kids do get a ‘decent’ education they are so in debt that they’ll be that way forever it seems.

          What good is a degree from a place like Columbia that charges around US$ $60,000 a year for an undergraduate degree or about US$40,000 a semester tuition for an MBA when it will take years and years to pay back the orginal loan amount and then add interest on top of that? (Assuming that one can find a job.)

          People here in Oz complain about university tuition…………….IIRC it now costs about A$10,000 a year for an undergraduate degree. Peanuts compared to the USA.

      • Bobber says:

        Retirees know how to live on social security alone, if they have to. When you are older, it helps that you don’t like travel or fancy restaurants. You enjoy the simple things in life.

        Your best investments in life are good food and exercise, and a loving family and group of friends that will keep in touch regularly and visit you.

        • 91B20 1stCav (AUS) says:

          Bobber-sagacious. It is also a tremendous help to own your dwelling free and clear.

          may we all find a better day.

      • raxadian says:

        Retirement age around here is seventy for males, not in the public sector were is 65, and none of my parents live that long. Plus they are very likely to raise it to 75 in the next twenty years so I will just work until I die.

        Also the average lifespan here is like 74 for males so why bother paying a pension plan for decades just to get four years of coverage?

        • Wolf Richter says:

          raxadian,

          “Also the average lifespan here is like 74 for males so why bother paying a pension plan for decades just to get four years of coverage?”

          A man in the US at the age of 74 today has a remaining life expectancy of 11.76 years.

          Life expectancy at birth is 76 years for a man in the US. But as the person gets older and survives more stages along the way, life expectancy grows.

          A man who is 90 today, has a remaining life expectancy of 4.05 years.

          https://www.ssa.gov/oact/STATS/table4c6.html

        • sunny129 says:

          Wolf

          Could you please give us an update on the recent Citi Bank’s system software SNAFU on risk management? Is just the Citi or an universal problem in Banking system. Thanks.
          SN

        • Harvey Mushman says:

          Just spoke to my step dad yesterday. He will be 96 years old in November. He survived the battle at Okinawa, the battle of Peleliu island, battle of Leyte in the Philipines, was in the marshal Islands… all before the age of 21. For a while there it didn’t look like he would reach 21. Now he is living off a pension from the Los Angeles Department of Water and Power. He earned it. A lot of his friends never made it home. When I was 21 I was going to parties, chasing girls, riding dirt bikes, going skiing, yada yada yada. Things people who lived thru the depression and fought in WW2 never dreamed of. So now at 57 things will get a little tighter for me compared to my step dad when he was 57. Just how life is I guess.

        • JoeC100 says:

          Response to Harvey Mushman – My Dad was on Peleliu, it was probably the worst fight in the Pacific – at least as bad as Iwo Jima except the press was told it would be a 2 or 3 day easy fight so they passed up covering it. I am amazed anyone who fought there is still alive today. Okinawa was petty bad as well…

      • IdahoPotato says:

        Or you have investments (and if possible real estate) in one of those shithole countries where people actually respect science and aren’t narrating folksy libertarian fables. Find a place where one can live reasonably well on 30k a year.

        Vanguard will send you your 401(k) withdrwals to an international account and so will the Social Security Administration. Just make sure to file taxes in both countries, which is a PITA with all the complex regulations.

        I have set that up. That is my Plan B.

        • Harrold says:

          Why did you setup a foreign bank instead of just transferring over money when you needed it?

        • IdahoPotato says:

          @Harrold

          I also have investments in that country”s currency.

        • roddy6667 says:

          You don’t need a foreign bank account. It is an unnecessary and risky venture. Choose a US chartered bank that has offices in your new country. Use their ATM for cash. The fees will be very small. That’s what I do, and I pay about 1% for all expenses to send money to the other side of the planet, currency conversion, etc. If you are retired and not employed in another country, you file the same taxes you would stateside. Use HRBLOCKdotCOM or any similar service. Or maybe you qualify to not even file.
          If you open a foreign bank account, you must state every year that the balance does not exceed $10,000 at any time. If they choose to not believe you, then you have a HUGE problem, with massive daily fines. You are guilty until proven innocent.

        • Lee says:

          “You don’t need a foreign bank account.”

          If you are a US citizen some foreign banks won’t do business with you so it doesn’t matter.

          They don’t wnat to have to file all the forms required by the US.

      • Beardawg says:

        Jon W

        I am sure you are constantly maligned by your elders as the proverbial “lazy millennial.”

        Some of us know what we have done to your generation. There are plenty who fail to launch, but just as many (like you I am guessing) who try to learn along the way, embracing some of the old school wisdom, but dismissing others. We (Boomers) never faced the employment, educational and finance challenges you have, let alone the media and social platform bombardment designed to confuse and influence you.

        We like to talk about work ethic, savings, stick-tuitiveness and all those other buzz words. They are great until we lose a job in our 40’s/50’s and try to get back on the wheel….OR…..go all “Millennial” in our thinking, in which case we call OURselves frugal and wise. The hypocrisy.

        I’m a young Boomer and retired at 50, but it’s mainly because a 4 year degree in the mid-80’s meant an almost guaranteed good job and the future was bright for at least a couple decades.

        You sound like a critical thinker. If you have a Minds at work into your 80s, if necessary, I suspect you will find your way quicker than you think. :-)

  3. Lisa_Hooker says:

    And we continue to berate the kids for not saving and investing (myself included). Tried explaining the benefits of compound interest to a sub-teen with an interest rate of 0.25% example? They do get it, they just don’t see the point of it. And they do see that 12-25% to borrow on unsecured credit is unfair. Spend what you have now and enjoy yourself. This path leads to madness and collapse.

    • Xabier says:

      The near-zero rates make a mockery of savings and retirement planning of the kind which has been the basis of civilisation since the towns revived and sophisticated finance appeared after the fall of Rome -c 13th century.

      It also makes a mockery of prudence, foresight and deferred pleasure: corrosive to society itself, in fact.

      One can make a fair case for saying that capitalism itself has now dies, and society is in terminal decay.

      Money put into useful, high-quality tools, clothes and dried foodstuffs that last, and a productive kitchen garden will repay more than any savings account. More and more people will come to see this, I suspect.

      As for retirement, the sanest thing is not to stress about it, as it will poison one’s life: the more important question must be ‘How can I live well today?’

      • TnAndy says:

        Gold has returned over 11%/yr for the last 15 years.

      • 91B20 1stCav (AUS) says:

        Xabier-wherever y’all are, glad to be you and Bobber’s neighbor. Lifelong learning (book AND practical, where the former can aid you in not reinventing too-many wheels as you improve your manual chops) insures you will never be too-uncomfortable, bored, or (hopefully) desperate.

        May we all find a better day.

      • Paulo says:

        Xabier,

        Best comment I have read in a long long time.

    • raxadian says:

      Negative Interest rates is something my parents never saw in their lives.

      Saving accounts used to be for saving, they used to give you about 1% to 2% on interest a year, and that worked with low inflation.

      Nowadays, why bother to save money? Either the negative rates will eat it or the inflation will.

  4. RP says:

    Cracking analysis…”the most treacherous investment environment I’ve ever seen”…thanks for telling it how it is.

  5. Martok says:

    Excellent that you pointed out that global markets never recovered for so many years, and should be a warning to overheated US markets.

    As you pointed out global markets are investing in our markets and maybe this is a big part of moving this market up, plus all the new investors betting on a forever rising US market.

    These new investors of recent have made big money buying call options and selling put options, but have lost huge amounts, or blew up their accounts this past down week.

    IMO buying and holding at these ridiculous PE rates is crazy, and folks who dividend invest are going to wake up to see their dividends cut, and their stocks fall catastrophically.

    The Fed wanting inflation to rise, IMO is crazy, like Wolf said it will reduce the USD buying power and folks will stop buying in this 70% consumer driven economy.

    Then the 2nd wave of COVID is kicking in and the Univ of Washington projected 410k to 620k people could be victims, and if true will have devastating effects that will last years.

    I believe our food chains, goods, etc will be disrupted thereby creating panic, chaos, more riots, more jobs loss, in the next few months and into early 2021.

    Panic selling, margin calls, foreclosures, will cause this market to sink.

    Slogans like – “It’s different this time” or “The market doesn’t represent the economy” will fall upon the scrapheap of lunatic reasoning.

    • Xabier says:

      Supply chains are THE big issue which is not being well reported on anywhere.

      • Lars says:

        What’s going on with the supply chains? Any insight or links to articles?

        • Franz says:

          Take a look at your regular grocery store. I like to do a walk about in the store that adds 30 minutes. Here is what you have to ask yourself as you walk around. How many shelves have limit two item signs (here soup, spagetti sauce, baking, etc)? What is missing that was in last week (here oil, salt, etc? What was fixed in the last week but replaced by cheaper and different brands (here flour, meat, sugar, oil, etc)? How were the shelves restock to hide items that are not being restocked (lysol cleaning products, etc)? Do a walk about and see how your store is changing. Cheers

        • Kent says:

          Two things that I’ve seen reported: consolidation in international shipping and the building and use of only the largest ships has delayed international shipping enormously. Ships that used to sail weekly are now only moving monthly, because the international recession doesn’t allow them to fill up enough. This is causing manufacturing disruption in the US.

          Secondly, a lot of food processing firms are not very COVID friendly and are frequently being forced to shut down due to COVID outbreaks. This is screwing up the entire supply chain for food products, with some stuff being forced to be left to rot in the fields while the plants are getting cleaned and workers are at home. And of course, everyone wants their product to be the next must have toilet paper so they can sell at top dollar.

        • Anthony A. says:

          @Franz:

          I did this recently in a Walmart one mile from our house (north of Houston, Texas). I couldn’t find anything that was not normally stocked. That included cleaning supplies, paper goods, meat, canned goods, etc. I don’t know where you are seeing supply shortages. Can you be specific?

        • China has their foot on the gas creating new credit. “In this intensifying U.S./China cold war clash over global supremacy, a bursting Bubble would put one of these adversaries at serious disadvantage. It’s not clear this plays a role in Federal Reserve policymaking. It surely does in Beijing.” [He doesn’t indicate which is at disadvantage, or how, or why suddenly the Federal Reserve is not interested in China’s financial situation, after they cut rates three times last Sept. Maybe they weren’t concerned then either?] Doug Noland at CCB

        • polecat says:

          I practice the art of canning every fall, when produce is coming to market in abundance. This year, NO one has had canning jar lids available .. so people have had to resort to cannibalizing NEW complete jar cases bought retail, in order to have lids for canning batches! I recently found a new supply of lids at a local retailer – 2 boxes per customer!

          For canning!

    • Happy1 says:

      Your comments about the overvalued stock market are spot on.

      Your comments on Covid-19 are way off. There is no way a second wave will be worse for the economy than the shutdown that already happened, that’s fantasy. The death numbers you cite are plausible, anything is plausible at this point, but the worst of the economic disruption is past. But when the market finally does reflect the economic outlook there will be a massive sell off.

      • Lisa_Hooker says:

        It remains to be seen what the economy will be like when the forbearance and payment deferments end with a very slow increase in work for the unemployed.

        • Jdog says:

          It will not be pretty, that is certain….

        • gkc says:

          They won’t end. They will be extended with another gov program and stimulus bill. And – The creditors will be made whole via the Fed buying/guaranteeing any bad debt.

          There is no going back, now. Free market/mixed economy will rapidly morph into top down corporate-state controlled “social-capitalism”

      • VintageVNvet says:

        H1,
        Nobody really knows what will, or might, or even is likely to happen with the mixture of the C19 virus and the usual extremes of ” seasonal flu” and the usual extremes of the ”common cold.” Any thing said is speculation and ”generalizing on the basis of insufficient information.”
        People seem to forget that ”amurricanes” are very competitive people, and as can already be seen, we are winning the race to the top of the confirmed cases metric for C19, although with India now in second place, we do have serious competition to consider, so we may very well need to have some extreme ”control freak” type policies and practices similar to what Lee reports on here re Victoria state in Australia. We also have our own USA death toll from 1918 to compete against, because we damn sure don’t want any 100 year old record to continue, eh (sorry to have to add ‘sarc’ to this PP, and just hope that it is sarc.)
        The possibility of a total lock down by the feds is certainly not out of the question no matter who is elected pres in November; some folks are saying the military being used to distribute one or more vaccines in Nov. is just a cover for total martial law if needed for pandemic purposes or riots,,, also not too far fetched considering some of the verbiage being published by politicians and others apparently supporting the contender.
        We have a long way to go folks. Keep your powder dry!

      • Martok says:

        Happy1,

        I do what Bill Gates does and listen and read what the experts say. My statements aren’t guesses or subjective comments about C19.

        I get daily scientific journal updates from many sources, this isn’t the flu, it’s a systemic disease with tons of unknowns, every cell in the body can be infected thru their ACE2 receptors, which every cell has.

        Just a few days ago Dr. Fauci said this:

        “The U.S. should be ready to “hunker down” in its fight against the coronavirus and indicated that the fall and winter will not be easy.”………

        “Don’t ever, ever underestimate the potential of the pandemic. And don’t try to look at the rosy side of things.”

        The Labor Day festivals, plus large social events, plus going back to school, plus the traditional flu season, plus politicizing the wearing of masks at the National and state levels IS a recipe for disaster.

        We have 40k infected daily and 1k deaths per day, and we are currently at 194k dead already – with a 110 days left this year that total will easily be close to 300k, just based on current stats of today!

        Go back and read what happened in 1918 with the 2nd and 3rd wave, – history IS repeating itself.

        • The Original Colorado Kid says:

          Thank you for your educated and thoughtful comment.

        • Martok says:

          The Original Colorado Kid,

          You are very welcome, – here is one of many articles I have read about C19 that is “earth shattering”, – it’s a long read but well worth it, and this disease is incredibly damaging and fatal, and can return.

          “Once Covid-19 has established itself in the body, things start to get really interesting. According to Jacobson’s group, the data Summit analyzed shows that Covid-19 isn’t content to simply infect cells that already express lots of ACE2 receptors. Instead, it actively hijacks the body’s own systems, tricking it into upregulating ACE2 receptors in places where they’re usually expressed at low or medium levels, including the lungs.

          In this sense, Covid-19 is like a burglar who slips in your unlocked second-floor window and starts to ransack your house. Once inside, though, they don’t just take your stuff — they also throw open all your doors and windows so their accomplices can rush in and help pillage more efficiently.”

          https://elemental.medium.com/a-supercomputer-analyzed-covid-19-and-an-interesting-new-theory-has-emerged-31cb8eba9d63

    • Lawefa says:

      The FED forcing inflation hot is just plain stupid at this juncture but they realize they have to try and do something while the candle still burns. It’s beyond disheartening to see this all go down. I agree with Wolf’s assessment…there is literally nowhere to go at this point with money or savings. The best returns I see myself getting for the next 3 years are locked in dedicated saving at just under 2.5%. I used to gripe about that but find myself grateful seeing where rates have dropped in the 0.5%.

  6. Fat Chewer. says:

    Wolf, what do you think would happen if an alternative stock market arose? Same listings, different valuations. Could this stock market play by fair rules at this stage of the game or is it too late for such a thing? Would it be possible at all, and if so, could an average punter make any money from it?

    • DeerInHeadlights says:

      Who would regulate this alternative market? The SEC? If so, I expect nothing different…

  7. Michael Engel says:

    1) Tick Tock for the infantile bought by a 80Y oracle, at market peak.
    2) Robin Hood arrow split an AAPL 4 for 1 in Aug 2020, but he didn’t not take a shot when the baby AAPL was at $190/share in Oct 2009, right after the jump over the 2008 high, before the 7 for 1 split in June 2014 and the 4 for 1 split. // 190 : (7×4 = 28) in two splits @ $7/ share.
    3) Consumer spending on healthcare was up 160% since 2000, down
    20% from $2.5T to $2.0T in 6 months.
    4) Consumer spending on high education was up 180% since 2000,
    at $300B/Qt in 2019, but it plunged sharply in the last 6 months .
    5) Nobel Prize for ME peace will not create inflation for the Fed. Abandoned and inflamed ME will.
    6) DOW analogs with variations can tell us that we had been there before.

    • Old School says:

      The big tech stocks have such high valuations they skew the whole sp500 to be extremely expensive. There are some out of favor smaller value stocks that are cheap, but they are out of favor for a reason. Read a good study that said we are most likely going to see long period of international stocks outperforming US stocks. Probably could also say if you don’t know what to do keep a lot of cash and buy Berkshire Hathaway as Buffet has set up a conservative diversified conglomerate that is reasonably priced has some big components that will always be around such as insurance, utilities and railroads.

      • Tom Pfotzer says:

        Old School: So which international sectors / regions are expected to do well, and why?

        I agree generally about BH, but they’ve got probs too. BNSF is raw materials-export and finished-product import play. Both directions, traffic’s going to be down (coal and grain going out, and Asia imports coming in). Railroads’ heyday is tailing off.

        GEICO and insurance in general is going to move sideways at best for the next few years. More expenses, less revenue.

        What I found very interesting is that BH took a position in Japan trading co’s. Also in gold miner stocks. Two very out-of-the-ordinary moves for BH.

        • GolferDave says:

          Both Japanese Yen and Gold are the risk off currencies….. yes gold is traded on the FX desks of major banks. WB is hedging against a USD devaluation.

        • IdahoPotato says:

          Buffett bought the Japanese trading cos. after the issual of yen-denominated bonds at something like 0.5%. Essentially free money.

          These are very conservatively run conglomerates and have a decent upside with very low downside. BH is my personal mutual fund of choice.

        • Old School says:

          Hussman has a long research paper on his site about international. I forgot why but he focused on international ex Japan. It was very detailed historical data driven paper.

    • Rice says:

      This is too good. I feel like I’m playing hunger games with my retirement money. Oh well, it sure is fun to speculate in the stock market.

      • polecat says:

        There will no doubt be some sort of reaping in the works.

        Keep your bismedia squirrels close, and your market arrows to your chest!

  8. historicus says:

    The Central Bankers have removed the “choice” of fixed income vs equities, and by design.
    There is no fixed income, unless one considers it fixed at zero. There is no balance, no choice.
    Central bankers have conducted a cattle drive into equities.
    Central bankers have colluded to drop the cost of governmental borrowing to zero, the same governments that empower them.
    Sometimes siting tight and getting “nicked” by the contrived inflation game is better than having exposure in a crowded overpriced market.
    Real estate? Inflated and taxed.
    And what will the country look like the day after the election?
    If markets hate uncertainty, this market is headed down into the election, IMO. But the Fed seems bent on having all the indexes at all time highs just prior…so flip the coin.

    • Lisa_Hooker says:

      I agree. Instead of flipping the coin put it in your pocket and keep it there. With these risks and yields it’s not that expensive to lose a couple of percent to inflation until the dust settles. Whenever I see a game I can’t see how to win I don’t play the game and sit on the sidelines. I feel sorry for the portfolio/fund managers that must play every day.

    • Pete Koziar says:

      Sometimes return of capital is more important than return on capital.

      I’m sitting tight, myself (other than a modest position in gold and a private REIT that is winding down).

      Better to lose six months of possible gains than sixty percent of capital.

      • roddy6667 says:

        I retired 7 years ago. Back in the day, my contemporaries were bragging about double-digit returns in their 401K’s. I thought the market was too risky and stayed out, mostly. Most of them lost half their retirement money when the market tanked in the Global Financial Crisis. I made very slight gains that year.
        People chase higher rates of return in riskier stocks and markets. Their chance of losing everything also increases. When you are over 50, you can’t do that. If you want 10% returns to compensate for inflation, then do this…cut your overhead and lifestyle by 5% and save 5% more of your income. It’s not that hard, but most people won’t do it. They need a big house, a new car or two in the garage and all that.

  9. Charles Sanils says:

    Great analysis, again. Please expand on where a man is to go when the markets are a weapon of mass destruction to the working class!

    • Ruthless Gangbuster says:

      He already did, there is nowhere to go, the days of having money to make money are dead, it’s the end of the road & a total brutal collapse is coming, absolutley everything will collapse in price until real demand meets real supply, the economy is fake based on massive debt, debt can no longer be taken on to buy worthless garbage like IPhones every year. The baby boomers destroyed the planet & the rest of us will suffer the consiquences. The only thing people can do is hold on to cash, they wish the can get inflation, I believe they never will, only deflation, unless ya a genius & risk taker stay in cash, perhaps have different currencies< I doubt the powers at be are stupid enough to let the Dollar fall much, the US will become a 3rd world country overnight & they hold Dollars, without a reserve status would be worse than any collapse, in a collspse the the powers at the top can at least survive, lose the reserve status & they will be wiped out with the rest.

      • ru82 says:

        why no inflation ever. All you have to do is print money. Just Ask Argentina and Zimbabwe on how to do it.

        We got a small taste of printing with this year’s stimulus. Housing went up. Used car prices went up. This was during what technically could be called a recession. I think we get high inflation before any deflation. MMT and ZIRP are on the drawing board for the fed.

      • sunny129 says:

        Diversify among div paying GLOBAL ETFs across all sectors, industries.
        Learn how to use the tools to go ‘against’ the mkt with hedges, like options! Or use 1x BEAR etfs like DOG, SH and PSQ.

        Build up uncorrelated assets but the biggest return will by shorting the mkt.
        (Been in the mkt since ’82. Made profits during GFC, when S&P went down 60%)

      • elysianfield says:

        “The baby boomers destroyed the planet & the rest of us will suffer the consequences.”

        RG,
        GUILTY! Guilty as charged. When I was 21 I was driving an E type Jaguar, Had a BMW motorcycle, got laid a lot. Bwahaaaaah. Yeah, it was me, I admit it!

        Didn’t have a white cat to stroke during the meetings while discussing our nefarious plans, however.

        You are absolutely correct regarding the reserve status…that is when the balloon goes up. PAB’s have no control over the status…they did for the last 50 years, but the era is ending…soon.

    • Sandy Toes says:

      I thank Wolf for yet another insightful report.

      Given the reality that Wolf paints, l would also welcome insights into how & where to invest (not speculate) our nest egg to keep it from getting scrambled.

      My intent is to find practical solutions in this environment.

      Thank you,

  10. Dave k. says:

    Great analysis….but what now?

  11. Nicko2 says:

    Had to reduce the price of our condo by 8% and it was empty for a month, but the agent finally found a tenant; all things considered, not too bad.

  12. David Hall says:

    If you include dividend payouts, the Japanese market has recovered its 1989 peak. They had a coincidental real estate bubble in 1989. That also popped. Now they have a declining and aging population. Some mountain hamlets have been abandoned for property closer to urban hubs. Japan is yet the #3 economy in the world with a land mass the size of California. They do not have a big problem with gun violence. The US murder rate is 350 times that of Japan’s. Japan has very strict gun control laws.

    • nick kelly says:

      Well in one recent year the US gun murder- rate was infinitely higher than Japan’s because they had zero of them. Are you talking murders or gun murders? If the latter I would have thought Chicago’s was about 350 times Japan’s.

    • RightNYer says:

      Check out what the gun murder rate is among Americans of Japanese descent.

  13. Broker says:

    Serious question/scenario.

    What would you do with $1 mil in cash as a hedge against all scenarios: inflation, deflation, stagflation, etc…,

    How would you break it up to invest? Stocks, bonds, ETFs, PMs (physical or paper), crypto, sit in cash, etc….

    Let’s assume no Mad Max scenario where suggestions of guns and farmable land is needed.

    Also assume you have no debt, other than mortgage on your house with tons of equity and super low rate.

    Curious to hear…..

    • andy says:

      Start a business.

      • What kind of business. I am thinking that post 2000 America has not defended itself against 21st century threats? Viruses, international terrorism, cyberhacking. Would you start a business in one of those areas?

        • andy says:

          Perhaps something to bring jobs back from China. The gov will likely shower you with money.

    • polecat says:

      I’d still go with the farm land .. with the caveat of actually knowing how to grow/raise crops/animals successfully, and have people you trust to help you do it! – the amount of land proportionate to the no. and abilities of those living on it. And, yes .. guns, including the training necessary that goes with using them to advantage, to protect against, uhh .. marauding ‘varmints’.

      Or you just get a set tarot cards, lay them out in front of you, close your eyes .. and pick one!

  14. Rosebud says:

    I had to spend my nest egg to survive while creating the Banana. In 2017-2020. I’m 58. It’s finished now. The last two proofs were posted. I’m working with the website to remove the information from public view.

  15. Michael Engel says:

    Voter choices wouldn’t matter. We are facing either one party tyranny
    or a strong man with his family.

  16. Brian d Richards says:

    I agree with Wolf. The US stock markets will not be a pleasant sight in 10 years, but in the meantime, look for 40,000 DJI. Where do the really wealthy put their money? When one has $10 to $50 million to deploy, there really isn’t a lot of choice. Precious metals, as much as I like them, are on the peripheral outskirts of asset classes (not to mention the big negative of 28% capital gains taxes for US taxpayers). Were we born into
    this world with a guarantee? Keep your good friends close and be compassionate to others.

    • Robert M says:

      If you hold PM in a Roth or physical there is no tax.

      • Leafme says:

        Robert M: I believe physical is taxed as a collectible at 28%. I hope I’m wrong but from what I’ve read the gains on physical are taxed at 28% (unless you can hide the sale somehow).

    • RightNYer says:

      Disagree. The “really” wealthy put their money into private equity, either large funds or family offices. There are much better returns to be made.

      Buying stocks with P/Es of 40 (but not based on expected growth, but TINA, it’s different this time, don’t fight the fed, etc.) is no different than buying precious metals, crypto, or tulip bulbs.

      • Martok says:

        RightNYer,

        Yes – read this about 2 months ago:

        “During the rout in stock markets across the globe in March, UBS’ richest customers took out loans to place billions into crashing stock markets. They are now looking to pull that money from equities and put the profits in illiquid and private assets, UBS’ head of global family offices told Reuters.”

        Also heard that UBS is advising millionaires to do the same, they only take on clients that are multi-millionaires – I have a friend who works for them – he’s set for life.

        Lipper has shown for the last few weeks of billions moving out of equity funds, and large billion inflows into Taxable Bonds.

        When it all hits the fan, it’s hard for me to believe anything besides cash is safe.

        • RightNYer says:

          Yep. I mean ultimately, if you buy a stock like AAPL with a P/E of 40, you’re essentially getting a 2.5% cap rate. No one would deploy capital that way unless they were convinced that P/E expansion would continue from obscene levels to even more obscene levels. In the private deals, investors look for 15-30% IRRs, which is much more reasonable given the risk that is entailed.

      • Happy1 says:

        The bubble in private equity is even bigger than the bubble in the stock market.

  17. Danno says:

    I’m in the “when in doubt, sit in cash” camp.

    At least I have a ball park idea of what I am losing vs the unknown of a steep market decline.

    Thoughts?

    • Mary Tyson says:

      I am not rich or wealthy but have a full time job and saving over the last 24 years $5,000 a month. I just sock it away in CD’s and money markets and don’t even think about it. I did buy some 10 year CD’s at 2.4% to 2.6% back 12 to 14 months ago and some last year 7 year CD’s at 2.2%.

      I did not do anything the last 8 months and just keep saving my $5,000 month. I just don’t think about it anymore.

      • Jdog says:

        Very smart, you will do well. You will soon see some excellent opportunities to invest that money.

      • nick kelly says:

        Saving G a month…

        Unless one is very frugal it would be unusual to save a third of income after taxes, so salary is 180 K?

        Saving 60 K a year over 24 years = 1.44 million. Even invested in CD s (which paid a good rate not that long ago) should be 2.5 to 3 million by now.

        I consider that pretty close to wealthy. Not a one per center or anything but prob a 5 per center.

  18. Paulo says:

    I’m always wary of herd pronouncements. I remember my Dad and father-in-law both proclaiming money would never drop below 12% (Early ’80s and they were certain of it). My mortgage rate jumped from 7 something to 18% upon term renewal that year. Of course this translated into low RE prices but the situation was/is always the same for a working man. Get in to what you can afford in payments, build some equity, and keep your job and marriage working. Two careers later and a different wife, reality has shifted 180% for me. :-) We did okay. Maybe it was just luck. I really don’t know.

    Those low RE prices ensured my sweat equity made nothing when we sold. Nothing. Nevertheless, I was still fortunate we didn’t lose when I moved for a better job.

    Those who say it is all about declining velocity miss one thing, it is until it isn’t. There is inflation right now in many sectors and God help us if currency survival requires investment attraction through higher rates. People will be crushed. Crushed. I still think RE is always a good investment, even raw land bought at the right price and conditions. Regardless, a working person in all collar colours is milked by the system. The only factor one can control is personal debt. Better off in a fifth wheel than on a treadmill working for the bank, imho.

    It’s stability that investors need for planning and steady growth. If anyone sees any stability out there, let me know. Unfortunately, we’re living in Crazytown run by ignorant mad men in the middle of a pandemic. Anything can happen.

  19. Tom Pfotzer says:

    Wolf: you are excellent, valuable, honorable. A well-set example.

    A few hundred years ago, the American Plains Indians would stampede buffalo herds over a cliff for a fast harvest. Our financial landscape seems like an updated version of that stampede, doesn’t it?

    For years I’ve struggled to evade this easy-to-see-coming trap. I invested in local production of household necessities. My reasoning was:

    a. Price of labor is on a long-term decline, and the price of my labor is set outside my control.
    b. Price of necessities like food and shelter and education and healthcare are rackets, controlled by others (with malintent)
    c. All asset classes are compromised as investments, for the reasons Wolf has so eloquently spelled out
    d. We may face some rough times with social unrest, weather emergencies, malignant leadership, supply-chain disruption and so forth

    I decided to become the market for my labor, and to build production processes to supply myself and locals with what I can (substitution) and reduce consumption from the rackets for what I can’t substitute.

    That solution isn’t economically viable yet. Great idea, but “locals” like me are production bunkins facing a long learning curve.

    Let me state right off the bat: it’s been a rough, bumpy, frustrating process.

    I’m nowhere near done, and I’ve been at it hammer and tongs for two decades. That’s the bad news. The good news is that there’s a lot of people who are doing what I’m doing, and they’re starting to get good at it. I’m not, but some of them are.

    If the rules of the game are rigged against you, and you know it, and you can’t change the rules of the game, you have two choices:

    a. Suffer and grumble with the old game….or
    b. Build a new game with different rules, and play that one. And suffer, but for new and different reasons. :)

    For me, it is better to suffer while playing a new game. But as Wolf has so clearly pointed out, most of us are going to do some suffering. Not too many good moves available.

    While my solution isn’t even good for me, let alone anyone else, there may well be solutions that get some of us out of the Buffalo Herd. If it doesn’t compromise your strategy, I hope you’ll speak up and tell the story of how you escaped the trap.

    As a great poster here @ WS says, “May you have a better day tomorrow”.
    Hat tip Aus Cavalry.

    • Lisa_Hooker says:

      Very well said Tom. The problem with buffalo herds and cliffs is that if you are in the herd, and not at the edges or very rear, no matter what you might decide, you’re going over the cliff.

    • Yertrippin says:

      The plains Indians actually had a cohesive society. They’d never run ALL the buffalo off the cliff…

      • VintageVNvet says:

        Interesting comment yer,,, where did you find that? What I have read is that each tribe was an independent entity, and that there was a lot of intertribal rivalry for land, food sources, and even slaves –though apparently any slave could become a member of the capturing tribe with hard work, etc.,
        IMO, the reason that ALL the buffalo were not driven off the cliff was that the early peoples, in general, knew better AND the two billion or so buffalo were not ever a single herd, but, rather, well distributed over gazillions of acres at all times until the euro trash almost wiped them out.
        It certainly appears early peoples, while respecting anyone able to become an ”elder,” also had a lot of hard earned wisdom regarding their maintenance of the prairies and forests and waters where their living/livelihood came from.

        • Harrold says:

          Elder was someone who reached 40.

        • VintageVNvet says:

          10-4 H, just one of the ways this time really is different.
          After reading “Lonesome Dove” recently, I followed up with a biography of Geronimo by Angie Debo.
          Really amazing what life was like for him and his contemporaries, and equally amazing what they knew about healing remedies growing in that area, etc.

      • Prior to the use of the horse, Indians used the stampede method. The horse preceded western settlers by only a few hundred years, if that. The horses on the NA continent were brought here by the Spaniards. Now you have the quarter horse, which is part of that line, and the thoroughbred, brought by Europeans. For plains Indians the horse was a new technology which was disruptive and amplified tribal energies. Their use of horses and the repeating rifle gave them a technological advantage, which was overcome only by a larger, industrial economy. Just as central bankers intend to capture and command Bitcoin and apply it to the old money economy.

        • Paulo says:

          Hudsons Bay Company and the NW Company supplied First Nations in BC with traps for fur bearing animals. Almost every animal was taken until collapse. It’s the technology that does it, regardless of what colour your skin is. A seine boat takes all the fish, doesn’t matter who drives the boat. That is why there are openings and laws against creek robbing. Wisdom of elders is a myth as far as stopping the harvests. I see it every day with timber sales and logging, in 2020.

        • 91B20 1stCav (AUS) says:

          Paulo: well-said, as always.

          May we all find a better day.

        • nick kelly says:

          The first practical repeating rifle was not invented until 1860 (Henry rifle) It was not in common use until 1870 (it was expensive) by which time the buffalo were nearly extinct. Only about 100 survived by 1880.

          The impetus for the repeater is war, where the opponent is shooting back.

      • Shreriff says:

        The Kiowa were the only plains Indian tribe to fight at night. The Blackfeet tribe hated everyone but Blackfeet. The Delaware tribe was one of the meanest tribe,from being pushed east for over 80yrs.. Plains Tribes avoided the Delaware tribe as much as possible.

    • 91B20 1stCav (AUS) says:

      TomP-i truly admire your eloquence in the face of adversity, and your stated willingness to attempt to ‘change the game’ and face the new challenges that always brings. The teetering balance of the human condition, at once magnificent and miserable, is now on steroids from our sheer numbers. One decides to go or not, quietly into that good night, or the silent, dark and deep woods (or, tip the balance, apologies to messrs. Thomas and Frost). The way forward, as you well-know, is rarely clear, and making your own path takes a lot of hard brushwhacking (as opposed to following the ones flattened by preceding centuries of the human herd), but it will be YOUR path. Or, as the Buddha said: ‘life is suffering’. It will always be there. But you can make it only an expected part of a better whole.

      I wish i had some better responses for your perceived solutions, other than beware of falling into a mindset of victimhood, for that will cripple you more than you know. As i said here long ago, i don’t play in the financial markets, but follow Wolf’s most excellent site to get the numbers of the latest trucks from that world that blow the stop signs to barrel down on my (modest) life (plus consider the many, many excellent observations from Wolf’s commenters), and, with that info, hope i’m still agile enough to perform yet a few more clean paso-doble’s in my dotage.

      Much obliged for your kind nod.

      Y’all be safe, stay well, and…

      may we all find a better day.

  20. Furgeson says:

    I’m 37 and have a nice 401k and some side IRA/Roths, and I have seriously thought about just taking a lot of it out and paying off my mortgage.

    At this point, “career” looks like a joke, considering that this is the second major financial crisis during my working life. Some part of me just says, screw it, I’d rather have the house paid off and done with than worry about 30 years from now. But this might be naive.

    • Lisa_Hooker says:

      If you tie up your money and mobility by paying off the house will you still have to pay increasing RE taxes?

      • Furgeson says:

        Thanks Lisa, as VintageVNvet says below it’s probably best to think about whether I would have access to a Homestead act or something similar. Otherwise yes, the taxes are about $5k a year, which is a lot.

        • polecat says:

          Our’s are < 1/2 that .. so far. We have a possible school district. levy coming up for proposal this fall .. on top of the Last one Last fall! Both, to be sure, predicated on pre-covid expectations, as usual.

          I think that the district boosters are going to be in for a bit of a shock.

        • Anthony A. says:

          37 is still pretty young, and a lot can happen over the next 35 – 40 years of your life. Paying off th house is a good idea, as long as you can afford to stay there and continue earning. Also remember, a homestead exemption is just a few grand off the taxable amount of the house. Taxes will continue to go up, they always do!

          Take care of your family above all (if you have one yet) and like a good friend of mine told me that in bad times, “keep your head down and keep thinning the cabbage”. My friend was an interned Japanese citizen here in the U.S. during WWII. I worked with him in CA during the 1980’s.

    • VintageVNvet says:

      Good plan IMO F,
      We did that about 5 years ago, in a state with constitutional limits on property tax increases and decent exemptions for homestead and elderly and disabled folks.
      As a result, we can currently live on my SS alone if we have to, including driving across USA and back once a year to see family and friends and new places. (So, currently also, we save a few hundred every paycheck.)
      The only hitch in the giddy up, so far, is that I either have to not drink my fave wines every day, or abstain for a month or two every year, or degrade my wine budget.
      The point of the above re wine is that one can live without wine and all the other luxuries, and live comfortably with very little income needed for basic NEEDS after the house is paid off.

      • Furgeson says:

        Thanks for this post! I will have to do research on homestead act stuff.

        Because I’ll tell you one thing, I have already learned to make my own wine! It doesn’t even taste like bug juice, either, getting pretty good at this.

        • Kent says:

          Like you, I had a bunch of money in 401ks, IRAs etc… and lost a bundle with the drops in 2000 and 2008. I stopped putting money in those things and paid off my house instead.

          Downside: everyone knew the market was toast so why put money in? Well the market wasn’t toast and took off on an historic run. If I had put my money in the market, I could have paid off my house and bought another one for kicks.

          Upside: My house has been paid off for years. With the house paid off, I paid off my cars, boat and motorcycle in one year. I quit a job making $150k and took one closer to home making $110 which is a great place to work. I have zero financial worries. I can lose my job tomorrow and have no worries about living on the streets.

          Anyway, the question is one of risk vs comfort. I’m not unhappy with the decision. But I left a few hundred grand on the table. Oh, and I live in East Central Florida. The annual taxes on my 3/2 $300k house is $1200/year. Less than my cable bill.

        • VintageVNvet says:

          Good for you F,
          I tried it several times, once to the tune of 20 gallons with extra abundant fruit one year: neighbors loved it, but I could not drink more than a wee dram, and even that not more than once or twice…
          Best of Luck with the wine and the taxes, the latter being the bane of all thrifty savers!
          And if you want to go low, consider buying a piece of rural land – preferably with electricity and water nearby, and just build a ”barn” on it, finish out the barn looking structure with windows and doors that cannot be seen from the always locked gate, interior to suit, etc., etc., then ”green belt” the land if possible, and keep a low profile except to go shopping as needed. You might live for many years with only AG tax rate.

        • polecat says:

          Hear here! That’s the spirit.

        • Paulo says:

          Furg,

          A paid off home is a wonderful thing. It provides freedom. I didn’t bother much with the tax advantages of investing and chose to pay off a home instead. I have now been retired for 8 years. Retired at 57. Good on you with the wine. I did it for years and quit because I started to drink too much. One year I bought $1800 worth of grapes. Life of the party and hospitable host was me. :-) I made killer Zinfandel with California grapes. Pinot Noir. mmmmm Seriously, if you live in a low tax area you can survive some very lean years if required provided you have no debt obligations. We have a years worth of salmon and vegetables in the freezers, canned everything, land, tools, stores, and skills enough for a small village. Now, if I could only find that damned fountain of youth……

          What are the tax implications when you pull out your money? Are you taxed on it as income like we are in Canada. I dole mine out at $700 per month to avoid a higher bracket, as does my wife. With modest pensions we do just fine. If there are no pensions we would still survive okay by tightening up expenditures.

          A cash rental is also a good option to consider. My son is your age with a house he rents out next door to me. He is now shopping for another place in town that has a suite in it. He’ll live in the suite and plans to rent out the main living area to cover the mortgage payment. When he is away working someone will be in the house keeping some heat and lights on.

    • Just Some Random Guy says:

      You’ll have to pay tax on that 401k, which will be added to your current income, so you’ll be paying at a high tax rate. And the 10% penalty on top of it. If you do this plan (which I think is a bad plan but your money), do it over a few years so it’s not one huge sum that bumps you into a really high marginal tax rate. If you can swing it, go part time work for a couple of years, earn as little as you can and then the 401k withdrawals will be taxed very minimally, if at all.

      • Ruthless Gangbuster says:

        I think the CARES act allows withdrawls without penalty, check it out, I ain’t in the US but know about it, could be over now though.

    • Lance Manly says:

      I would not pay you mortgage off, whoever is holding a note at these rates is going to lose money to inflation over the coming years.

    • Wolfbay says:

      My house is paid for but a low rate mortgage might be a good thing if you have the assets to pay it off if there was ever deflation. What if the dollar tanks and we get more inflation like the Fed wants? Then it would be nice to have some debt. Savers get punished and debtors get bailed out.

      • Paulo says:

        No Wolfbay, I respectfully disagree.

        It didn’t work like that in the ’70s. There was really high inflation late ’70s so ‘they’ put the rates up to curb the inflation. Those with debt felt a lot of pain. I had modest debt on a mortgage so got by okay. What would people do with 3-4-500K in mortgage debt that goes to 18% (which is what happened in 81). You. Go. Under. It is not nice to have debt when there is inflation. Oh, on the way up it looks like a win win. Until you slam into a wall like losing a job because companies can’t afford to borrow money, either.

        No debt = freedom.

        • David G LA says:

          Paulo / Wolfbay
          There is some confusion here. Paulo – Wolfbay is describing a fixed rate mortgage scenario. Maybe in Canada there are no fixed rate mortgages, and this is causing the disconnect in your response ?

  21. historicus says:

    The Fed has created imbalances and desperation “investing”, yield chasing that throws the risk return ratio into new territory.
    For every action by the Fed, there is an equal and opposite reaction to which they seem to be oblivious.
    This is precisely why they can never unwind that which they put in place.
    They rescue but never retire.
    The country will be in a different place the day after this election. It is difficult to imagine exactly what that will be, but peace in the streets and normalized interest rates dont leap to mind.

  22. James Charles says:

    This monetarist is predicting inflation.

    “Only in the USA has the upturn in money growth been truly unprecedented (with an annual rate of above 25%), along with Canada, where the annual rate of money growth has risen above 15%. The next two to three years will show whether this surge in money growth (broadly defined) is inconsequential, as most policy commentators and central banks seem to believe, or whether it will have a significant effect on inflation.”
    https://mailchi.mp/49d20aedab1b/which-economic-thoughtcomes-out-best-from-the-last-decade-1336160?e=260ed9002a

  23. Rover says:

    Precious metals and PM mines are the only asset to buy. Go all in. Q3 earnings will be a smash

    • WyleeEconomist says:

      I went all in on Gold & Silver low fee ETF’s in may… and while recently I have taken a small hit… Overall I am still way up. Not Tesla up… But my risk/reward ratio feels good.

      This year I wanted someplace to put my money until after the US presidential hand over of power… or not; that can beat inflation.

      I definitely agree prices are going up, and will continue to go up… I am concerned that Stocks and Real estate are bubbles. I also am concerned how any president is going to get out of forbearance and eviction bans…

      I am shocked at the relatively high numbers of people who are voluntarily leaving forbearance. What I personally see happening is that if unemployment stays over 10%… And especially if Trump wins, forbearance will be extended indefinitely. I definitely do not think Trump will make the unpopular move of ending a popular program. The only compromise I see is, they may end the option for new forbearance applications and just continue to extend existing forbearance terms… I could even imagine a scenario like the last housing bubble… where the fed allows borrowers to renegotiate their mortgages, to lower principal amounts and let them walk away from the difference again… like they did in the last bubble. All that to say, get into forbearance if you can, even if you don’t need it, think of it as a massive subsidy, you do not want to miss out on. Worst case you extend your mortgage… Best case… you don’t pay your mortgage for years… Then the fed forgives the missed payments.

      Also, while I agree all the non-risk investment options have been moving together… Gold in particular has been following market fundamentals still. It’s rise correlates pretty closely with the fall in value of the dollar.

      So, unless there is a sudden massive increase in the strength of the dollar… (meaning market confidence… which of course you would move your money back into stocks…) Gold has a very low chance of suddenly plummeting.

      On the contrary, when you look at all the risks to strength of the dollar coming in the near term… How could you not be hedging in gold?

      1. US Civil unrest due to racial tensions
      2. US Civil unrest due to election tensions
      3. Covid surge, Covid Vaccine failure
      4. further escalation of climate change issues (fires, hurricanes, etc)
      5. US Dollar loses reserve currency status (China is gunning for this HARD, and Russia is just trying to incite a US civil war)
      6. Trump says/does something more stupid than usual causing a market/bank panic

      If any/some/all of those scenario’s come to pass gold will be seen as the only true safe haven.

  24. Jdog says:

    People really need to understand they have much more control over inflation than the Fed does. Inflation in today’s economy comes primarily from the use of credit. If you look at the data, you will see a direct correlation between inflation, and the mass use of financing and credit cards beginning in the early 1970’s.
    Remember the Fed does not give money away, it makes money available to borrow. The mechanism by which that money gets into the economy is credit purchases. The fact that a credit purchase involves paying more for a purchase, than its actual cost due to interest on the purchase is inflationary. The money for credit purchases is created out of thin air at the point of purchase.
    If the public rejects the use of credit, or limits it only what is absolutely necessary, the inflation will stop. It is that simple.

    • Twinkytwonk says:

      100% agree. However, there isn’t a shortage of people who will borrow the maximum they are offered and then some so I can’t see this inflation declining. For anyone with some savings the best thing you can probably invest in is yourself, be that training or equipment that can be used to make money and give future security. If someone does a job well there will never be a shortage of customers.

    • Tony22 says:

      In a business that only gets 96 cents back from the card companies for every dollar charged on credit, say a business that only has a profit margin of 4%, they are thus working for zero profit on that transaction.

      It is not unreasonable to ask them for a 2% discount paying cash. You both come out ahead.

      Any purchase or service that you cannot write off against your taxable income should always be paid for in cash with or without a discount.

      Without a discount means that you are handing the tradesman or merchant an extra percentage equal to their final income taxes and forced contributions.
      Consider it a form of local charitable giving.

  25. Chimpy says:

    Inflation is already shooting up.. i see that when buying everyday stuff. so it is a matter of time before it starts to hit some of the inflation markers… question is.. if stock markets are doomed and low risk avenues (like bank deposits) are not enough and bonds are going to eventually either default or yields will go up, then what should one be investing in???? Gold/silver…? (they also look inflated)…

    • ru82 says:

      lol….you need at least $40 million a year to pay a good NFL Quarterback. Lots of analysts were saying Patrick Mahone left a lot of money in the table with his 500 million contract. They ask terry Bradshaw and he said 45 million a year is 45 million. he didn’t leave any money on the table. Bradshaw made less than 100k when he started his rookie year and was the highest paid QB in 1981 at 470k. lol. That is what a top QB earns in 1 quarter theses days

  26. Brant Lee says:

    I spent some dough and bought a used backhoe a few years ago. I may not make much money digging ditches when times get rough, but dang it’s fun to play on even if I only moved the hills to different locations around the place. Best thing I ever did for myself. Should have done that instead of getting married the first time.

    • Paulo says:

      Sheesh, I’m still resisting the siren call of an excavator. I hire a friend a couple of times per year and another friend is getting some kind of track machine. But…meanwhile my roads and trails are growing in more and more, every year. I might go on Craigs list any minute…Farm Equipment section.

      My wife the other day asked me, “So how much would one of these cost”? If you knew my wife you would understand that is code for, “buy it if you want one.” But if you knew me, that pretty much guarantees I won’t because I’ll sit around and try and justify it. Great wife. :-) Hydraulics, I think it is above antibiotics on the list of monumental discoveries and inventions.

      • Brant Lee says:

        LOL. Right. As far as investment, this 1980s Case backhoe is well made, no electronics. I gave $10k and get offers for the same price now. It does cost a little upkeep, hoses, tires, etc but the good equipment holds it’s value. Even more amazing I could part this thing out for over $15K if I wanted, there is so much demand for parts.

    • Lisa_Hooker says:

      Brant, I have thought about doing that for years – the backhoe part. I’m glad you did.

    • polecat says:

      Who knows .. You might get hired to dig an occasional grave site now and then.

  27. Just Some Random Guy says:

    The mini crash of last week is ancient history. Look for another 15% leg up by year end. As much as the naysayers may try, you can’t stop this train. Everyone has a simple choice. Invest and make money in the long term, or keep your money earning 0% in a savings account and lose money.

    • Petunia says:

      We went over our budget last Xmas, there is no way we are doing it this Xmas. We are already discussing all the things we are not doing this holiday season.

      BTW, you are not losing money by holding it tight in this economy.

      • Petunia says:

        P.S.

        We had a neighbor who for years threw his spare change into a wooden crate in the basement. He cashed it in when the crate started to spill over. It was an impressive number, which I can’t remember, but was in the 5 digits. He didn’t miss the lost interest at the payout.

        • Wolf Richter says:

          Petunia,

          We here in San Francisco save all our quarters for parking meters. Two hours of parking somewhere busy can eat up a whole pocket of quarters. We call that our “Parking Meter Fund.”

          If I added it up over the years, it would probably be an impressive amount too.

        • polecat says:

          Wolf, get a dirigible instead, for slow ride. Keep it tethered, when not in use, on your apt/condo roof.

          See, no need for change, just a change of conveyance!
          ‘;]

        • nick kelly says:

          I was trying to figure out what WR was talking about. Quarters? In SF? How long do you get for a quarter? In Vancouver or Victoria not long.

          Then I remembered the US doesn’t have one dollar coins in circulation. Here in Canada there are no one dollar bills but the 1 and 2 dollar coins are common and last for decades, although older loonies (1 $) look like crap after 20 yrs. The bimetallic toonie (2 $) is better made)

          As much as a pain coins are for meters I can’t imagine lugging 2 hours in quarters.
          Do you still have the penny? God I was glad to see the end of those. One day near the end of those friggen things I was in McD’s and my tab was 7.01. Checked floor change: no pennies. Everywhere else in the dying days had a ‘take a penny leave a penny’ jar. Not McD. So the kid checks his drawer and HE doesn’t have any ( my change needs 4)
          So he has to go and get a roll, break it and pay me. When I got home I calculated it cost McD about 15 cents to get that cent.

        • Wolf Richter says:

          nick kelly,

          To address some of your points:

          1. We don’t “lug” quarters either. They’re kept in the car, and the fund is replenished whenever we get quarters as change (I pay cash mostly, so I do get change).

          2. Depending on what time and where you park, you can get deals where a quarter buys something like 15 or 20 minutes. Other times, you might just get a few minutes per quarter (friggin “smart meters”!!!)

          3. We USians do have dollar coins, but they look dangerously close to quarters, and everyone hates them. So they don’t circulate much. Here the place where you regularly get them is as change from the CalTrain ticket machines.

        • Tony22 says:

          Wolf, those quarters in your car are one reason bums break in–hide ’em. Parking meters are my lifetime mechanical nemisis. Forced tribute to the enemy at city hall. Never met a meter that I could not get free time from or jam. State law says you cannot be ticketed for parking at a broken meter. Time limits still apply.

          As a kid, I watched a pinball machine repairman use a special device to equal dropping a coin in the slot so that he could test the machine:
          Picture a piece of metal, coin sized, with additional material coming to a rounded point along one edge, a thin but stout wire embedded in the point. He’d drop that in the coin slot to trigger whatever the coin activated, and then he’d pull it back out with the wire. ;->

        • Wolf Richter says:

          The quarters are hidden in the box under the central armrest. We never leave ANYTHING out in the open…. However, my wife left her lunch bag on the seat one day, and they broke in and stole her lunch (not the hidden quarters), and we had to get the window fixed.

      • Just Some Random Guy says:

        “BTW, you are not losing money by holding it tight in this economy.”

        Ever heard the term opportunity cost?

        • Petunia says:

          IMO the opportunity cost is negative, because it’s all downside risk. Think about that for a moment, this is where we are, everything has inverted.

    • Alku says:

      How do you know that? :)

      Even in technical terms, the indexes only bounced like 30% off recent low – standard for a correction.

  28. MonkeyBusiness says:

    Very good podcast as usual. I would say the US market is different from other markets though because the sheeps in the US have short memories. In many other countries people truly understand the statement “fool me once, shame on you, fool me twice, shame on me”. US sheeps however take it at the back every couple of years and thank our corporate overlords for the privilege.

    “Hope is a legit stock market strategy” is deeply ingrained in this country.

  29. Bobber says:

    The prudent saver hasn’t had any options for many years.

    You could argue stocks have been overvalued for a long time. The only reason stocks and bonds have risen the last ten years is luck, given all gains have been attributable to a gradual, underhanded shift in Fed policy from prudence to recklessness. Who could have expected or foreseen a government agency acting in such an irresponsible manner, for so long a period, leading the economy down a path towards another huge debt binge and crash?

    If the Fed hadn’t clung to desperation as a policy, markets would have corrected on their own a long time ago. Stocks would be at reasonable levels, debts would be manageable, and the economy would be much more fair, distributing financial gains to workers and prudent investors. People would be able to invest in the future.

    • Martok says:

      Bobber,

      Right on target, prudence replaced by recklessness.

      I used to be a regular investor, but now daytrade/scalp, and done for this day, out with a nice profit.

      I’m also done with any traditional investing, the market is rigged just by itself, then you have the Fed appeasing political motives, and now they have painted themselves into a corner, out of ammo because the C19 crisis will be a “wrecking ball” to everything for years.

  30. RoundAbout says:

    It makes sense that markets are going down in developed countries because of negative population growth. eg. Japan. Italy and its empty towns. China is starting to get old too. Each less person in the future society is growth removed from the future. Maybe the US is an exception because of the immigration but now has a unstable culture.

    More retirees and savers with less growth opportunities to invest in. Not enough workers to generate that retirement income. Savings FDIC insured with no risk really implies no interest. Paper it all over with some QE for political reasons driven by congress and the president and here we are.

    The innovative companies will not be initially listed in an index ( mature companies with shrinking market over time from depopulation ) and that is where the investment opportunity will be. Assuming they really break ground on new forms of business and innovative ideas. Here some ideas: anti gravity, space infrastructure, curing age, real AI, fusion power, etc. Big ideas and breakthroughs are what is needed — “new growth”. Otherwise, its all priced in.

  31. MCH says:

    Interesting, wonder if this is setting a stage for which asset drops the least in the next 10 years.

    Set against the back drop of social instability in the US now, one wonders what is the next shoe to drop. So many possibilities…

    Revolution seem to be coming. Although no one can be sure of the form, we are in another transition though, to what is TBD.

    • polecat says:

      All my sabots have tacks on the bottoms of the soles, whose names are embedded with the souls of the House And the Senate.

      Aim Ready Throw

    • Jdog says:

      Every excess requires a return to the mean, but the correction often requires overshooting the mean by a considerable amount before finding equilibrium. Those are the buying opportunities.

      Revolution? No, some insurrection maybe, but that is not the same. Revolutions are organized and have a purpose. Insurrections are disorganized with agendas differing from place to place.
      Economic depression for sure, and that is usually followed by war. It is an endless cycle… One thing is for sure, we are not returning to where we were.
      Have you noticed the growing amount of animosity and hate among the people? When this much hatred is being cultivated, there is a reason, once it reaches a certain level, all it needs is a direction to be pointed in.

      • Alku says:

        This is exactly how the proponents of the Socionomic Theory of Finance would see it. When social mood changes from optimism to pessimism, markets go down and wise versa.

    • MonkeyBusiness says:

      No revolution in the immediate future. No one even has a coherent agenda for one except “where is MY Louis Vutton?”

      The country is too fragmented for a common cause. Everyone certainly agrees though that they and they alone deserve everything, but not everyone else.

  32. Jdog says:

    This is not the first bubble market, and it will not be the last. Every bubble market is the same, it is a game of musical chairs where the music plays too long, and too many chairs are removed.
    The only thing supporting the economy and the market at this point was the massive CARES act, but that is now exhausted, and there is nothing in the pipeline to replace it. Some of us can smell the smoke, and others cannot.

    • sunny129 says:

      This is the 3rd largest ‘everything bubble’ world wide, bigger and unlike dot com or the housing bubble of GFC!
      Massive and homongous build up of DEBT on DEBT all over the world.
      The DOWN cycle may last more than a couple or even several years!
      GFC will look like walk in the park. It was the warning but got ignored and the festering financial problems masked by more debt!

  33. NARmageddon says:

    @Wolf, slightly off topic, but relevant:

    Looking at Fred graphs for WALCL, TREAST and WSHOMCB (=total balance sheet, treasury securities held, mortgage-backed securitie held) I see the following: WALCL is flat recently, TREAS is up sharply, and WSHOMCB is flat).

    So what has been reduced to cancel the increase in TREAST? I peeked at H4.1 release and could not figure it out. Is the unwinding of repos that turned into outright purchases of TREAS?

    • NARmageddon says:

      I think I found out:

      I think the answer is that repo got replaced by outright TREAST purchases, see FRED WORAL.

      Wolf has spoken about repo windown extensively. I had just missed that repo turned into TREAST by permanent purchases (POMO). Please correct me if I am wrong.

      Speculation: When repos (WORAL) spiked on March 18, FOMC soon thereafter announced QE4/POMO becaise they knew banks would not be able to unwind their repos unless they had a buyer of the TREAST collateral trhey used for the repo. Fed/FOMC steped in as the buyer. Of course, Fed never explained their actions this way. That would be entirely too truthful.

    • NARmageddon says:

      @Wolf, yeah, you had all the data in that previous post, but what was not clear was that the repo loans had been 1-for-1 replaced with outright treasury bond purchases.

  34. DR DOOM says:

    Have no debts , save your money and pray for deflation. Jerome is losing control because he is babbling non-sense about inflation with even bigger fools trying to tell you what is encrypted in his babble. Jerome is a lawyer and has made his elite buddies very wealthy. He is terrified of deflation. Deflation is great for a debt free schmuck hillbilly like me. De-basement is your enemy .

  35. Saylor says:

    Ya know…, we talk about the impact of the COVID virus. We ‘sometimes’ skim the market effects of climate change (near future). But I’m looking at the fires burning in 13 different states of the U.S. (not bothering with the Amazon forest) and have to wonder about the overall impact of the smoke and ash. Ash is falling in Michigan, the smoke haze is effecting the sun sets in the mid west. The financial impact on these states that are burning will break what is already broken. It won’t be a ‘ignore the blue states’ even if Trump were re-elected. There will have to be money printing just to deal with the fire bill. So…, inflation? “Baked in” you might say.

  36. Eamonn Harter says:

    With oil below $40, where is the inflation? The stock, bond and real estate bubbles are the result of QE and temporary belief in the Fed’s hype. They can’t create inflation with 30 million Americans drawing unemployment, businesses failing at a record pace, and foreclosures and evictions about to surge.

    • Anthony A. says:

      Where I see some inflation is in grocery items, the use of professional (and non-professional) services, and in health-related costs. As an example, our medical insurance premiums went up 10 % this last year. There are many other examples..

      • Eamonn Harter says:

        Medical insurance, medical services and pharmaceuticals are under the control of a cartel. This is what has caused their prices to increase, rather than generalized price inflation. There is no free market to set a price for any of those items. Same goes for ‘education’, i.e. the cost of credentials.

  37. Jimny says:

    Wolf,

    Big fan of a lot of your analysis but cherry picking foreign index tops and then saying that buy and hold doesn’t work is silly. It’s buy and hold with dollar cost averaging over many many years. While these inexes didn’t have the returns of the S&P 500 over the last 10 year stretch, many had returns of around 5-8 percent over 10 years, in line with the foreign v. domestic cycles.

    I agree that us vanilla indices are overvalued. But it’s not impossible to find value both domestically (value indexes) and internationally. They usually are not deals but at least are worth consideration.

  38. Just Some Random Guy says:

    One way you can play it safe is split your investment between mirror index funds. For example, 1/2 the money in a DJI index fund and the other in something like DOG which is a DJI short. You’ll make 0% on this play as the two investments cancel each other out. But you’ll get the dividends from the DJI. And 1/2 dividends from DJI is still better than the yield on a govt note.

    Essentially you have a bit of risk free return.

    • Bobber says:

      That absolutely does not work. Think about it for more than a minute.

      • Just Some Random Guy says:

        OK ‘splain why it doesn’t work, ABSOLUTELY.

      • RightNYer says:

        Why? I’ve wondered myself whether buying an equal amount of an inverse ETF would be a good way to “wait out” a year capital gain period. I’m sure you’re right, but I can’t figure it out right now.

  39. David says:

    It is hard to fault your analysis again Wolf. Over the past 6 months you have been repeatedly saying that the Fed is talking things up but actually doing very little. Now it appears that anything it does will be mostly ineffective.

    But the belief is there. Apple is worth more than the entire FTSE100 (and many other global stock markets). We have a virus that is causing untold economic damage to a world economy that was already showing the appearance of hitting the limits of growth. Everything is pointing to inflation, or is it deflation? Nobody knows, but I think almost everyone reading your site believes it won’t end well. And we must be close to a tipping point.

    To quote Hemingway, how did you go bankrupt? “Two ways, Gradually, then suddenly.”

    • sunny129 says:

      The beginning of the END?
      My guesstimate within 3-4 months!
      Not straight down but with very high volatility in both directions. the DOWN cycle itself may take several months. Dotcom bear lasted around 22 months. GFC around 18 months until Fed jumped to the rescue!

      Good luck to those in and nearing reirement in the next 5-10yrs or even more! All the demand/growth has been brought fprward since ’09. Covid 19 will make the recovery much harder!

  40. Chauncey Gardiner says:

    Would love to see the Fed’s and elected officials’ public justification for a policy of negative real interest rates and enabling the usual suspects to blow recurring financial asset and real estate bubbles.

  41. Jim Bayer says:

    I have to wait for the transcript. Our satellite provider is so slow that I have to scream at the rolling/buffering icon because of the smoke.

  42. Michael Engel says:

    After Sep 3 big red supply bar, on higher volume, SPX is
    pumping muscles between Feb peak and Feb gap.
    Sep 11 is a spring that had no increase in buying (volume). SPX gap higher today, on the same volume, but produced a low quality smaller bar.
    NDX was really hesitating today. A tiny bar produced by the same volume.
    Something is wrong.

  43. RickV says:

    One investment option not mentioned here is TIPS. I’ve been retired for 17 years in October with house paid for and no debts. The past few years I set up a 10 year TIPS ladder with annual maturities that will cover my expenses each year. Along with social security it gives decent protection against an inflationary surge. Now the price has gone up along with other investments, but still is worth consideration. Nothing to worry about now for 10 years.

  44. sunny129 says:

    Just diversification without uncorrelated assets will not protect one’s portfolio. Just study the charts of the BEAR mkt of 2008 and 2000.

    Uncorrelated assets have to include going AGAINST the mkt, NOT easy considering, those who went against the Mkt based on fundamentals have suffered tremendous loss. This includes me, although my loss was limited to profits made during GFC, when true Free capitalist mkts existed!

    Going against the mkt is an anethema for many. Many don’t how to position their portfolio during protracted Bear. Hence many suffer loss.
    Been in the mkt since ’82. Have survived more 2 bears including ’87 crash, 2000 and 2008. The coming one will be (when? – my guess within 3-4 months) more devastating than any previous ones b/c of homongous level of DEBT ( both private/public) unlike any time in global history.
    Trade (invest?) accordingly!

  45. mtnwoman says:

    Thank you for the education you provide Wolf.
    You explain all the reasons I struggle to figure out what to do with my assets.
    I have no debts.
    Would rather sit on cash slowly seeping away than get in this stock market where if wiped out, I’d have no time to recover.
    Thanks again for your offerings and integrity.

    • Fool & Money says:

      I spent my years from 10-15 reading “how to get rich books”

      The most important quote I learned was from Carnegie ( steel guy ), he said “Making money is easy, keeping it is hard”

      Today there is no ‘keep it all in one place, and watch like a hawk’, you got to be well diversified. Spread money in many quality brokerage houses, and only own the best stocks & bonds ( directly ), I’m a firm believer that ETF’s, mutuals, and BRK-A operations are not direct ownership. Today shows that being 100% real estate is not safe, t-bills are safe, even gold ain’t safe, as when people are hungry all sell at once. ( I myself right now am 60% cash, simply because nothing is what I call ‘safe’. )

      We all known the stock-market is going down, but nobody knows when. Historically the USA has had its equity days in the sun, and thus other places will do well in the future. IMHO BABA has 10000X potential over AMZN, but even then I wouldn’t put more than 5% of net-wealth in BABA ( really 9988.hk, as the USA cayman op is going to get taken down ), most important thing in future is to own stocks off-shore in real money, out of the hands of the USA imperial system. As we all know the country is broke.

      Have some real solid gold, and you should have bought it 10+ years ago, and tell nobody you have it or where, not even your dog, but even this should be limited to 5%. All is insurance, any of this could go 20X, but like Carnegie said, making money is easy, keeping it is hard, and its always been this way.

      Lastly, a fool and his money, are quickly departed.

      The biggest problem is people ‘chase return’, when in fact they should be only concerned with ‘principal loss’. Lastly, once you get old enough, and minimized expense, you will find you don’t care about money. It’s now what you got, its how much you burn.

      Emerson said it best “A man is rich in proportion to not buying stuff”, if you don’t want or need anything, you are truly the rich people around.

      Go live in a country where medical is free, and/or priced near free. The USA is criminal system, and most of the problem people face are because they didn’t leave.

  46. MonkeyBusiness says:

    Chinese data came strong across the board. I have a friend there and she says that life is pretty much back to normal over there especially in the big cities.

    • RightNYer says:

      Even if that’s true, what does it prove? China has gotten the virus under control, through totalitarian measures. We haven’t cooperated as a people, so it’s not under control here. Thus, people’s behavior and spending is different.

      • MonkeyBusiness says:

        No one’s trying to prove anything. Seems like Americans like you are so thin skinned, that you can’t handle an economic fact.

        We in California also use prisoners to fight fire, will that cause you to go bonkers I wonder?

    • Jdog says:

      Do not believe everything you read. China still has some huge problems, debt default is rampant, as is flight by companies seeking neutral ground that will allow them to continue imports to the US. The CCP are terrible liars.

  47. forest gimp says:

    Anybody can plan. Seems like the ‘victim mentality’ has taken all.

    I myself retired about 35, spent 10 years sailing around the world, then spent another 10 in the USA just ‘hanging out’ ( climbing, skiing & drinking micro-brew ), then 10+ years ago I moved outside of the USA, now I live on $100/month just fine, and spend $400/month on my hobbies. I’m 64, so I now get SS which is about $1800/mon, which is $1300 more than I can spend.

    What can one say? To those who don’t plan? I knew at 15 years of age I wanted to retire at 35, I knew I want to have just 1/2 million bucks. Sure 20-35 I bought fixer-upper houses, and filled them with renters and paid off the 15yr fixed. So by 35 I didn’t have any debt. Just income. Started my own business at 25, so by 35 I was done.

    I just don’t get it? Why so many people struggle to get no where?

    p.s. what do I get for my $100/month? I have a 2-acre farm, grow my own food 365 days a year, and fish-ponds. I 99% just ride a bike year round, still have a few beers after 6pm, and all my friends are under 40.

    I have no idea of ‘how long I will live’ never cared, spent most of my life doing high-risk stuff like flying, fighting, and mtn-climbing, and of course solo-offshore sailing. Life’s a poker hand everyday.

  48. Nate says:

    I guess this being an investment blog it’s focused on investing in paper assets. Best investement I ever made was my own business. Looking at the stats on that is pretty daunting I’ll admit, especially these days.

    I just got into the Gig economy at the beginning of the trend figuring why make somebody else rich when I could have a go at it myself and keep the profits? Have always had about 3 legs (small biz dba’s) to stand on too, figuring one of them would stand to keep the ball rolling.

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