Great Time to Turn a Nest Egg into Scrambled Eggs

It just looks so tempting.

By Wolf Richter. This is the transcript of my podcast last Sunday, THE WOLF STREET REPORT. You can listen to it on YouTube or download it at Apple Podcasts and others.

We are in the miraculous process of borrowing and printing ourselves to prosperity or whatever. Short-term interest rates on essentially risk-free money, such as US Treasury bills or insured bank deposits, are near zero. For folks in many countries in Europe, they’re below zero. Long term risk-free interest rates are below 1% in the US and below zero in some other countries.

With the Federal Reserve leading the charge, central banks have jumped with both feet into the “let-inflation-run-hot” dogma. Inflation means the destruction of purchasing power of the currency, and thereby the destruction of purchasing power of labor paid in that currency.

This is no biggie at the top, where folks get raises to the tunes of millions of dollars. But it’s a biggie for the lower 50% on the income scale. For them, the dogma of letting inflation run hot is going to be very tough. And as inflation saps the purchasing power of their incomes, they’ll cut back.

And for investors, the thin income streams from low-risk investments are not nearly enough to compensate for the loss of purchasing power of that investment due to inflation.

So, to dodge these issues, let’s put or keep our hard-earned nest egg in the stock market?

The US stock market is ridiculously overvalued, though it has recently been through a little bit of a selloff, particularly among the biggest names in tech, or so-called tech, that are down between 8% and 13%, and in Tesla’s case by about 25%, from their peaks just a few days ago. They’re very fragile – after the enormous run-up they’ve had. Many of those stocks, if they dropped 50%, would still be enormously overvalued. If Tesla dropped 90% from its all-time peak, it would still be overvalued.

The idea that stocks can only go up is nonsense.

The US stock market has been the target of global buyers that have pushed US stocks higher because people around the globe believed that it can only go up, after their own stock markets have never gotten anywhere near their highs of many years or even decades ago.

In fact, the US stock market has been the exception among major stock markets.

Let’s look what other stock markets have done, right now, even after the blistering run-up in share prices since March. These are the biggest global stock markets, and every single one of them is down by a big margin from the peak many years ago. So let’s see…

  • The Japanese Nikkei is still down 40% from 1989. That was 31 years ago.
  • The Shanghai Composite index is down 45% from 2007. That was 13 years ago.
  • Hong Kong’s Hang Seng Index is down 10% from the peak in 2007
  • The German DAX is a “total return” index that includes dividends. So it cannot be compared to the other indices here, or to the S&P 500. The German index that is not a total return index and therefore can be compared to the S&P 500 is the DAXK. Despite its red-hot surge in recent months, it’s still down 8% from the peak in the year 2000. That was twenty years ago.

The early months of the year 2000 in Europe was the peak of the combined euro bubble and tech bubble. You see that year cropping up a lot here.

  • The London stock exchange index FTSE is down 13% from 1999. 21 years ago.
  • The Italian stock index, the FTSE MIB, is down about 60% from the year 2000. 20 years ago.
  • The French stock index, the CAC40, is down 24% from its peak in the year 2000. 20 years ago.
  • The Spanish stock index IBEX 35 is down 58% from its peak in 2007, which was the peak of the Spanish housing bubble that collapsed with devastating results. 12 years ago.

So yes, the hopes that stock markets always go up has proven to be a very bad deal for believers in those markets. Buy-and-hold has been costly for these investors – unless they got the market timing right, buying low and selling high, but that’s trading not buy-and-hold. And the other traders that didn’t get the timing right got run over by an endless freight train.

Those markets dove after a huge ridiculous bubble, and they never recovered.

The US markets are now in the same kind of huge ridiculous bubble. And as we want to put money into the stock market, or keep our nest egg in the stock market, we need to keep in mind what happened in the other big stock markets around the world after huge ridiculous bubbles.

And yes, in all those countries, with the exception of China, central banks have repressed interest rates to zero or even below zero.

And in all those countries, including in China, central banks have engaged in money-printing policies, such as asset purchases or similar strategies. As you can see, whatever those policies did, we know one thing they didn’t do: take stocks back to their old highs.

So maybe we don’t want to lose 20% or 50% or 60% of our nest egg. So we think we might put it in secure instruments, such as insured bank deposits or Treasury bills or high-grade corporate bonds or similar.

So we might be earning 0.5% or 0.8% at the bank if we’re lucky. Short-term Treasury bill yields are near 0% now. If we buy a 10-year Treasury note, we’ll only get 0.7% in interest for the next 10 years. So-called risk-free investments – they’re called risk free because you have essentially no risk of losing your principal – just don’t pay much in interest.

This wouldn’t be a huge issue, if inflation were 0%. But that’s not the case. The Fed has promised to let inflation run hot. Inflation has been rising for the past few months, and the Fed has given us to understand that it won’t even think about thinking about doing anything about inflation when it begins to overshoot its target.

The Fed’s target is another thing. The Fed’s inflation target is 2% as measured by the core PCE inflation indicator. This core PCE indicator nearly always runs lower than the core Consumer Price Index. So 2% core PCE might be 2.7% CPI inflation. And if the Fed lets it run hot and it gets to 4% based on core PCE, inflation as measured by CPI will be over 5%.

Meanwhile, we’re sitting on our just-bought 10-year Treasury securities that will pay 0.7% for the next ten years. And short-term interest rates will still be near 0%. High-grade corporate bonds are not much better. So if that sounds like a rip-off, it’s because that’s precisely what it is – designed and executed by the Federal Reserve.

So we say, OK, I’m not going for that rip-off. And the riskier assets beckon. We want to get the 4% dividend yield that a company offers on its stock. We buy the shares to earn that yield, and two months later, the company eliminates its dividend, and our yield is now zero, and the shares plunge. We got whacked twice. That’s the risk.

If you invest in a stock index fund, your nest egg might drop 20% or 50%.

Nearly all asset prices rose in lockstep over the past few years — stocks, bonds, housing, commercial real estate, and the like. There was no diversification possible because they all did the same thing. And now they threaten to remain in lockstep, but in the other direction. In this environment, diversification has proven to not exist.

Even precious metals have surged recently has stocks and bonds and real estate surged. For a diversified portfolio, part of it must go down while another part goes up. If everything goes up together, we’re not diversified. We’re just fooling ourselves.

Then there’s real estate as an investment.

So let me say this first: if you’re ready to buy a home that you want to live in, and you have your reasons to buy it, and you understand that a home is an expense, and you can afford to buy that home, by all means buy it. Don’t put your life on hold, waiting for the right moment.

But it’s important to understand that a home is an investment only during housing bubbles. And they cannot go on forever. The other times, a home is an expense. But if you’re comfortable with the mortgage payments, and you love your home, and you’ll intend to stay there over the long term, by all means, buy it.

But if you’re looking at housing as an investment, because you don’t want to lose money fast in the stock market, and because you don’t want to lose money slowly to inflation with low-risk investments, well then, good luck, because you may need luck. Housing bubbles when they blow up are really rough because housing as an investment is highly leveraged. And housing bubbles have blown up plenty of times before.

We can also try to put our money to work day-trading stocks and options. And that’s a lot of fun and excitement. A real adrenaline trip. But during the past stock market downturns, most day traders took huge hits, day after day, and it turned into the most frustrating nerve-wracking activity ever, and very expensive, until they finally threw in the towel and tried to get their old jobs back.

Anyone can day-trade a relentless bull market. But when it turns on us, it gets really rough. And before we know it, much of our play-money is gone.

So I’ve listed some of the choices and possible outcomes that investors have to struggle with. And there are no simple answers.

This is the most treacherous investment environment I’ve ever seen. There is a good chance that the US stock market ten years from now will look like some of the stock markets I listed earlier, meaning way down from its peak in 2020. There is nothing easier, in this environment, than turning your hard-earned nest egg into scrambled eggs. You can listen and subscribe to THE WOLF STREET REPORT on YouTube or download it at Apple Podcasts and others.

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  128 comments for “Great Time to Turn a Nest Egg into Scrambled Eggs

  1. andy says:

    P/S is the new P/E.

  2. 2banana says:

    Preservation of capital over getting a return.

    Just today Vanguard announced their very long running Prime Money Market Fund (parking money in high grade corporate debt) is changing to park all funds in US Treasures or fully government backed bonds.

    • Cas127 says:

      “Preservation of capital over getting a return.”

      Yes…except it is the very loudly announced policy of the US gvt to create more and more inflation (in order to bail them out of their 100%+ Debt-to-GDP and entitlement cancers).

  3. Memento mori says:

    “…the best way to destroy the capitalist system was to debauch the currency…” V.I.Lenin

    “…There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose…“ J.Keynes

    Money is not only the lubricant that allows our economy to function, it is the measuring stick of most values in society other than just economic.
    If that measuring stick is broken by endless manipulation by the Fed, is it no wonder that our cohesiveness as a society stars to fall apart?
    The societal damage doesn’t need to always show as hyperinflation, it could be riots and disdain for values that hold a society together.

    • Lou Mannheim says:

      This has been my view as well – nobody knows the real price of money, and hasn’t for decades. Ergo, anything priced in USD is also distorted, primarily GAAP earnings and capital asset prices.

      Nobody has the stones to call the wealthy out on their larceny. These 401(K) plans have proven very useful in keeping the proles quiet.

    • That sums it up nicely. Whether it be Continentals, Greenbacks, redeemable Federal Reserve Notes, or irredeemable Federal Reserve Notes, human nature is such that the end result is always the same – always: destruction of the currency.

    • c1ue says:

      You said: “Money is not only the lubricant that allows our economy to function, it is the measuring stick of most values in society other than just economic.”
      I cannot disagree more.
      Money isn’t a lubricant. It is a propellant.
      Money is how value – both past and future – gets moved around.
      The issue therefore isn’t the amount of money issuance – it is both the use of said issuance and the amount of issuance vs. the combined existing money stockpile and the short term growth of the economy/population.
      Yes, the Fed has printed tons in the past decades. It still isn’t much compared to the existing US economy, existing US wealth, US dollars tied up in foreigners hands and in global trade invoices, etc.
      The societal issues are a function of unequal distribution – not the printing itself. Are people complaining about the $1200 stimulus checks or $600/week federal unemployment check increases?
      It is 100% clear that those “printed” funds directly benefited the actual economy – roughly $500B.
      And while significant parts of the PPP went to multinationals and what not, significant parts went to small businesses. Let’s say half went to where it was actually needed.
      We’re up to $750B that actually benefited the economy.
      This is only about 1/3 of the CARES act; probably some of the rest did go to actual regular people as well.
      But let’s compare this with the Obama era stimulus. How much of Obama’s Fed printing went to regular people? The $700B Emergency Economic Stabilization Act – around 0% went to regular people.
      The auto industry bailout? Probably under 5% went to workers.
      As a regular person: bailouts that actually help me are fine.
      As an economist: bailouts that actually put money into normal people’s hands are fine because they then spend it – which boosts the economy rather than bankster’s bonuses.

      • Memento mori says:

        Unless one is an alchemist , I think we can agree that issuing fiat does not correspond to any equivalent increase in wealth no matter how much the government distributes or prints.
        It’s initially a blatant theft from savers through dilution then eventually the whole society pays the price. Especially the poor.
        Historically, inflation has never helped the poor, because even if you make more money nominally, prices always increase much faster.
        But my point was that this devaluation is destroying the more simple values that hold society together, other than economy.
        If the government can cheat and renege on their promises by devaluing money, why should promise and trust hold any value between other members of society?
        Can one view rioting and property destruction we have been witnessing in light of this as well?
        Think of the anxiety people have to deal with when they work hard to save some money that has become a hot potato because the fed is hell bent on devaluing it?
        How can you plan for your future or save for a rainy day?
        Not everyone want to be stock market speculator with your daily moods swinging as the dow goes up or down, there is more to life than that.

      • Engin-ear says:

        “Money isn’t a lubricant. It is a propellant.”

        Money is propellant?


        Money is a tool a and power indicator for those hungry for power.

        Money is a much better tool than barter, especially since it became digital and essentially free to move around the world.

        Propellant is our inner call for dominance.

        Those who had no dominance gene have not survived the thousands years of evolution.

        • Weary Patience says:

          Money is a token barter system isn’t it? You sell services (labor) or wares for $ (token) and in turn you are able to use that money/token to then buy goods or services from another.

      • J.Gerty says:

        To compare the Obama stimulus, which you properly point out did not go into the pockets of “regular people”, is an apples to oranges proposition. Obama supported and preserved some very important industries with that debt. Much of it was paid back, with interest. These industries were able to survive a severe recession while continuing to provide jobs. Other financial supports were provided to help “regular people”. These supports were denigrated, demonized and politicized by Republicans.

        It would be fairer to compare the debt resulting from misdirected tax cuts Republicans pushed through after Trump was elected with the Obama stimulus. All Trump achieved was yet another massive defunding of our country and a heap of new debt for future generations. Whilst his already wealthy beneficiaries were able to pad out portfolios with stock buybacks and other unproductive financial manipulations.

        We are still waiting for that other Trump promise of infrastructure spending. This of course would have required corporations to earn their debt largess. All the while we would have benefited by the creation of jobs and production of some actual improvement on the infrastructure in our country.

        Republican tax cut and spend policy started our National Debt bonfire. They have engaged in 4 rounds of reckless tax cuts since Reagan was president. They still persist in the notion that we can simply tax cut our way out of debt.

  4. paul easton says:

    You seem to overlook the risk that as USG continues to create new money out the wazoo, no one wants the money any more, USG folds, and dollar becomes worthless. Do you see this as a possibility?

    • Cas127 says:


      Nvidia, et al are just the latest harbingers of it.

      But DC is so utterly, utterly degenerate (and has been for many decades) and so completely devoid of anything resembling intelligent foresight, that there is essentially no hope of saving the dollar now.

      Debasement is DC’s crack…they will never stop using until they die.

    • Some people are buying back shares with that new money and some people are saving, or worse not accessing new lines of credit. Money Velocity can go negative. When nothing comes through the pipes you have a liquidity problem.

  5. Wilhelm Stratmann says:

    Whenever this market does correct the state pension funds are going to get a mafia like beating. There won’t be any investment opportunities to try and rebuild. Figuring out how to offer something for existing retirees is going to be a challenge. It will give states the perfect excuse to privatize a lot of functions.
    Going forward only federal jobs or the military will be able to offer a retirement. The military only allows a small percentage to stay for twenty years.

    • AlamedaRenter says:

      I would hope that this will lead to more state banks. The idea of bank of California, Oregon etc etc is picking up steam.

      That could help focus pensions on transparency and make the funds work for the state/people.

      Pensions could back billions in sorely needed infrastructure projects. With reasonable returns and transparency.

  6. Mkkby says:

    So the central banks have flooded the world with liquidity. Not just this year, but for decades. Why are economies still stagnating?

    Nobody seems to ever explain this.

    • makruger says:

      I think it’s been explained….just increase wages, and increased consumption and economic activity will follow. The problem is those with capital don’t like the answer. Kind of self defeating really….

      • Correct makruger. The lack of money in the hands of ordinary people depresses corporate profits.
        But what money the billionaires make now is so, so easy.

      • Mkkby says:

        Which business should increase wages and have their customers move to the cheaper competitor?

        You may recall GM, ford and Chrysler losing all their business to toyota and honda. Detroit was once a shining city. Now a wasteland.

        • Tankster says:

          Detroit was ruined by the bean counters cutting costs (remember exploding Pintos?) and lack of innovation and quality control. We have met the enemy and he is us. Oh yes, and just one more thing. Mercantilist economies with non tariff barriers…

    • bungee says:

      1) floods of liquidity does not an economy make.

      2) something about reserves held at the fed and credit money vs base money and velocity and yadda yadda yadda.. look up jeff snider or lacy hunt. theyll tell you.

      and 3) as Wolf has pointed out here, the fed talks big about flooding the world with liquidity and buying up everything but then just nibbles while the traders do it for them…

      i like to think its because there is a shortage of money when compared to the debts out there. its deflationary. that will morph into hyperinflation though, when we hold down the print button for imports and real goods to keep the gov going.

      • Wolf Richter says:


        The other day you mentioned that you were writing from your “homestead” in NorCal (congrats!). Do you still have your business or did you sell it?

        • bungee says:

          no never! I’m on the way back Saturday. Austin runs the place while I’m away. thanks for asking, Wolf. take care.

    • Kent says:

      1. The industrial revolution is over.
      2. The easy pickings from the computer/internet revolution have been picked. Profitable investments are few and far between.
      3. There are no new highly profitable industries on the horizon that are going to employ millions and drive up wages.
      4. Wage suppression through the destruction of unions. Markets are up not just because of the Fed, but because income is in the hands of the wealthy and they can’t spend it all. So they’re parking it in stocks instead of building unprofitable businesses.

      • Tony22 says:

        “Wage suppression through the destruction of unions.”

        More importantly, using Latin America’s peons to lower wages for formerly middle class American workers, plus China’s via offshoring.

        • Randy says:

          This country does two things very well to suppress wages we export work and import workers. And as someone mentioned earlier about money not making it into ordinary hands. That $1200 pacifier we got just went straight back into the billionaires hands anyway. End the Fed

      • Mkkby says:

        “So they’re parking it in stocks instead of building unprofitable businesses.”

        In a way, this is what wolf just wrote. No profitable business ideas around, so stocks/bonds are bid to the moon.

        Thank you for answering my first question, “why is the economy lagging despite the stimulus”? Answer, nothing left for businesses to do but cost cutting.

  7. Rosebud says:

    I read the transcript, and dumped the last of my nest egg yesterday. Unrelated, or maybe not. Algos are very advanced. Anyway, I sold my shares, and like magic the price I get is a message from God.

    Someone told me the govt will pay for my housing, but hate the idea of living in a house, but what can I do? I can’t grow fur like the dog and stay outside during the winter.

    Money might end soon. I’m working slower these days. I agree, it’s ridiculous talking about covid relief bills at over reasonable levels. I mean, I’m good with 300 billion and letting it go to 500 billion. Mentioning Trillions was a bluff. You can still go to Trillions but the money is just gonna sit there…

    what else? I’ve taken a vow of poverty, and that’s all there is to it. And I don’t want my art anymore.

    • Lou Mannheim says:

      “ And I don’t want my art anymore.”

      I’ll take it, my walls are empty. ?

      • Rosebud says:

        Thx, im donating my art. That way it might last its design life, 2000 years.

  8. makruger says:

    With interest rates near zero now, some of vanguard’s bond funds have done quite well over the past 2 years. For example VUSTX returned nearly 22% YTD. At face value I figured this is because of the inverse relationship between price and interest rates since much of this run up is since March. However the 3 and 5 year returns have been pretty good as well at 10% and 8% percent respectively. Maybe that was due to the higher rates over the past couple of years? Other bond funds haven’t done nearly as well. And the performance of these funds look to be taking a turn for the worst now.

    • Wolf Richter says:

      When interest rates fall, bond prices rise. NAV is based on bond prices. So if the fund has 10 year junk-rated notes that were issued three years ago at a yield of 8% and now the yield is 4%, those bond prices soared. But ultimately the bond will be worth face value when it matures, unless it defaults. So these gains are trading gains, and if they don’t sell those bonds, the gains will disappear as the bond matures. You still get the yield though. Pushing down interest rates is very good for bonds — but only if you trade them.

      If it’s an open-end bond mutual fund, you also have the risk of a “run on the fund,” which can cause the fund to implode. I don’t think the big Vanguard bond funds are at risk, but during the financial crisis a whole slew of bond mutual funds collapsed, including Schwab’s. Huge losses and lots of litigation ensued. You can Google that. Bond fund can be extra treacherous.

      • Thanks for addressing this one Wolf, its probably worth it’s own story. The suggestion is that highly capitalized bond traders will make a fortune when the Fed goes to negative rates. The ability of investors to collateralize bonds is prequel. When bond traders dump large positions that is going to take down stocks, like any margin call, and they use new cash windfalls to buy in after the crash. The Fed steps into the gap.

      • sunny129 says:

        This is the main reason I prefer Bond ETFs compared to MFunds. One can hedge against with options also!

  9. Island Teal says:

    Good article. Ag and Au miners seem like a good place to be positioned along with some stacks. ??

  10. Claude says:

    So true but nobody wants to hear the truth and that is why bubbles keep going on inflating
    Past largest bubbles can tell that: this time is never different
    History repeats itself in different forms but the pattern is aleays the same , people have not changed and nor learned anything that is why
    The Dutch Tulip Bubble
    South Sea Bubbles
    Japan’s Real Estate and Stock Market Bubble
    The Dotcom Bubble
    he U.S. Housing Bubble…

  11. nick kelly says:

    Wow. Powell gives the ‘good’ news and as of right now the futures are tanking. Was the market expecting negative rates? Or is this a case of ‘sell the news’?

    Either way, a very negative signal.

    • Jdog says:

      The reason for that is people are beginning to understand the Fed is powerless to effect the real economy. He may be able to jerk the markets around do to religious fanaticism among investors who believe the Fed can impact the economy, but slowly people are realizing he cannot.
      The purpose of the Fed is not to juice the markets, it is control unemployment and inflation, and it has been completely impotent in both those areas.
      The markets are, and have been completely out of touch with the real economy, believing somehow the economy is going to take off and catch up with the nose bleed market values. That is simply not going to happen, and as we have seen, the Fed is not capable of making it happen. The only question now is when are investors going to realize that. When they do, it is going to be a serious reckoning for the markets.

  12. Georg S. says:

    Thanks for your highly insightful newsletter, Wolf. I am a loyal follower :) but especially lately (that everything seems to be going crazy, which you are continuously pointing out) I am more and more thinking: and now what is left to invest in? I know recommendations are tricky to give but trying to highlight the opportunities instead of only the problems would really help me! Many thanks from Berlin, G

    • Zantetsu says:

      I think you can still invest. But you have to ‘work’ for your return now. The easy money is likely gone. No more sitting on your butt doing nothing and watching your money grow by 20% per year. Now if you want to make money investing, you have to *work* for it by researching, making smart choices, educating yourself, taking risks, etc. I personally think that’s the way it *should* be. Bubble time is just people getting fat and lazy. The crash brings out the lean and strong.

      • roddy6667 says:

        Stock and bond prices are driven more by the emotions of greed and fear than any mathematical factors. A psychologist who is an expert in the behavior of large groups of greedy and fearful people could better judge the market than anybody else.

        • Old School says:

          I think you could roughly break it down into three phases: 1) All assets are being bought no matter what they are. This usually goes on a long time 2) Mixed phase where some assets bubble up and but some roll over. 3) Minsky moment panics market and all assets go down except the “safe” assets. This is usually fast and brutal. Fed is can kicking stage three as far as they are able.

  13. Sea Creature says:

    How about investing in stable developed country overseas indexes that are not bubbly instead?

    Austria : Cape ratio 11.2
    Korea : Cape ratio 13.5
    Singapore: Cape ratio 11.3
    UK: Cape ratio 12.6


    (source : Star Capital monthly cape ratios by country)

    If it’s a US IRA, Singapore, UK and HK (HK dubious these days because of China though) all don’t tax foreign investors, so you can put those in your IRA tax free to boot.

    There are iShares funds for all these countries or you can get an Interactive Brokers account and just buy the stocks you like from those countries on their stock exchanges directly.

    For comparison the same site shows a US Cape ratio of 31.9 … yikes!)

    Why invest in the bubbly US stock market when there are plenty of other great choices out there?

    This would seem to make far more sense in current market conditions.. (Or is there something I am missing?)

    • Pete Koziar says:

      I’m liking Vietnam myself. I’ve been over there and, to me, it looks like China circa year 2000. Lots of factories are moving out of China to there.

      • Sea Creature says:

        Yes, I looked into Vietnam, a very vibrant country and have been there a few times.

        The problem is that I couldn’t figure out how to invest there short of direct investment into companies though people I know.

        The stock market there is not really developed, many (most?) growth companies don’t list on it, and as a consequence, the market doesn’t really track the growth of the country that well (i.e. the country grows while the stock market doesn’t, as all the growth is off-market).

        That may change in a few years down the road though since last year when I looked at this.

        • sunny129 says:

          ETF for Vietnam – VINM
          Singapore EWS

          I focus on the small caps and there are ETFs on small caps in some countries.

    • RP says:

      I was going to buy an apartment in Vietnam until the locals told me the govt often confiscates property. They don’t have western property rights. Careful!

      • Sea Creature says:

        Yes, thats right.. the stories I could tell..

        For now I stick to developed countries, much safer that way..

  14. jrc says:

    You mentioned Tesla being overvalued at a 90% collapse. What is your view of their battery technology future value?

    • Wolf Richter says:

      Well, Tesla doesn’t have the battery cell tech. That belongs to Panasonic and in China CATL. Tesla has the software and other tech around the battery cells. But everyone has that.

      • jrc says:

        Thanks for the clarification.

      • Gian says:

        I know several people who own Tesla’s and love them. They tell me that Telsla is one up on other EV manufactures because of their multitude of charging stations. Any legitimacy to this argument?

        • Wolf Richter says:

          Possible that that’s important for some folks. There is a charging station a block down the street here, in a convenience store parking lot. They have different types of chargers. ANY EV can charge there, from Teslas to Leafs. That seems to be the route to go. But Tesla has a network of its own exclusive chargers. So that’s a plus.

          The thing is – I would probably not buy an EV if the only place I could charge it is at a charging station. The hugest benefits of owning an EV for my wife (who is driving work every day) would be to be able to plug the car in at night in the garage and never have to go fill it up or charge it up anywhere.

    • MonkeyBusiness says:

      The only valuable thing Tesla has is Elon Musk.

      Take him away and the company collapses.

      • Ed says:

        Tesla has a long history of partnering and then bringing the design in house.

        Battery tech seems to me a very difficult case for that. But I would have said the chip design was difficult too and they brought that in house.

        (Tesla partnered with Mobileye and Nvidia, in succession, and dumped both after learning the craft)

  15. rich says:

    Powell had told the world that the Fed is pushing for higher inflation. The stock market feeds off of inflation, and, yet, I’m still scared s**tless to jump in.

    However, now that single family rental real estate investing has become local again (unlike it was during the great subprime/liar loan driven market of 2004-2008), I’ve been building and keeping single family rentals. In other words, when it comes to ROI, investing in the Manhattan (NYC) makes little sense, while investing in Manhattan, Kansas can make all the sense in the world.

    • MonkeyBusiness says:

      “The stock market feeds off of inflation”. Are you serious. We saw 20% inflation in the 1970s, and the stock market went nowhere.

    • Jdog says:

      The Fed has been, and will be, powerless to impact inflation. Despite everything the Fed has done, the best they have been able to muster is 1.3%, and that is with record amounts of intervention.
      The reason they have not been able to do any better, is massive money destruction is causing deflation on a enormous scale, even though most of it is being “delayed” by forbearance. Money destruction is offsetting every dollar being borrowed and injected into the economy, and then some.
      As with all interventions, the Fed used its most effective tools first, and they failed to have the impact they needed to turn this thing around. Anything they have left in their bag of tricks now will not be as effective. As the tricks like forbearance end, the deflation that will come from the massive defaults that will occur. Nothing can stop that.
      You need to understand that the Fed is fighting the deflationary money destruction with smoke and mirrors, and not real solutions.

      The markets and the real economy are diverging radically, and that means one of them are wrong. The smart people know which one…. The rest are still in the markets…

      • cb says:

        jdog said; ” is massive money destruction is causing deflation on a enormous scale,”

        what money has been destructed?

        • cb says:

          @ Wolf –

          Do you know what money destruction jdog is talking about?

          Are you aware of any money destruction at all?

      • scoot says:

        Read The price of tomorrow by Jeff Booth (or catch one of his interviews lately on utube) to understand the deflationary effects of technology.

  16. LoneCoyote says:

    Well, at least if my nest egg turns to scrambled eggs, I’ll have something to go with my tossed salads.

    This is making me seriously consider whether I should gut my 401k to pay for a house if I move out west next year.

  17. Michael Engel says:

    1) RE prices in major cities, like Chopped NYC, are falling.
    2) Consumer spending on “rent equivalent”, health and education are
    plunging in the last 6M
    3) If this trend cont, the CPI will turn negative.
    4) The gap between inflation expectations of 2% minus the CPI will reach 3%.
    5) SPX reached a new all time 11TD ago, on Sep 2. On that day RSI @82.9 was a throwover above a descending RSI line connecting : 2018 peak and Dec 27 2019 lower high @ 78.43.
    6) Within 3TD RSI plunged from 82.9 to 42.6, breaching the previous RSI
    line, from Mar low to June 26 close. RSI lines are flattening, moving closer to 40. There was no recovery. Something is wrong.
    7) SPX daily cloud. T&K have flipped. T is the average between SPX hi/lo in the last 9TD. That peak was 11TD ago.
    8) The previous flip was in June, but both T&K were glued together, moving higher.
    9) The front end of the cloud will soon flip. The cloud will turn from
    green to red. The top front line is the average between the hi/lo in the last
    26TD. The bottom front line is the average hi/lo in the last 52TD.
    10) Sept 2 hi will stay for another 15TD, but the lows are constantly trending up. Since June 29(L), 57TD ago, SPX was moving up in a
    straight line, without any volatility, until the peak.

  18. Duane says:

    Reminds me of a time back in the 90’s listening to financial advisors to the small manufacturing firm we worked for (building plastic injection molds) sell us on the wonders of the 401k. If we all just put money into our 401k every week we would all retire millionaires, thanks to the superior returns on investment the stock market offered. That is what we were sold and that is what the current Fed chair is still trying to deliver. He is trying to guarantee superior returns for those invested in the stock market by any means possible, a kind of platinum level FDIC insurance for investors. I hope and pray that we will see an end to this transfer of wealth, i.e. a prolonged stock market downturn, but they have succeeded at pumping equity markets up for over 3 decades and there seems to be no willingness to even acknowledge the dangers of “stock market is the economy” mindset (and propaganda machine). And the Fed hasn’t even begun to purchase “blue chip” stocks to keep the wealth transfer scheme going, so we still have that to look forward to.

  19. lenert says:

    A primary residence pays no income. Stocks with no dividends pay no income. If an “investment” isn’t generating income then it’s just speculation.

    • Paulo says:

      Exactly lenert,

      However would like to add to that: A paid for primary residence does not use up any income beyond maint and taxes.

      I have a great rural home on a river that requires $900 per year for taxes. Maint costs are almost non-existent as I do all work myself. Biggest expense is a full range of insurance coverage including fire and earthquake (west coast). However, a rental I have covers all taxes and insurance costs on this and other properties.

      Any real physical investment not leveraged is better than none, imho. Paper…..not so much. Meanwhile, the value of property has increased 400% in 15 years…raw land almost 300% in 10 years. Getting rich? No and won’t. Maintaining lifestyle and getting by? Now, as a senior, yes.

      • rich says:

        Paulo, I agree with you 100%. I have leveraged myself into quite a few primary residences. I’ve moved from city to city and now from state to state. I made money on every principal residence, even during the S&L crash in Colorado Springs, and, because of the $250k (single) and $500k (married) home owners tax exemptions, my profits have been tax free. Look at any house price chart, from 1940 through to today, and decade to decade, single family houses (national average) prices have always gone up as the dollar has gone down.

        However, today, with so many Americans in serious debt, we could see some deflated prices, nationally, like we are now seeing in the Bay Area and NYC. Remember, the other factor, that makes housing prices go up, is lower interest rates. Most Americans are more concerned about payments than they are about house prices. Since rates can’t go much lower, future house price appreciation could be facing some serious headwinds. If the Fed ever raised rates, it would mean a serious hit for cap rates.

    • Wisdom Seeker says:

      This is incorrect on two levels. What makes an investment work is a healthy balance between maintaining “security of principal” and “eventual total return” compared to other available options.

      For housing, one has to consider those other options. You have to live somewhere. A primary residence that pays no income is often better financially than paying a landlord for equivalent space – particularly if one lives there for a good length of time and is financially responsible. As Wolf notes, both approaches are expenses, so mathematically the least-worst choice (for those who can handle it) is to cut the cost of housing by sharing the space with as many people as possible. But privacy has value too.

      Second, there are plenty of genuine investments that pay no immediate income but still generate reasonable returns for investors. Zero coupon bonds and young growth company stocks (legitimate ones) fit that role historically. Such opportunities are scarcer now, and they typically don’t knock on your door, but you can still find them.

      There are also plenty of so-called investments that “pay income” but guarantee long-term losses, and are more speculative than the ones I mentioned above. Wolf has written a lot about leveraged loans, junk bonds and the like. Distressed high-dividend stocks are often “income traps” too, since the dividend can be cut or the stock price can fall further. Thanks to the Fed, bonds now yield less than inflation so one could say those are also guaranteed losses. Or as they were known in the 1970s, “certificates of confiscation”.

      • Old School says:

        If I remember correctly if you need to have an exact amount of money at a future date a zero coupon treasury bond is the best way to do it as far as a bond product goes. Duration matching is another good concept to keep a retiree out of trouble.

        When dividend yields are low on sp500 in theory the equivalent duration of stock market is a much longer number of years and you should hold a lower percentage of stocks for a given time horizon, but in a fed managed asset world most of what is in a text book is out the window.

    • 986may says:

      Dividends are not free money. They always reduce the share price of any dividends paid out.

  20. Kerry says:

    My latest investment actually gives me eggs. 15 chickens and a chicken house…

    • lenert says:

      Awesome – how’s your earnings yield (1/p/e)?

      • Kerry says:

        About 8 eggs per day and rising. The first 1000 eggs are really expensive, but after the sunk costs not too bad…

        • VintageVNvet says:

          re eggs:
          1. Good hens, Rhode Island Reds, Barred Rocks, others similar, will lay 300 eggs per year if properly fed with mash and with access to fields and/or forests will provide tons of Vitamins along with the fat and proteins humans need; and even in avg back yard will do well and also remove most bugs.
          2. Eggs claiming to be field run are now going for $5+, if they also claim ”organic feed” they can go up to $7(+)
          3. If times get really tough, chickens can usually live, if protected from predators, on what they can hunt, but egg production will go down accordingly w no mash, and, at the end of their useful life- our last batch went 4 years before declining– to the point where they were more appropriate to stew, though WE were not allowed to do that…LOL
          What better investment can one make, eh?
          But, please, no hugging and kissing chickens of any kind OK? And be sure to wash thoroughly each egg, with Bronners unless you are sure to be able to rinse very well.

    • Old School says:

      From my experience predators are the biggest problem and once they get one it’s just a matter of time til they get them all. We had a dozen and finally got down to one hen who for some reason never caught and got incredibly healthy looking over time. Eventually have her away.

  21. lenert says:

    Y2k is notable for the passage of the Securities Modernization act followed by the Bush tax cuts. Maybe historical CAPE ratios aren’t comparable anymore given all the government power granted to high-income earners and their enterprises at the expense of wage-earners. Maybe P/Es should be even higher.

  22. Danno says:

    Negative rates coming?

    My neighbour does programming for a number of Upstate NY private banks and is very busy writing code for their anticipation…


  23. lenert says:

    The gain in Amazon’s YTD market cap is about equal to a $100K for every Amazon median wage worker because Bezos only pays median workers about $14 an hour.

    • Old School says:

      My guess is if they didn’t work there they wouldn’t be making as much down the street.

      In my opinion people are crazy to pay that much for Amazon stock, but it’s their money to speculate with. Some are probably driving nice cars with pretty women in them so what do I know.

  24. roddy6667 says:

    Nest egg into scrambled eggs. I like that. :)
    I can see the name on the account…H. Dumpty.

  25. Wolfman, get a chart of the S&P vs. Gold since 1900 and you will see a very obvious Negative Correlation between Au and stocks over long periods of time. What is happening in 2020 is so crazy that I would not call this a statistically significant period for observing correlations. Gold is up some 35% since the beginning of the year, while the S&P struggles to stay positive at about 5% up. The sheer amount of debt printed across the globe guarantees that all fiat currencies VERSUS Gold and Silver will depreciate going forward and the top being put into stocks as I type is going to prove that the PM’s can and will go up as equities are repriced to the reality of an economy that is going down some 30% from 2019’s fudged stats and not coming back up for a very long time. This is one omelette I will imbibe in today, tomorrow, and the next day as I have very profitably done since the year 1997. How much has Gold appreciated since 1/1/2000 vs. the S&P even with dividends reinvested for the later. SHOCKING REVELATION WITH ALL DUE RESPECT.

    • Wolf Richter says:

      120 years (going back to 1900) exceeds my time horizon for investments and is therefore irrelevant for me.

      • You will be left at the station holding your pride. History does repeat itself, because we are dealing with human behavior of fear and greed in the investing world, hence, 2020 looks a lot like 1929 but with mountains more debt piled high to the sky. Even the Nifty Fifty of the 1950’s is relevant to the NASDAQ 100 today, a span of 70 years.

  26. pete says:

    Buffet buys Snowflake on the IPO yesterday. Plus, he’s recently invested in Japan & Nat Gas. What, I wonder, does that mean? …PJS

    • Wolf Richter says:

      Get something straight first: He didn’t buy into “natural gas” but a utility that uses natural gas to generate power.

    • The Japanese pay 5X for NG, what everyone else pays, and they can’t afford nuclear power anymore. He probably watched the runup in pot stocks, against all conventional analysis, and said let’s not miss this one. Buffet is scrambling all around, which says one thing, cash is trash. I would get out of Japan while the getting is good. Sea of Japan is going to be a Chinese lake.

    • Rcohn says:

      It means that he is over 90 years old and has delegated most investment decisions to his underlings

  27. HollywoodDog says:

    Thanks, Wolf. I was feeling like I was the crazy one for making this same logical analysis of current investment options. The majors are completely ignoring the eventual repercussions of our current monetary policy. I’m going to read this transcript each morning and chant, “Stay sane. Stay focused.”

  28. Brant Lee says:

    It may sound silly here but (from a man’s standpoint) quality old handtools are in high demand right now and they won’t be available forever. Tools with good metal and long life are not being made anymore except at ultra-high prices from Europe. It’s worth the time and money to put together a collection of things that are useful even if you’re not planning to run to the hills. Good metal hammers, axes, chisels, planes, saws, etc made in the early 1900s are a good (hard) investment, increasing in value, in demand and becoming rare. These are valuable items that can be passed along in a family or sold with some good profit. Don’t wait another ten years thinking you can find this stuff at Walmart.
    Just saying.

    • Tom Pfotzer says:

      Good advice, Brant. In addition to their appreciation, those sort of tools are great for making useful things which also generate either cash or increased std of living.

      Tools have so many great traits. Some hand tools made years ago (40+ yrs) are made well, and made of excellent materials. They are a pleasure to work with.

      Electric tools, however, don’t age well. I buy new ones from the better-brands. They are all made in China – at least for now – but some are better than others.

      And on the subject of tools…

      A shout-out to Lisa_Hooker:

      Why don’t you use some of those ill-got gains you made betting on the ponies, and rent an excavator for the weekend?

      It’s great fun. Invite your friends over. When’s the last time they were behind the controls of a Large Machine?

      Get the damage waiver. :)

    • VintageVNvet says:

      Good one BL, and I agree with a lot of it, and some of it, like, totally dude.
      Happened to go into the Japanese tool shop on San Pablo a few months ago with a friend, and noticed the chisels I had purchased there in the late 80s for $40 were now $200! ( EACH!)
      OTOH, there are several manufacturers of electric tools, domestic, European, and Asian, that are still making very good stuff: After purchasing the same European made jig saw late last year, I gave the old one to my nephew to help convert an old van into a camper, with the clear understanding he would need to replace the foot plate that I had bent out of shape and was too lazy to fix; otherwise it worked fine after 40 years.

  29. Rcohn says:

    The Buffet indicator of total market cap/ gdp is very close to an all time high.No other country is close to all time highs.

    10 year inflation protected bonds yield a negative real return of -1%

    Eliminate the top 20 tech stocks and the market is easily down on the year.

    The market seems to saying that there will be little change under a Biden administration and that all will go smoothly with the election.
    Want to bet?

    The market does not care about the violent demonstrations in many of our major cities.

    The market is assuming that there will be NO military conflict involving China, either with India or with the US over the South China Sea islands or Taiwan. If we get into a military conflict with China the reports suggest that we will lose. The market is also assuming that there is no possibility of a cutoff of oil from the Arabian countries.

    Projections are for a budget deficit of ~ 3.5t .Just to place this in context,if you spent 350m / day it would take 10,000 days to spend 3.5t.
    In the past ,interest rates were a governor on budget deficits . Now because of blatant manipulation by the Fed, this is no longer the case.
    What is to prevent the Federal government from bailing out the states pension liabilities . What is to prevent the Federal government from giving 14 billion in reparations to minorities.
    The market is primed not for a correction but a crash .
    Be Patient

  30. Gerard Croce says:

    Wolf, do you think an argument could be made that, with the latest FED announcement, they are sending a subtle signal that they will back away from fully supporting the asset bubble?

    • Wolf Richter says:

      I listened to Powell yesterday. He was twisting all over the place on this topic, trying to dodge renewed pressure on him about wealth inequality and the bubble. My feeling is that unless something big breaks, they’re going to let this thing run. They’re still buying Treasuries and MBS, they’ve stopped just about all the other stuff and unwound the repos. But the government is issuing so much debt that the Fed is effectively just monetizing a small slice of that new debt. So in the sense, it’s not even QE. They’re just trying to keep the government bond market from going haywire under all this borrowing.

      • When do we get to see the minutes? Proposing zero rates till 2023 was code for ‘this administration is finished.’ We need to get inside. These guys (Treasury primarily) have nothing to lose, they will pump it one way or the other, as you say they are rolling out the paper and Fed is not buying it. The voting balance on the committee is weighted against them. Corporate America is still buying, either way the cat gets fat. Wall St is wondering how the next stimulus will be divided, so they can allocate. There is enough money for everyone right now.

      • Bobber says:

        When they Fed has to say out loud that it is not out of ammunition, it is out of ammunition. Seems to me all he has left is forward guidance, which is akin to a bluff in poker.

        Powell definitely looked less confident yesterday, in the face of insurmountable evidence that is against him.

        • The market wanted more and he didn’t deliver. SPY at critical support levels and the market bluff is shaping up to be a real water torture. Give us something or we are going to S&P 3000 and wait for the election.

        • I think Powell was without pants on, telling the camera crew to only film from the belt line up. The Monetary Wizard of Oz really is losing his pants this time around, same as being out of ammo. Jawboning, as in poker, will only take a central banker so far. Wolf Street is doing a fine job of pulling the curtain back on the double talking Fed, showing the loud voice from the podium is more sound and fury than substance. Keep up for good work, Wolf!! I have contributed to your kitty several times now, and will continue to do so. Us Commenters may give you grief at times, but you are doing yeoman’s work. Shine the much ballyhooed “transparency” on the FED!!!

        • Old School says:

          The history of central banks is they keep on printing til a loaf of bread costs at least a 1000 what ever the currency is called. We have about $995 to go, but it could happen pretty fast.

      • sunny129 says:

        During press conference, NOT one. one of them asked him what should any one over 65 (close to in early retirement) should do, to keep their purchasing power of $, which has gone down with financial repression! Jump into the mkts!?

        Not, one raised question pertaining to main street and the bottom 90%

        Moral bankruptcy of MSM was on display. Such a shame. And it has happened everytime. Access journalism reigning!

        • Old School says:

          I actually read an article by a high level economist using the people stranded on an island example of why sometimes savings can have a negative interest rate. It made some sense I must say.

  31. sunny129 says:

    ‘For a diversified portfolio, part of it must go down while another part goes up’

    Diversification along with UNCORRELATED assets with S&P being O and R ranges from +1 all the way to -1!
    Hard to assemble when the Mkts have gone only one way!
    Next 3-4 months will be be crucial with tremendous volatility!
    Won’t rule out ‘flash’ crashes!

    • Old School says:

      I don’t know if you have seen Hussman’s projection of a 60 stock/ 30 bond / 10 cash portfolio projection for next 12 years to be just under zero annual return. I think he said if you assume everything goes right with the economy and the market ends in a bubble in 12 years like we are now, the very best you can hope to get out of stock market is around 5% annually, but his base case is a slightly negative stock return.

  32. DeerInHeadlights says:


    Thanks for that great summary and for everything you do. It’s very surreal to watch the markets’ gyrations day after day. It is absolutely a fact that the market is completely flooded with retail traders who descend like a mob on ticker symbol after ticker symbol. The most insignificant of announcements will push up a stock by 10-40%. Nothing is spared. People are piling into commodities, RE, anything that they can trade on their app of choice without any background or experience.

    The powers that be are playing with people’s lives by encouraging this behavior with this incessant inflation of asset prices. The same (average) people who are currently cheering the Fed because they’ve been able to make a killing day trading will be out with pitchforks when the music stops. It certainly won’t be pretty.

    • Old School says:

      I came to terms with it. It’s the Fed’s job to try to keep the economic bathtub full and the government financed. They are doing desperate stuff because we are in a desperate situation. As someone smarter than me said, the Fed is in the business of printing money.

  33. kevin says:

    I love to use WS comments as a contrarian sentiment indicator. No offence to the great minds (such as Wolf) and some great commentators here, but over the years I’ve learned to try to do the OPPOSITE of what the vast majority thinks will happen. A very difficult thing, I’d say, but it has served me well over the decades of investments in stonks, ETFs, derivatives, real estate, PMs etc. to afford me an early retirement.

    It might sound blasphemous, but over the years, I’ve gradually apportioned less and less weight to fundamentals (0~10% now), 20% to technicals and 70% or more to simply “just-be-positioned-opposite-to-the-crowd.”
    You’d be surprised how many times it actually works.

    The more negative the crowd is on stonks, the more the markets will often tend to rally… to the detriment and collective groans of the crowd.

    I’ve said this many times before here and elsewhere, the markets are NEVER based on rationality or cool-headed calculations of P/E this or that, or some FED driven interest rate adjustments. They may have an impact over a few TDs but over the timeframe of our lifespans, everything is just driven by animal-spirits within humans.

    The difficulty is in making judgement calls on how the majority thinks and what’s their position (long or short leanings) on the markets. I believe the markets could be poised to RALLY just as it might correct every now and then.

    I’ll put my speculative money where my speculative mouth is, so I’ve just taken a small strangle option position on SPY & QQQ, after reading the vast wisdom of the crowds here. If anything, this is another test to see if this market will follow the doomsday crowd or does a Hail Mary rally … yet again.

    My advice to those who want to play it safe: Now is a good time to go long on a strangle (i.e. buy puts and equal number of calls some strike apart) and you could make some money either way. With the US elections coming soon, you can ride on the potential increased volatility and win some money regardless who wins the election or which way the market goes.

    Disclaimer: The probability of the current market staying in a narrow band such that you lose (time) value on your straddle is clearly very low but not nil, so speculate according to your financial means. Good Luck.

    • Old School says:

      I think it matters how you set your goals. In the short term technicals and sentiment matter. If you are long term investor which is in my mind that’s a whole business cycle it’s all about fundamentals and how much you pay for the future cash flow. You can take a lot of risk out by just purchasing a broad index when cheap, usually in a recession so you don’t have single stock risk. It’s easier when you are old because time flies buy and the cycle gets by pretty quick.

    • Wisdom Seeker says:

      Very interesting comment. Personally I don’t think this board is representative of market sentiment overall.

      Also, bullish can go to “more bullish” before mean-reverting. Ditto for bearish. It’s not as easy as asking “what’s the herd thinking”. One has to look for turning points.

      I would also add that the animal spirits are mathematically constrained by overall credit supply. It doesn’t matter how bullish you are if you can’t borrow any more to leverage your long margin up.

      So your take and Wolf’s are complementary.

      • kevin says:

        Yes of course, one singular forum/website is never going to be the be all and end of of anyone’s decision-making process, but WS is one of the better known sites, WS (Wisdom Seeker…is your handle a coincidence or intentional?).

        The point is many others read his website or reference to it, so I’m sure lots of eyeballs out there have bookmarked WS (Wolf will be happy to read this. lol) and will be influenced to some degree with his conclusions; and if the more people agree to one side of the trade, then the other side will generally be more profitable. At least, that’s my observation.

        Humans have a natural bias to conform/agree to what they read on a printed page. Its part of social conditioning in school, in books or news and from our institutionalized behavior patterns at work.
        The more you read (or hear) something, the more you tend to regard that to be the “Gospel Truth” by default … which is why Holy Books are often best-sellers throughout history (but thats a controversial topic for another time…)

        You are correct though that bullish sentiments can often feed on itself in a self-reinforcing cycle. However, no formula, whether mathematical or otherwise, can ever model animal spirits; which is why I mentioned that the difficult “art” is in reading the emotions of the herd.

        I don’t even know how to define “Credit supply” so I gave up mostly on M1/2/3 fundamentals long ago. Contemporary “Credit” can be created not only from bank loans and debentures, or borrowing from your brokerage accounts, but also from revolving credit and even the stored value that you’ve credited into Starbucks cards / Alipay vouchers / Amazon store cards etc. There are so many ways to measure “credit” I’ not sure its worth the effort to get a handle on this measurement, and besides, it all still boils down to animal spirits, even if you have a magically accurate measurement on “credit supply”.

        Also on the straddle strategy, strictly speaking, you are not leveraging, if you are going long options. The max loss is whatever amount of options you had money in your account to initiate the purchase (just make sure you are using available cash funds in your account and NOT heaping leverage based off your current holdings in the underlying or in conjunction with some other option legs)

  34. VegLov says:

    Thanks for this article. I work where people think I’m an idiot for taking my money out of everything and working to pay down my mortgage. I appreciate the fact that someone sees the same thing that I do.

    Thank you.

    • Old School says:

      One thing for sure about investing is looking back you could have done better. Selling out at these levels and paying down a mortgage is very logical even if it doesn’t turn out to be the best decision in hind sight. Always make sure you have adequate cash to keep making the payments. Bank can still foreclose even though you have a lot of equity in it.

    • Wisdom Seeker says:

      There are many ways to “win”. Some are faster than others, but any approach that involves saving and not losing the principal will get you there eventually.

      The ways to “lose” mostly involve being too aggressive, overleveraged and getting caught offsides when then market doesn’t go your way.

      Strongly agree with Old School that before paying down mortgage you want to have a separate savings pool of ~1 year of payments, so that if you run into difficulties you don’t lose the house. If you’re maxed out on leverage, losing the house in a downturn doesn’t hurt you so much as the bank. But when you have high equity, being forced to sell out low is a big dent.

      And you cannot count on home-equity products to provide cash in a tight spot. The lenders will close those up whenever many borrowers run into trouble, and you can get caught in that squeeze.

  35. Yort says:

    Wolf – what is your take on the Rand study showing that earnings have been reduced over decades to the point where companies, and not employees, are taking in most of the gains (thus hard to have a nest egg when the eggs are missing).


    ‘We were shocked’: RAND study uncovers massive income shift to the top 1%
    The median worker should be making as much as $102,000 annually—if some $2.5 trillion wasn’t being “reverse distributed” every year away from the working class.

    • Wolf Richter says:

      Nothing new. That has been shown over the years many times. It’s the shift from labor to capital, and this money was then blown on share buybacks. Well documented. And a huge problem in this country.

  36. melissa says:

    Now that the shackles have come off everyone is moving to areas that offer a better quality of life.

    Anything Lake Tahoe is selling out.

    This holds true for other super cool places to live out of the stressful big city grind.

  37. BT says:

    Dicey enough with 2-4% bond returns + low inflation for seniors of modest means. Dreadful in these times. The Fed though is not sweating it. They are not sociologists. They focus on the big picture. For seniors of modest means, it really is increasingly continue to get near zero on bond returns and lump it, or move some of that bond money to riskier assets, assets that are richly priced already. Precious metals and Reit’s are no safe harbor. Diversifying a slice of ones investments into hedged international bonds may be worthwhile if one has decades ahead of them. Many seniors do not, and even if they manage another decade or two – medical expenses over and above Medicare (like LTC) will clean their clock. The Fed is mostly populated by very wealthy people. They will be just fine. Many of our seniors? Screwed.

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