What Happens to the Markets If Long-Term Interest Rates Double from Here? Did Low Interest Rates Boost Auto Sales? Do These Covid Markets Make Any Sense?

Wolf Richter on This Week in Money, by HoweStreet.com:

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  129 comments for “What Happens to the Markets If Long-Term Interest Rates Double from Here? Did Low Interest Rates Boost Auto Sales? Do These Covid Markets Make Any Sense?

  1. Seneca’s Cliff says:

    If interest rates double there will be a giant smoking hole in the middle of the American landscape. At the bottom of that hole will be the smouldering remains of the real estate/home building industry.

    • edmondo says:

      The banks might not be in such good shape either. A 30 year mortgage sitting on your books at 1.75% might leave a hole in the old balance sheet.

      • 2banana says:

        1. Banks haven’t kept mortgages on their books for 30 years.

        2. Banks needs higher interest rates to actually make a profit.

        • GotCollateral says:

          3) Banks have a lot of exposure on their books that are dependent on low interest rates

        • Jdog says:

          Banks do not make their money from interest rates. They sell the majority of their mortgages to others. They make their money from loan origination fees and the constant refinancing.

      • raxadian says:

        Aren’t banks always complaining that lack of high interest rates is one of the reasons they aren’t making more money?

        Low interest rates are bad for banks.

      • K says:

        Amen. That is coming. Inflation has already gone up in the USA in my estimation but the CPI was changed and manipulated to conceal it , so the “Federal” bankster Reserve can keep it reported as low by keeping interest rates low, which is ludicrous, because real inflation must be considered a part of what makes a genuine market interest rate. See Forbes Magazine’s two articles: 1) “If You Want To Know The Real Rate Of Inflation, Don’t Bother With The CPI” and 2) Is Headline CPI Inflation “Fake News”?

        When the interest rates go up soon, because inflation will increase due to the money creation of the “Federal” Reserve, e.g., with its $2 TRILLION bailout of the banksters in 2019 to 2020 (and probably 2021, at least) by its buying their uncollectible, mortgage-backed securities for inflated, above-FMV values, inflation will react and increase in a vicious circle. In other words, perceived inflation raises interest rates and some prices and higher interest rates and prices place a fear on producers that they are selling their goods currently at less than the cost of their next set of goods produced plus a reasonable profit — so as a result of that fear, goods producers, etc., will increase their prices. That will then lead others to increase their prices because the producers of goods increased their prices, etc., in a vicious cycle.

        That is how inflation starts and it is unstoppable after it starts, because for years the “Federal” Reserve has worried only about funneling funds to its darling banksters and no longer can keep interest rates low now that inflation has returned. The US government has also been gutted by the “Federal” Reserve, because inflation will increase the interest rates that it will have to pay to roll over its debts, i.e., treasury securities outstanding, so as those are rolled over at higher and higher interest rates, it will have less available (after those interest payments) for other things.

        It will not be able to give gigantic bailouts like in 2008-2011. Buckle up people, because the exciting part of this roller coaster is coming. As the ancient Chinese curse reportedly said, the most “interesting times” are coming.

        • K says:

          I forgot this cite: “The Major Problem With CPI And How It Hurts The Economy” from Forbes Magazine.

        • cb says:

          The Federal Reserve can digitize monstrous sums of money to buy Treasury Bills. This has been demonstrated.

        • historicus says:

          The Fed watches the PCE which allows the substitution OUT of items that rise “too much” in price…
          clearly a low reading biased metric, by design.

  2. Robert says:

    Actually, I’m wondering what kind of hellish inflation or other factors would motivate the Fed to begin raising rates.

    P.S- Post the date of the interview, couldn’t find it as a labled article on Howestreet and my browser blocks the direct video.

    Thanks

  3. Auld Kodjer says:

    WOLF – With good justification, you call it for what it is: participation in the Bitcoin market is “gambling”.

    Is there equal justification to describe participation in the Stock market – as an individual, rather than pumping & dumping and shorting & distorting institution – as nothing more than gambling?

  4. Xavier Caveat says:

    I bought a Snickers bar the other day, and on the packaging it stated said confection was a ‘Limited Edition’ and I don’t know why, but I thought of Bitcoin.

    The difference being that in the case of the Snickers bar, it most certainly was after I got done eating it.

    • matt says:

      A limited edition Snickers? What are you supposed to do, collect the whole set and sell them on Ebay in 20 years?

  5. MonkeyBusiness says:

    The only thing I hope to see is a tweet from someone saying something along “bankruptcy secured!!!”.

  6. timbers says:

    My ex-husband’s Facebook cover photo is recently changed to a background of rising arrows/indexes with words LIFE STYLE TRADING emblazoned across it. A sign of the times and Fed policy of inducing gambling for sure. He’s a Brasilian immigrant and as Brasilians say “we don’t save money we spend it.” True to what I experienced with him. But it’s personal because I am a frugal Northerner European mutt and worry about him like things will he ever be able to afford a house, a real home? Now he is married to another gorgeous Brasilian man and I still have this protective feeling but really there is nothing I could do regardless. I hate what the Fed is doing. It’s personal.

    • Bobber says:

      It should be personal for 90% of Americans. The Fed has basically stolen future wealth from the bottom 90% and handed it to asset holders at the top 10% of the wealth scale today.

      • Tony Foresta says:

        Exactly Bobber! Fed policy for the three decades advanced and advantaged the predatorclass, the superrich. Poor and middleclass Americans are not participant in the ludicrous wealth gains the predatorclass enjoys. More repugnant is that poor and middleclass Americans lost wealth, and are drowning in debt, or poverty.

      • Mark says:

        Yes, we can thank Yellen the Felon and Jay Bowell for protecting the rich at everyone else’s expense. It’s been their job for their entire working lives.

      • Mark says:

        Jerome Powell net worth : 55 million dollars

        Janet Yellen net worth : 16 million dollars

        ( definitely on the low side, from a while ago)

        Winning- while we lose

        • historicus says:

          And all central bankers…and many government employees and public servants have inflation protected pensions and benefits going forward.
          WE DO NOT.
          There is something fundamentally wrong with this arrangement.
          Madison in Federalist 57 stated that the promise of the federal govt is that those passing the law would also be subject to the full effect of those laws.
          The Fed is passing an inflation TAX upon us…and they are immune.

      • historicus says:

        This is why the Fed should be held to their mandates…
        stable prices….
        and the forgotten one, “promote moderate long term interest rates”…
        moderate meaning “not extreme”, and that means both ways. Too high is obvious, but too low allows current debt creation to be painless and that empties out future generations…burdens them with massive debt to fluff the present. We have had this in full bloom for 12 years…and now $7 Trillion in debt more in the pipeline…

        • bb says:

          Fed needs to be DEAD!We need to seize our God-given human sovereignty,our Constitutionally given so ereignty,our intellectual/thought sovereignty,food and energy sovereignty.Tax Strike!! New,U.S.Treadury,mint,National and state banks.Diversify the power grids,internet,water,and energy providers,this is Not the 1880s or 1930s.The divide is Not between Black and White or D. Vs. R.,it is between the psychopathic predator/cabal class and Humanity!!See through these old tactics.Learn and use every inch of useful law such as The Logan Act,Fed Anticonspiracy laws,slander/libel/defamation laws,The Constitution and Bill of Rights,Govt. Sunshine Act,Foia,classaction law.Impeach and Remove,then jail the crooked judges,especially state judges.Demand e ery shred of state health dept. Covd data,cases,deaths,procedures,manufacturers data.Foia FDA,SEC,Patent office search!!connect the dots….

      • Sierra7 says:

        Bobber:
        +1000

  7. Swamp Creature says:

    If the 10 year bond doubles from here, you can kiss the real estate market goodby. Refinances will grind to a halt. That’s half or more of the current market. No more using your home as an ATM. That’s the only thing holding up the economy in the auto and other consumer big ticket items. When cash out refinances go the rest of the economy goes with it.

    We never learned our lesson from the Miestro, who tried this in 2002 – 2005 creating a massive housing bubble which almost took down the entire financial system. It didn’t work then and it won’t work now.

    • GotCollateral says:

      “If the 10 year doubles”

      If the 10y only raises ~53 more bps as of EOD friday… the avg yield of nearly ~3k underlying issues in LQD will yield less after fees/taxes and subtraction of the risk free rate… 97.1% uncollateralized… 45% BBB…

      LOL

    • historicus says:

      Swamp…
      “Refinances will grind to a halt. ”
      First, there will be a frantical race to lock in the rates…
      then, it will grind to a halt.

  8. Hernando says:

    So, do you buy now or rent?

  9. gorbachev says:

    5% interest rates will soften lots but won’t
    break anything stable.

    • historicuss says:

      Gorby….

      When the Dow crested at all time highs in 2007 (14K), fed funds were 4%
      When the Fed attempted to get rates to normal…ie equal with inflation in 2018, 2%, the Dow cratered 5K.
      If fed funds went to 1.5%, it would crater again.
      The threshold gets lower and lower.
      This is the symptom…
      Its like drugging a race horse….works for a while.
      The central bankers denied the “corrections” that naturally occur in a free market. These corrections are called corrections for a reason…they correct…they separate the poorly capitalized from the properly capitalized.
      When corrections are not allowed, the eventual correction becomes systemic threatening due to the pent up excesses.
      Central banking is the enemy of free markets.

  10. Jezabeel says:

    Bitcoin:
    Endures the opinions of many.

    • So does Vegas. Just sayin.

    • Jdog says:

      Bitcoin is not an investment, because it is not a physical asset. It is a concept. How do you value a concept?

      • MarMar says:

        Stock, bonds, loans, etc. are not physical assets, either. Neither are software, laws, contracts, or brands for that matter. Money itself is a concept, a shared belief.

        I’m not a fan of Bitcoin, but this isn’t a good argument against it.

        • Happy1 says:

          Bitcoin is literally nothing. Stocks are fractional ownership of a company. Bonds are a contract for future payments. Contracts for most part have force of law backing them. Bitcoin is literally nothing.

  11. vinyl1 says:

    Doubling from 1.3% would not be too bad – people will blow off 2.6%. IMHO, we would need around 3.5% to really do any damage. Of course, the highly leveraged plays might get hurt even at 2.6%, if they are involved with things where the interest rate is reset quarterly. This would include leveraged CEFs, BDCs, and possibly REITs, although most of them raise capital through preferreds Mortgage REITs might actually do better with a higher spread.

    I don’t think utilities and preferreds would be hit much until the 10-year goes over 3%. But at some point, they would take a sharp turn downwards.

    • sunny129 says:

      Remember the rate when Fed started marching BACKWARDS in 2018?
      It was 10y yield at 2.5%!

      If it breaches 1.5% or above, expect more turmoil!

    • Happy1 says:

      10 year treasury has already almost tripled in yield from its low last summer. If it quickly doubles, people holding long bonds will be crucified.

  12. Trinacria says:

    We reap what the Fed sows. Sad and insane state of affairs for this once proud country.

  13. David Hall says:

    What will interest rates do to the price of bread?

    In 1991 a new Ford Mustang cost $10,157 – $19,864 MSRP

    In 2021 a new Ford Mustang cost $27,155 – $51,720 MSRP

    Median household income is rising.

    • Dale says:

      In the last 60 years, real median household income is up a bit over 20%.
      Real per capita cost of living (PCE) is up nearly 200% in the same period.

      • Tony Foresta says:

        Your statistic do not describe our predicament Dale. Healthcare, rent, transportation, education, goods and services, food costs are wildly inflated. These basic costs do not impact the rich or the predatorclass, but they are crippling to America’s poor and middleclass.

    • Tony Foresta says:

      If you own a Mustang

      • Anthony A. says:

        Yeah, I Have a 2005 Mustang with 60 K miles on it. I’m keeping it. It may be worth $5 K but replacing it would cost me 6 times that (for a cheap one).

    • matt says:

      That must’ve been a four-cylinder Mustang in ’91, because my ’89 5-liter cost $12,500 new.

    • DJ says:

      apparently my household is not median. I’ve done the same work for 43 years and I’m a master. I guess its time to hop out of the treadmill, go Galt and enjoy my new life in the beggar class.

  14. rich says:

    If the Fed stops buying mortgages, mortgage yields go up. Meanwhile, the Fed propped up the stock market by buying corporate bonds and bond ETFs to the tune of billions upon billions of dollars. The FED even bought Apple bonds, bringing the company’s borrowing costs down. Apple would take the cheap borrowed FED money and use it to buy back its own stock, raising the price of the stock. This is not productive debt.

    Meanwhile, even houses in my area’s hood have doubled in price over the last three years, but especially over the last year. If Powell has any concern about massive house price inflation or massive construction price inflation, I haven’t heard him articulate it.

    To sum it up, if there is a major stock market correction, it will be followed by a major correction single family housing market. Some out of town people here are buying one or two million dollar houses here and knocking them down, to build far more expensive homes. Five years ago, a million dollar house sale here was pretty much non-existent. Some of our high end buyers are telling us that they are buying these houses with their stock market profits.

    As economist Herb Stein once said, “If something can’t go on forever, it will stop.” If the Fed raises rates and/or tapers, a whole lot financial mania will stop.

    • Bobber says:

      The homes in my neighborhood have gone up 100% in five year. That’s makes it impossible for most millennials to buy a home in the area, unless they want to completely leverage out and risk getting set back 10-15 years financially.

      • Tony Foresta says:

        On top of their gargantuan student loans. It’s despicable.

      • RightNYer says:

        I’ve always said that the primary goal of low rates and QE is to protect the assets of the boomers at the expense of the Millennials and Gen Y.

        • Lisa_Hooker says:

          I’m an early Boomer. QE and low rates have totally destroyed my assets. Most Millennials and Gen Y were never allowed to get into the game.

        • RightNYer says:

          Lisa, can you elaborate?

        • Lisa_Hooker says:

          @Right – elaborating: FRB ZIRP/NIRP. At my age gambling is simply not prudent. Not gambling, especially in these markets, is essential. I don’t have years to recover to break even. Not much more to be said.

      • Dale Chiusano says:

        Took me 20 years to get back even and move up to a better home even after buying in a good location. Location, location, location doesn’t always work if your timing is off. Bought a little towards the end of the Jimmy Carter bubble. Got caught up in the Volcker 18% mortgage squeeze. Still, had a roof over my head.

    • Paul from NC says:

      Since we’re sharing anecdotes…
      My rental in South East WI is still valued at the same price as 16 years ago. The neighborhood hasn’t changed. Lots of foreclosures left and right, and possibility for single people or minimalist couples to buy a 1000sq ft home for 60K or less.
      The house I’m currently living in in NC, has actually lost value by about 10K in the last 9 years.
      So, I guess location matters, but, the young certainly have affordable options. Just a matter of their upbringing, and what they’ve been programmed to expect.

      • Happy1 says:

        In Denver, the median home price has quintupled in 40 years and almost doubled in the last 5. It is completely unsustainable.

        • Palm Beach says:

          South Florida parents house early 70s 30k now 400k
          uncle bought same time on the water intercoastal 50k
          now 1.5million

  15. MonkeyBusiness says:

    Michael Burry from the 2008 mortgage and Gamestop fame has just raised the specter of hyperinflation in the United States.

    “Destruction secured!!!”

    Yippee!!!!!

    • rich says:

      To have hyperinflation, wages also have to hyperinflate. Pretty tough when Congress won’t even pass a $15 minimum wage.

      During the German hyperinflation, the German stock market was a good place to be. Real estate, on the other hand, did very poorly. Early on, the German Government put a ceiling on rents. That killed real estate yields and prices.

      The world was also quite different during the Weimer Republic. The Allies had strong currencies at the time the mark weakened. Today, many countries, China excluded at the moment, are still engaging in the “beggar thy neighbor policy” with the U.S. They don’t want to see the USD fall.

      • MonkeyBusiness says:

        Digital currencies will put money directly into people’s accounts. Start your engines!!!

      • Bobber says:

        It’s the stimulus, not the wages that will cause hyperinflation. Nobody has to earn their money these days.

      • bungee says:

        the German stock market was a good place to be
        it was a terrifying place to be because it was priced in marks.
        the only good “place to be” in terms of wealth-preservation was physical gold. which had buyers in any and every currency, and still had value after the dust settled.
        today too, only physical gold will leap upwards. all else will return to their real use value. paper products being very low indeed.
        (i basically cntrl-f the comment section here for ‘gold’ and its funny that in a given thread with dozens and even hundreds of comments, sometimes even about hyperinflation, gold doesn’t get mentioned. oh well, looks like we’re about to get a big fat history lesson)

      • rhodium says:

        That’s what I keep saying. People seem to think that a stagflationary implosion where they’re still earning $65k a year and yet potatoes cost $10 a pound is more likely. Better start farming potatoes in the backyard then. Any massive stagflation would indicate an utter collapse in the real economy and would probably precipitate some real violence in the streets. Otherwise there will be no hyperinflation without a simultaneous hyperinflation in wages. I don’t see it happening as long as money velocity keeps on dropping. Somewhere, plenty of people are still roosting on their cash. The only way I see a mix of the two is if the whole thing rushes in the obsoletion of the working class. If they’re simply not needed anymore, then their wages will stagnate while prices increase. For the rest of the necessary professionals they will see wage increases as the goods and services they help produce increase in price. Presumably they are the same ones consuming them, otherwise I have yet to figure out what the point of working is.

      • Jdog says:

        Hyperinflation comes from a loss of available goods. German hyperinflation was caused by the confiscation of German commodities and finished goods by the Allies to pay reparations along with blockades that continued even after the war ended.
        Once hyperinflation begins, the money must be created to keep up with the inflation, but the money production is not the cause. For that to be the case, you would have to explain the vehicle used to get the money into circulation. This subject is misunderstood by most people. Everything is dictated by supply and demand.

        • cb says:

          Jdog said: “For that to be the case, you would have to explain the vehicle used to get the money into circulation.”
          ___________________

          Then please explain it.

      • DJ says:

        rich, I think that only the wages for our elitist overlords have to go up. Notice how Madison Avenue advertising is now directed only at the top 10% where everyones life is perfectly filled with daily tabulations of net worth, call-in food, and worldwide tours on their peloton. Someone has said “there is a lot of ruin in a nation”. It takes time to extract all the wealth from a servile population. After that, make no mistake, the Davos crowd want us all dead.

    • Swamp Creature says:

      Michael Burry is also predicting a major water shortage in the West. People will fighting for water rights.

      Invest in clean water. You can’t lose.

      • c_heale says:

        There will also be shortages of food coming soon as a result of these water shortages.

      • Swamp Creature says:

        Jack Nicholson starred in movie back in the 70s about a war over water in California, I forgot the name. It was a precurser to what’s ahead.

        • Sierra7 says:

          Swamp Creature (and others)
          Movie was: “Chinatown” 1974
          Jack Nicholson, John Ford, Faye Dunaway.

      • w says:

        Water was recently listed on the CME as a commodity.Waterwars have been raging for decades,especially out west.Essentially,CA stole Nevada and AZ water because of political connections.China signaled its intent to invade Tibet and Nepal and essentially absorb them and their waterheads-nobody in the westernworld did a thing.India,Pakistan,and China are still having waterwarsU.S. Water bills having been increasing quite alot in some areas.

  16. SpencerG says:

    I doubt a doubling of rates will have much impact on anyone who doesn’t invest in bonds… at least not until they got to the top. They are just so low right now that it doesn’t matter. My mother was a Realtor and she always said that bonds ticking up hurried sales along.

    That said, when I went to CNBC to check the current yields I had to laugh at the headline of one the articles that posted today… and I am NOT making this up…

    “‘Explosion of economic activity’ may put inflation fears in check. Here’s why”

    I don’t know whether to LOL or SMDH

    • Wolf Richter says:

      The prices of Treasury bond ETFs with focus on 20-year+ maturities are down in the range of 15-17% since August 4.

    • sunny129 says:

      Once the yield on 10y, starts inching up to and beyond 1.5%, expect more trurmoil’

      Every one thinks and wishes that this will be growth induced inflation. What if there is no growth but stagflation, due on covid 19 after eefects?

    • Happy1 says:

      Pension funds are heavily invested in bonds also.

      • wiley says:

        Exactly what I was thinking.If you are relying on s.security or pensions,you will starve.Municipalities are going down.Possible savior is the low interest borrowing opportunities such as one offered by Pritzker.Devil in the details=how low is low and how efficient can these municipalitiesare become?I knoe IL state borrowed $ from Fed program at at least 3%,which isnt that low when there were concurrently %0 interest rates.Residential and commercial taxbase was and is and will be shrinking due to Many factors,so how do these loans get paid back??

  17. Dale says:

    I’ll just note that 2 years ago the interest rate on the 10 year Treasury bond was double what it is today.

    In only 2 years have we really dug the hole that much deeper?

    I suspect that housing sales and sales prices indicate ‘yes’.

  18. Anonymous Coward says:

    Louis Gave:

    They [The Fed] will have to decide whether to let bond yields rise or not. If they let them normalize to pre-Covid levels, 10-year Treasury yields would have to rise to about 2.5%. But if they do that, the funding of the government becomes problematic. A 50 basis point increase in interest rates is equivalent to the annual budget for the U.S. Navy. Another 30 bp is the equivalent for the U.S. Marines, and so on. The U.S. is already borrowing money to pay its interest today. If rates go up, they’re getting into the cycle where they have to borrow more just to be able to pay interest, which is not a good position.

    Do you expect the Fed to move in and cap interest rates?

    Yes, I do. And when they do, I’d say the Dollar will take a 20% hit.

    Ten year Treasuries currently yield around 0.95%. At what level will the Fed step in?

    I think they will have to cap interest rates at 2%, otherwise the drag on the government will become too big. That question will arise rather soon, because come this spring, the base effects for growth and for inflation will kick in. Growth will be very strong, and so will inflation, which means that yields will quickly try to get back up to 2%.

    • Jdog says:

      The Fed does not have total control over interest rates. They can influence them to a point, but there ability even to do that wanes as the Federal debt grows larger and larger.
      We are at a unusual point in time where people are willing to accept little or no interest on their money in order to have some degree of safety.
      This is byproduct of massively over valued asset markets.
      At some point those markets will correct providing a more reasonable investment climate for investors and when that happens much of the money financing the Federal debt will go into those investments making treasury auctions much harder to facilitate without higher interest. At that point the Fed will lose control of interest rates because it is not capable of financing large portions the Federal debt by itself.

      • cb says:

        So what is establishing interest rates? Why are interest rates at 50 year, if not all time lows?

        It would seem to be that interest rates are so low because there are so many dollars in existence. There are so many dollars in existence because they have been digitized into existence — funny money.

    • Happy1 says:

      10 year bond is at 1.4%, you are a week behind. At this rate it could be 3% next month.

  19. SocalJim says:

    If rates back up, then inflation is running hot and real estate will be fine.

    The stock market should stall for a while if inflation gets cooking. Some sectors will outperform under inflation and they will offset sectors that do poorly.

    • The Reddit crowd is buying houses, and holding them off the market. This is the ultimate liquidity trap.

      • Lynn says:

        I suspected someone was. How do you know this?

        • b says:

          Exactly!Actually,Wolf has said that some wealthier people have recently bought homes in other regions while holding previous residences.There are also the people with decent credit and income streams who have usrd the lowerrates to buy homes.But we must not forget the foreign ownership piece to this puzzle and the better paid underemployed who may have gotten together with family to buy a home because it is cheaper than rent which would theoretically have to be paid or because the home is bigger and in a nonblanyifa riotzone.

  20. RickV says:

    “This market is teetering on the edge in every aspect.” I have trouble with this statement. On Bloomberg, Jonathan Ferro’s program, Real Yield, two out of three bond experts recommended investing in stocks. There is no meaningful prospect of returns in this bond market. There will be an avalanche of stock buying as bond investors pivot to the stock market.

    • RightNYer says:

      Anyone who is not already all in is not going to go in when the S&P is at a P/E of 40.

      • Caveman says:

        Went mostly all in during the spring crash. Got a few old CDs maturing soon, work bonus coming + multiple stimulus checks….

        So what’s a young family man to do?
        Buy gold & bury it in my backyard, like Blackbeard or let my hard earned fiat deflate away?

        I eat Wolf’s Street Meat often…but end up with more Q’s than A’s.

        • RightNYer says:

          There are no good options. You either put the money in a savings account and get nothing or you gamble in the outrageously overpriced equities/crypto/real estate market and hope you don’t lose 50% overnight.

          That’s why people say it’s the most hated bull market ever.

      • Jdog says:

        What could go wrong? (sarc)

    • Swamp Creature says:

      Wrong, just the opposite is true. The bond market’s collapse will spill over into the stock market as they compete for yield. You are listening to morons.

      • Jdog says:

        Both the stock and bond markets are on crumbling foundations.
        Interest rates have no where to go but up, and corporate valuations are unsustainable. Their profits are fabricated and based on lies and fantasies. Real estate both commercial and residential are way overvalued, and the money loaned on much of it will be defaulted, along with much of the business loans.
        We are in the early stages of the 2nd Great Depression, but people have too much normalcy bias to see it….

        • w says:

          True,but the real estate market is very niche.There Is still decent property to be had which is affordable and amenable to a more self-sufficient lifestyle.

  21. Brant Lee says:

    It’s a good time to own a barn full of lumber. Just spray for termites and it lasts forever. I was always a sucker for cheap boards. Eight years ago lumber was going for $150 per 1000ft, delivered free from a local sawmill in some cases, the good stuff. Buy low, sell high.

    Point being, life becomes material in some cases whether you like it or not and my lumber is not laying in a Wells Fargo account.

    • Tom Pfotzer says:

      I often wondered whether I should stockpile steel, such as the common extrusions that are used to make structures – angles, channel, flats in stock 20′ lengths. Same for hardware, like screws, bolts, etc. It lasts a long time, and it’s easy to sell.

    • Yort says:

      I built a home 10 years ago when lumber was below $200/1000 linear ft. Today it is above $1000/1000 linear ft.

      The extra cost, in lumber alone, to build my same house today is exactly 6.66%…HA, yes it was 666. The irony being the devil is in the details, and by the devil, I mean the world central banks that are stealth inflation taxing the future generations into debt slaves for a system owned by the top 1%.

      Add in the cost of everything else in my house going up drastically, and it starts to make sense why last month I we had two houses that sold 40-50% above list price, completely bonkers. It is beyond irrational exuberance…we have entered bizzaro world and the future generations will not be able to buy our over-inflated assets so really it is a zero sum game as who is going to buy when we cash out, and what are you going to buy that is cheaper, unless you move out of America?

      Silly game, that has real world consequences…and the Fed is directly responsible no matter if it was unintended consequences or not…

  22. DanS86 says:

    I am seeing more and more Mom and Pop shops close around me. With business borrowing costs going up and Covid-19 restrictions in place, its tough out there.

  23. RON says:

    I’m expecting a large increase in interest rates across the board (just because). This will lead to a great opportunity for some companies to raise back the equity that was drained through buybacks and dividend recaps, etc. Equity rights offerings will lead the way & the winners will be those who bring in enough equity to greatly improve the balance sheet.
    The most predictable earnings are those derived form interest expense declines from debt repayment

  24. Minutes says:

    Assumable mortgages will absolutely come back en vogue. It might take little more than a 5% 30 year mortgage to see those wheels turning….Money is too cheap as it is. I don’t think we benefit as a society by making houses unaffordable because of cheap debt

  25. Swamp Creature says:

    During the depression in the 1930’s, nearly every investment went south. Stocks, Bonds, Real Estate, The only thing that survived were critical municipal infrastructure investments. Like the Empire State building was in built in one year during the bottom of the depression. Trollies ran on time. Same for Subways. My grandfather kept his job a a trolley captain for the entire duration of the depression.

    We are heading for the same scenerio. Better to just concentrate on holding on to what you got. When you see ads on TV with some dumb ass moron day trading stocks on his Iphone using Robinhood, you know we’re at the top of the bubble and the only direction from here on is south.

    Joesph Kennedy in 1929, said just before the crash:

    ” When the shoeshine boy at Grand Central Station, is quoting stock trades, then it is time to sell everything and run for the hills”

    • Cheneys Toy says:

      Joe Kennedy – the first Commissioner at the SEC! Just goes to show how they’ve been about market regulation from the beginning! A bootlegger knows how markets work…

    • Happy1 says:

      And they confiscated the gold…

    • Lisa_Hooker says:

      Dad worked for the Chicago Board of Trade through the Depression. He supported two families. Grandpa was a doctor, but folks didn’t have any money.

      • w says:

        We need more people like That!See a need and help not because you get a ribbon or props,but because you are a decent,compassionate Human and it needs to be done!! :-)

  26. The Treasury/Fed gambit, 1.6T, is raising some interesting possibilities. Treasury has dropped short term (supply) while rates are near zero, putting pressure on MM accounts. Without supply the market couldn’t reset those rates even if the Fed wanted them to. The system is awash in liquidity and they are creating a liquidity trap, by cutting off avenues to deploy this cash. Should they succeed in pushing MM cash out the curve that will depress this tiny price backup, long term bonds being less liquid than stocks, more than RE, but not much. The idea of cutting off short term supply, and then dropping a trillion and half into bank reserves is playing with fire.

  27. Rcohn says:

    The 10 year nominal rate was 1.345% last Friday.
    Eliminating the last year, 1.345% would be the lowest rate in 5000 years.
    Now let’s put things in prospective .
    Doubling of rates will put the 10 year at 2.69% . They reached
    2.62% in 2016
    2.61% in 2017
    3.11% in 2018
    And were above 2.69 until 3/5/19

    Real 10 year rates were -(.80) as of last Friday
    On 1/8/20 real rates =+.12
    On 1/2/29 real rates =+.96

    So doubling of rates would place them at levels of only a few years ago. And even those levels were low by historical standards.
    And why would anyone accept negative real returns , unless they anticipated deflation?
    Negative real yields are even more of an aberration than the low nominal yields that we are experiencing.
    The simple fact is that the bond market is far overvalued by historical standards and by inflation expectations , so the bond market has much further to fall.
    And the stock market , which values many companies at astronomical P/E s and many companies with no earnings and no prospect of earnings at prices that are beyond belief is seeming up for a crash of historic proportions.

    • historicus says:

      Rcohn
      “And why would anyone accept negative real returns , unless they anticipated deflation?”
      Well, you point to a what you perceive as a dangerous situation in the stock market.
      Then one might accept a negative short term negative rate to avoid a 20% stock decline.
      And that is the arrangement created by the Fed.
      Do you accept a real negative return…short term, or do you desperation invest and yield chase.
      People who are going after the 2% dividend will be shocked when their stock loses 5% in a week.

      • Rcohn says:

        Would you tie up money for 10 years,knowing that you are guaranteed to lose money in real terms ?

        • RightNYer says:

          Ideally, no. But I’d also rather not invest new money at P/Es of 40, and set up for a crash that takes 30 years or more to recover (Japan).

          There are no good options.

      • Happy1 says:

        5% in a week? It could easily be 50%.

  28. Swamp Creature says:

    Was down there 12 blocks from the Capitol doing some work. The fortifications look like a scene from the German trenches in “The battle of the Somme” . 15 foot steel fences with concertina wire around the entire area. Military combat personnel were everywhere in camoflauged uniforms with submachine guns armed and ready. I was going to take a photo, but declined. They might take me as a potential threat and open fire.

    This is a national disgrace.

    • historicuss says:

      “This is a national disgrace.
      This is a show, imagery….suggesting the dangerous right wing…
      Where were the troops for last summer’s rampages?

      One event, perhaps some “jersey switching” and infiltrators….
      but what of the BLM and Antifa antics that ruined …maybe permanently….some of our great cities…
      cities that were reliant on tax revenues from now shuttered businesses…
      tax revenue to service TIF projects…that will flop now, and create massive credit issues.??

      • Happy1 says:

        The BLM stuff was also totally unacceptable, but people storming the Capitol building and threatening the seat of government is next level stupid.

      • b says:

        Troops against peaceful,nationalistic citizens or are they troops to contain commietraitors-canned hunt when the time is right????! :-)

    • Lisa_Hooker says:

      Using troops to protect the capital and its inhabitants is somewhat common in banana republics.

  29. Sir Eduard R. Dingleberry III says:

    Powell did everything possible to protect stocks. Why wouldn’t he do everything possible to protect housing? We can have assumable loans and ARMs at low rates. He can buy U.S. treasuries and mortgage-backed securities. He can do this for a long time. The budget slice “interest on national debt” is smaller now than it was in the 90s. I don’t think the game is up yet. Not even close. Sure it would be better if Powell was responsible but haha.

    • Happy1 says:

      We are much closer to the end of this than to the beginning. China is a net seller of treasury bonds and has been for several years. The dollar is losing its place as the reserve currency. It will happen gradually then suddenly as per Hemingway and for most people will be a surprise.

  30. Just Wondering says:

    Just wondering, Do companies manipulate the inflation rate by changing the size of their packaging but keeping the sale price the same? I have noticed over the years many items you buy, pricing has been the same but the packaging size has decreased.

    • Wolf Richter says:

      Quantities, weight, and size are included in the inflation calculations. So if something gets 10% smaller bust costs the same, that would represent a price increase of about 11%.

  31. Rick m says:

    FedChair wants fiscal, says he’s tapped. SecTreas wants a big payday, non-specific payor. Big Guy wants wage and price controls for the greater good, and a nap. Some ideas keep circling back.
    When caught between the horns of a dilemma, some cowboys poleaxe the critter between the eyes and call it good. They’ll call it something nicer than controls, remember labeling is substantive to these wretched ‘crats. Doesn’t work for any longer than one outfit can control the entire world. MMT breaks down at the border too as capital takes flight to greener pastures. But all these wrong things will be tried before the right thing.
    Preparing is mindset and money. Low profile and rock-solid stores of value are appropriate before any other considerations. And precious metals smile back

    I’m still very interested in WolfCoin, though.
    Might have to take a flyer

  32. Jack Manning says:

    My uncle’s 20 year+ long term US treasury bond ETF’s are way down from his purchase 11 months ago. Some are -12% to -14%. It looks like long term interest rates already up 1.2% to 2.20% or 1% point, 100 basis points in this 12 months almost. Nowhere to hide I guess, nothing is close to safe anymore, REIT’s are down 25% to 35% too in just 1 year.

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