Stocks, Real Estate, Inflation, and Latest Blowup: All this Super-Leveraged Craziness Going on Looks Like a Market Peak to me, Sez Wolf Richter

Can’t this craziness become a permanent feature where asset prices just keep surging? “I can certainly see that rationale,” says Wolf Richter in the interview with Peak Prosperity. But the economy is heading towards higher inflation that will eventually push the Fed to start tightening — something unimaginable for many market participants.

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  243 comments for “Stocks, Real Estate, Inflation, and Latest Blowup: All this Super-Leveraged Craziness Going on Looks Like a Market Peak to me, Sez Wolf Richter

  1. Trinacria says:

    Great interview – very informative. Thank you.

    • K says:

      2021 = 1928 or 1929? I fear that it might be. Absent hyperinflation, we are at the stock market’s peak. Price-earnings and other financial ratios are now insane.

      If the long-forestalled, US’s economic disaster comes, it will be at the very worst possible time for the world, given the aggressive, megalomaniac, CCP’s leaders.

      • Poor like you says:

        If the long-forestalled, US’s economic disaster comes, it will be at the very worst possible time for the world, given the aggressive, megalomaniac, US leaders.

        There. Fixed it for you.

    • nick kelly says:

      WR has said he considers Tesla’s valuation one of the posterchildren of peak bubble. Many others have been skeptical about Tesla’s valuation for a long time.

      There are a couple of great reads on ZH today about this. One is about accounting so dubious it’s hard to see how the SEC can ignore it.
      Here is the title: “Robotaxi Repo”: New 13 Slide Deck Raises Critical Questions About Tesla’s Lease Accounting.

      The piece is very detailed but here is the gist, which I even I can understand. I think.
      Although a bank is an intermediary, apparently Tesla has to buy back leased cars at the end of the lease, typical 3 yrs. These units will have depreciated which must be accounted for.
      But what if they had appreciated?

      Enter the robo-taxi, which Musk says will make 30K per year. The original model 3 s being leased don’t have ‘full self driving’ or FSD. But once Tesla’s FSD software is e-delivered to them, they will be able to operate as taxis that don’t need drivers, and so will appreciate in value. Unbelievably, this accounting has saved Tesla 2 billion in future write downs on off- lease 3s.

      There are disagreements about how far off FSD is. I think it’s possible within urban centers, but it’s too early to allow an accounting bonus in the PRESENT
      based on its future prospects less than 3 years away ..

      It may be the descent of Tesla’s valuation to reality that pricks the ‘everything bubble’. It is one thing to have ten billion disappear via Archego, but if five hundred billion is wiped off Tesla….

      • Julian says:

        Yes – a very interesting read…

        It’s here to look at: The Robotaxi Repo

        How Lease Accounting and “Robotaxis” allowed Tesla to turn collateralized borrowings into sales, overstate revenues by billions, and achieve paper profitability

        What does Wolf think…..

      • nick kelly says:

        PS: there were two bits on ZH about T. The other was from a short seller and used language I thought WR might not like re: litigation hazard.
        I don’t see how Musk can take it without suing, maybe outlets as well as author.

        Even if T was to have 500B knocked off, it would still have a higher valuation than Toyota or double GM and Ford combined. But valuation is not the same as cash on hand.

        If T is to go head- to- head with the coming E- elephant, VW, that has committed 17 billion and is building 3 battery factories, it is going to need to go back to the markets for more money. That’s when we’ll found out what Goldman and the gang really think. After the spectacular flameouts of the past month, they might only do a bought deal at 420.

      • Auldyin says:

        Nick
        I think these problems will all disappear when the Fed issues MS augmented reality army goggles to all potential investors in US tech stocks.
        If a peak looks imminent just issue a more powerful software update and everyone will be happy again ad infinitum. Sorted!
        Could this be the future for all of us?

  2. Tom Stone says:

    Wolf, you aren’t alone in calling a top.
    I expect things to really start to unravel in mid to late June, it’s been a wild ride the last few years and the show promises to get even livelier as our long, hot and smoky summer progresses.

    • K says:

      Amen. As Wolf mentioned briefly, the GIGANTIC interest payments already being paid by tax payers (meaning government interest payments on the outstanding treasuries) are the issue. Interest payments on both on the gigantic, outstanding corporate debts, consumer debts, and also on the governmental debts (not even mentioning the reportedly, $211 TRILLION in federal liabilities or the TRILLIONS in state and local liabilities that the federal government will have to bailout) are causing the reckoning that is coming.

      With rising inflation and thereby rising interest rates, how can these be met? If the creditors (including the bond market) cannot be bailed out with government help, and they reportedly cannot be bailed out given existing and upcoming, governmental liabilities, how will this unravel?

  3. Phoenix_Ikki says:

    Hopefully you’re right Wolf. My fear is that things will go side way despite all the reasons you mentioned in the video and continue to go up while wages continue to stagnate. As a follower to this site, I can’t recall how many times I have seen your real estate bubble articles over the last couple of years and yet we are still here talking about how big the bubble has gotten while that magical pin has yet made an appearance.

    On the other hand, the article about people holding on to second home and not selling kind of sounds to me can be a pretty good candidate for that next pin.

    • Old school says:

      To me it’s pretty clear although timing and outcome is not. Zirp and NIRP encourages leverage. Leverage on the upside whether stocks, bonds or housing turns single digit expected returns on capital into 20% -50% annual returns. But leverage is the killer on the way down. We keep delaying downside or putting downside on US balance sheet which means so far savers and the prudent have born the cost. Politicians are going to determine who pays the price. I hear they are going to try to get money to the lowest 1/3 of income earners, but eventually you have got to make it worth people’s time to work and to save. Savings transforms into investment which transforms into higher living standards if the economic textbooks are correct.

      • Lisa says:

        What exactly is the 1/3 lowest income earners these days? It seems the information varies

        • Old school says:

          Probably varies by location, but I would assume maybe families with $50,000 income or less.

      • George Demakos says:

        It’s deja vu. Analysts, prognosticators and alike calling the top, bubbles , imminent crash. I believe all that’s true but (and yes there’s a but) not yet and probably not know. It will happen when govts stop printing and creating artificial gdp, people actually defaulting on debt not forebearance, and interest rates rise a lot further than that. At some point everyone is right and then everyone is wrong.

    • cas127 says:

      “that magical pin has yet made an appearance.”

      From July 2016 to Oct 2018, the Fed allowed the 10 yr Treasury to slowly meander from 1.5% to 3.2%.

      https://www.multpl.com/10-year-treasury-rate/table/by-month

      But, from Sep 2018 to Dec 2018, the SP 500 fell by 20%…

      https://www.multpl.com/s-p-500-historical-prices/table/by-month

      because savers have only been chased into the equity casino for 20 yrs thanks to the electric cattle prods of Fed ZIRP…and any decent rise in interest rates from the ZIRP gutter will cause an equity exodus.

      (In a panic, DC scurried back to gut rates in 2019).

      CA home sales volumes also levelled/fell in 2018 (mortgage rates, almost all rates actually, being linked to Treasury rates) because the rise in rates led to significant increases in the all important monthly payments needed to buy ZIRP inflated homes.

      Those kind of correlations are about as close to “magic pins” you are going to find in real economies.

  4. MonkeyBusiness says:

    The thing is, unlike 2000, the rich own most of the stock markets. Why would they willingly take a loss? Just look at Bezos, if he can make his employees piss in water bottles, well steamrolling the rest of America has to be next in his agenda.

    • Old school says:

      I think we have peaked on a lot of things. Stock market, wealth inequality, zero interest rates. Things run in cycles. We will see if things get better or worse for labor.

      • cas127 says:

        DC may only allow things to get worst for native born US labor…otherwise DC would not be the author of a multi decade mockery of an immigration policy.

        Once wages rise much, millions of illegal immigrants are conveniently and consistently ignored for political advantage.

        And so wages fall again.

        • char says:

          Illegal Spanish speaker don’t hit any job you need to finish high-school. It is more the legal migrants that suppress wages

        • SC says:

          If wages go up due to inflation, expect more migration into the U.S..

        • cas127 says:

          Char,

          In economies, everything tends to be interrelated.

          If wages at the bottom of the labor pyramid are gutted due to a blind eye being turned to millions of illegals glutting the labor supply, then a large number of higher wage jobs never get created because the erosion one tier below causes product/svc buying capacity to stagnant/decline along the base of the pyramid.

          Not to mention the fact that 10-20 million illegals repatriate a large fraction of their stasis earnings outside of the US.

        • EdYooper says:

          Trade policy and a single-minded drive to maximize quarterly profits is what has destroyed middle class manufacturing jobs.

          Compare the U.S. to Germany, where the Mittelstand private companies took a long view and valued labor. Germany suffers some of the same issues but has done strikingly better at holding onto skilled manufacturing over the last 50 years.

      • historicus says:

        “Things run in cycles”

        The Central bankers have dedicated themselves to PREVENT all cycles and corrections. THAT is the problem.
        Excesses that would be flushed by normal free market corrections are denied…..and excesses become pent up.
        Thus the magnitude of the “eventual” flush/correction, becomes enormous….enter the central banker…who then self authors new powers, new mandates, new goal posts.
        Blackrock, SPVs, promoting (not fighting) inflation, endless liquidity injections (once was only temporary), pegging rates UNDER inflation for over a decade.

        • Trailer Trash says:

          Why do people think that boom/bust is the only possible way to organize a society?

          If the thermostat in my house allowed the temp to go to 90 before shutting off the furnace, then back to 50 before cycling back on, I’d be looking for a better thermostat…

        • cybersandiego says:

          exactly my thinking.
          Given all these, where is the right place to invest these days?
          not that many –
          people are going crazy at NFT – as if that is going to help.
          who would buy those NFTs and make money? but I am not the one to understand these things.

      • Al says:

        If you think wealth inequality has peaked in the USA….you will be sadly disappointed.

        Like Vonnegut once said “worse and worse until the end of the world”

    • MonkeyBusiness says:

      Dems are scums. They are here to provide the illusion that there’s a “better” choice. At least with the reds, you know what they stand for.

      • Joe in LA says:

        All that matters is that the MAGA hats and the libs keep yelling at each other. Neither of them has any idea how the Americans money supply is controlled.

        This culture war is mana for stock holders around the world. Lots of riots in 2020-1, but not one at a Federal Reserve bank. As the old joke goes: let’s you and him fight.

    • The rich must own stocks, this is why Buffett said he wasn’t buying and then he was. He hasn’t any choice, he is willing to hold stocks knowing they could take a 20% haircut, it doesn’t matter. You own what you need, and you don’t pay attention to the flow of prices. For those playing with sweat money it’s another story.

  5. 2banana says:

    No one wins in inflation?

    Those with very short term bonds make out pretty well.

    4% inflation for 2021.

    4%+ inflation for 2022.

    Get out of the pool!

    • cas127 says:

      In 15 out of the last 20 yrs, the Fed has not allowed the 1 yr T bill to pay more than 2%.

      That’s not winning.

      Although, 2banana, perhaps you were being sarcastic.

      For comparison, in the years from 1990 to 2001, the average annual 1 yr rate was about 5.5%.

      From 2002 thru 2020, the average was about 1.5%

      So, in effect, the sword of Fed ZIRP has carved off about 70% of the earning power of USD savings.

      And there was never a single vote and essentially no media discussion.

      All to feed the diseased, dripping fiscal dentata of DC.

    • historicus says:

      “No one wins in inflation?”

      It will be inflation…the promotion of and the lack of want to fight inflation…that will put the pitchforks in the hands of the citizenry.

      Inflation protected central bankers and govt employees on one side…
      and the working families of the country on the other.

      • Chris Herbert says:

        If you are very rich and interest rates on savings go to 18% are you damaged goods? Not if you have the immense savings the very rich always have, no matter what. And as the stock market goes down hard, if you are very rich and receiving 18% in interest rates on your debt, are you damaged goods. Or do you snap up equities at the bottom and become even more rich? The Fed and the Treasury work for the One Percent. If you want to break this nexus, you spend money into the bottom, raise taxes, and put on capital controls so the super rich can’t ship their cash overseas. Oh yeah, and put the bankers in jail.

        • EdYooper says:

          We are SO far away from that!

          big opportunity to sober up U.S. financial sector was missed in 2009.

          The banks don’t care about Main Street USA. That’s not where their big profits are sourced.

    • Al says:

      Not really. When nobody is willing to buy the long-term bonds, it’s the short-term bonds that default first.

      c.f. every sovereign debt crisis ever…

  6. Moosy says:

    What about the looming confiscationary Biden tax increase on capital gains?

    Everyone is counting him or herself rich with gains but when cap gains increase to 40-50% or 60-70% for those in high tax states like California?

    And these taxes are not only for the lucky in the stock market but especially for those selling their home:

    Say someone bought a home in the Bay Area for 500k which is now at 2.2M

    Upon selling, this would result in 200k selling cost to realtors and stupid stuff and give 1M capital gains (500k is capgains free).

    That 1M capgains will result in a tax bill increase of 500k or 700k next year with biden’s plan, thanks to the Alternate Maximimum Tax and all those other high income earner taxes

    So what will happen when people start to realize that don’t have as much as they think they have after-tax ?

    • fajensen says:

      Nothing. The American People are taxed harder than they would be in Scandinavia and they are only too happy to also pay for education and health care on top of all that taxation because if they didn’t, it would be Socialism.

    • Dan Romig says:

      Moosy,

      Our federal income tax system is an interesting case, and to me it is the epitome of an unfair and rigged system. That being said, I benefit from it quite nicely since I am now retired and have no “ordinary income.”

      First off, remember that the maximum amount of federal tax liability for long term capital gains is 20%. But the maximum federal tax liability for people who work and have their income classified as wages is 37%.

      But here’s my favorite part (from investopedia dot com):

      “Joe taxpayer earned $35,000 in 2020. He pays 10% on the first $9,875 income and 12% on the income after that. His total tax liability is $4,003.”

      “If Joe sells an asset that produced a short-term capital gain of $1,000, then his tax liability rises by another $120 (i.e., 12% x $1,000). However, if Joe waits one year and a day to sell, then he pays 0% on the capital gain.”

      Got that? You pocket a grand in profit from a stock buy and sell. If you did it in 364 days, you gotta give Uncle Sam a hundred and twenty bucks of your profit. If you did it in 366 days, Uncle Sam gets nothing. Makes sense, doesn’t it?

      • DavidG LA says:

        Is this a US based tax scenario? no one pays 10 percent on the first 9875 of income in the US. Investopedia – rock solid source of tax information.

      • Beardawg says:

        Dan Romig

        I followed your logic, but long term Cap Gains are also taxed, but at a lower rate – I think 15% vs 20%. In your $120 Cap gain tax scenario, first of all, it would be $200 (20%) if the asset sold 364 days or less, and $150 (15%) Cap gains tax if sold 365 days or longer.

        If I am completely missing the point, my apologies, but I am not aware of an asset sale cap gain going un-taxed.

        • Dan Romig says:

          Beardawg,

          Capital gains have their own set of “progressive” rates.

          From IRS dot gov:

          “The tax rate on most net capital gain is no higher than 15% for most individuals. Some or all net capital gain may be taxed at 0% if your taxable income is less than $80,000.”

          “A capital gain rate of 15% applies if your taxable income is $80,000 or more, but less than $441,450 for single; …”

          A net capital gain tax rate of 20% applies to the extent that your taxable income exceeds $441,450 if you file single & $496,600 for married filing jointly.

          As I said, I’m retired and have no “ordinary income” (IRS term). I live on capital gains and dividends from my portfolio accounts. Some of my trades do take place in less than 365 (or 366 every four years) days, and that short-term income is treated, and taxed, as ordinary income.

    • Fat Chewer. says:

      They will realise they have been fools thinking that the unrealized wealth of their home price makes them rich. They may need to do an honest day’s work for an honest day’s pay. Heaven forbid.

    • nodecentrepublicansleft says:

      If you over pay a realtor, you’re insane.

      You can list a home on the MLS yourself here in Tampa for $75.th

      You give them a flat $10K commission and the home sells itself.

      People are looking at the homes (and picking which one they want to buy) on the internet. The realtors are nearly useless except for writing up a few documents. The Closing Agents do most of the work.

      $10K is plenty for what they do. Paying any more is flushing it down the toilet.

      The last 2 homes I sold, I paid $10K and $0 to realtors.

      • Lisa_Hooker says:

        That would work great for my $12,000,000 home. Not so great for my $120,000 home.

  7. Mike G says:

    Several friends have recently started dabbling in stocks for the first time, so anecdotally it’s time for a big decline in the S&P500

    • Michael Gorback says:

      RobinHood is today’s equivalent of the shoe shine boy giving out stock tips in the 1920s.

      • Swamp Creature says:

        Jerry Orbach (once removed), in a re-run of Law & Order said the same thing. When his driver started sharing stock tips it was a red flag warning that the time to sell was NOW.

        • David Hall says:

          $1400 stimulus checks for a family of four = $5600 tax free per family. That money is being saved or spent on cars, real estate, home repairs, stocks, bonds, consumer staples, discretionary items, etc.

          This is like Congress giving away money to try to get re-elected.

          There was a 916,000 surge in new jobs created in March as reported Friday. The U.S. is reopening with vaccination expansion. Other parts of the world lag behind.

        • This time they came out with the New Deal before the Depression. Government is becoming more efficient.

      • California Bob says:

        Except your ‘shoe shine boy’ couldn’t collaborate and coordinate instantaneously with millions of other shoeshine boys.

      • ru82 says:

        Add reddit and youtube to that list. LOL

    • polecat says:

      May their shoes shine bright!

  8. Michael Gorback says:

    There have been so many signs and omens that people are inured to the concept of a crash.

    One might draw analogies about too many false alarms (the little boy who cried wolf) or misinterpretation (the turkey who is convinced the farmer loves him because the farmer feeds and shelters him – until Thanksgiving).

    But there’s one thing I’m sure of: 99+% of investors will predict the trigger incorrectly, both in terms of timing and etiology.

    There will be a tiny fraction who called it right and they wll be hailed as geniuses – until they flub the next one.

    This is an extremely complex nonlinear system, where a single small change somewhere can blow up something far across the map. “Who the hell is Gavrilo Princip?” said almost everyone just before World War I.

    • RightNYer says:

      I’ve been saying that a while. No one will know what the shot heard round the world will be until after it’s fired.

    • YuShan says:

      Even many people who are lucky to time it correctly initially are likely to lose their shirt, because they think they are having a great deal when the market drops 10-15% and re-enter. Then after another 5-10% drop they will be adding to their positions, add more leverage, etc. Then they get slaughtered when the market drops to historic averages, which would be about -70% from where we are now. I’ve seen it all happening before – twice.

      • sunny129 says:

        YUShan

        What you described is a classic secular BEAR mkt!
        Lower of the highs followed by lower of lows,again the samce cycle repeated. With Fed ready to step in when it dives even 2%, this a harder to guess. Most likelt a massive, global, credit default event, beyond the reach of Fed, to rescue!

    • YuShan says:

      Interesting anecdote last week. I was discussing markets with a 30-yr old guy with a degree in economics or business or something. It was a very smart guy, but as it turned out he was rather clueless about stock market history.

      When I told him about my experience with the dotcom crash, he asked me how long did the bear market take, from top to bottom. I answered: for the S&P500 about two and a half years. He was really surprised. He never thought a bear market could last that long.

      Interestingly, this week the Dutch stock market index (AEX) finally breached the top that was set in 2000. That’s 21 years of going nowhere in an interesting way. That’s what you are risking if you are paying too much for your stocks.

      • Adriaan says:

        @YuShan The point you make about the Dutch stock market is incorrect – although everyone is making similar statements over here. Even people from within the investment industry who should certainly know better.

        The AEX is a *price index* so very different from the more typical *total return index* like, for example, the S&P500. In a simple price index like the AEX dividend are not reinvested like in a total return index, but taken out of the equation.

        A better comparison with other indices therefore is the AEX GR (gross return), and if you look at its history it is obvious that the previous all time high, which is claimed to have been breached only now, has been breached a long time ago.

        • Wolf Richter says:

          Adriaan,

          “…. typical *total return index* like, for example, the S&P500.”

          This is incorrect. The S&P 500 is a price index. There are separate total return indices available. But the S&P 500 is a market-cap-weighted price index.

          The German DAX is one of the exception among the often-cited stock market indices; it is a total return index. The DAXK, which is rarely cited, is a price index, and compares to the S&P 500 and most of the other indices out there.

      • Dave says:

        The Japan Nikkei Index is 30,000 today. Thirty years ago, it reached 43,000.

        • YuShan says:

          Yes! And also their housing market has never recovered. It took about 20 years bear market before the bottom was reached and it is still much closer to the bottom than to the top.

        • Old school says:

          Well when your PE was 80 it takes a long time to grow into the price especially when growing at 1%.

          Kind of like sp500. Earnings roughly $100. Price $4000. PE= 40. I kind of like Hussman’s peak SP500 earnings which was $144 X PE of 14 gives about 2000 on SP500.

        • YuShan says:

          Old school, that is actually optimistic. That takes you back to just under historic average, but by definition you would (greatly) undershoot the average during a serious downturn.

          On top of that, corporate leverage is at all time highs. If companies have to deleverage (i.e. issue stock, selling parts of the company or stop investing in the future) their earnings will be negatively affected too.

      • cas127 says:

        “he asked me how long did the bear market take, from top to bottom. I answered: for the S&P500 about two and a half years.”

        Actually, when you count both mkt implosions, the 1999 highs were not recouped until 2013!!

        • YuShan says:

          Yes you are totally right! You had recovered from your loss by 2007 (just), but holding a few months longer and you would have been under water again, not to recover until 2013.

          And I wouldn’t be surprised at all if somewhere in the next few years we would dive below the 2000 top once again. Based on historic averages, we should lose about 70% from current levels to reach run of the mill bear market bottom valuation.

        • And the 2000 selloff started a cascade, which was a confluence of outside factors, , the 2000 election, Y2K, 9/11, the Iraq War, and the GFC. Most of those problems are behind us; (500 votes in FLA in 2000- that was a contested election), the tech-pandemic, which was front loaded, gaps which have been sealed on terrorism, except maybe cyber. The US is actually pulling back from those misbegotten ME wars. The GOP which rodeoed that maelstrom is finished, (by that I mean the Bush Cheney legacy) and the central bank ‘whatever it takes tool box’ is at the ready. We could go a long way from here, a long way.

      • Auldyin says:

        The Nikkei was over 39500 when I sold out of Japan in 1989. Haven’t been back since.

    • Swamp Creature says:

      That was a little more predictable, though. Trouble was brewing between Austria and Serbia long before Gavrilo Princip came along. Same with Russia vs Germany.

      • RightNYer says:

        Would you not say that the trouble brewing between the political left and political right will lead to a powder keg exploding is not predictable?

      • Michael Gorback says:

        And this outcome is not predictable? Trouble is brewing right now and has been for a long time.

        The question is when and where will “Gavrilo Princep” strike this time?

        I can’t seem to find any historical references to predictions that Gavrilo Princep would shoot the Archduke at any given time or place.

        • Swamp Creature says:

          True, but as I said before Austria wanted to invade Serbia long before Gavrilo Princep came along. What wasn’t expected was that Russia would mobilize on the side of Serbia with a 5 million man army. Everyone thought they were a basket case. That set off the chain reaction that started WWI

    • SC says:

      Or you can be a self-proclaimed hero by continuously predicting the next bear market and getting it in print. You can then use your predictive victory in all your market guru marketing for the next bull market.

      As long as the Fed continues to dump ridiculous amounts of money in the economy, it is hard for me to see any change in the status quo.

      • Old school says:

        Central banks are going to have to turn off taps pretty soon as they have blown up assets to 6.5 X GDP. The bigger that leverage goes the more distorted things get. I think young people will just not try if shelter costs 10 – 15 X income. Might as well say screw it and drop out of system than be a slave to inflated asset system.

        • Jared says:

          Or young people may revolt, which perhaps we’re seeing now.

        • YuShan says:

          @Jared, yes but too bad the young people focus on the wrong things. I’m waiting for the moment cancel culture to cancel the Fed!

      • nodecentrepublicansleft says:

        Garden variety con-men have been incredibly successful in the USA.

        Many people are very easy to fool. Especially w/TeeVee. You could put a sociopath in a suit in the back of a limo and most people would trust him.

        Imagine running a fake ‘college’. You wouldn’t trust a man that had to pay back $25,000,000.00 to the poor rubes that fell for his con would you?

        Of course, you wouldn’t….you’d have to be a fool to trust somebody who is obviously a criminal. Right?

  9. Jon says:

    Markets can remain irrational longer than we can remain sane or sovent

    Don’t be surprised if this goes on for decades

    The FED can buy all bonds to keep the rates super low although the inflation can run hot like it is running hot for last few years but FED is conveniently ignoring

    • WES says:

      My Father thought he would see the financial systemblow up in his lifetime. It didn’t.

      I thought I might see the system blow up in my lifetime. Sure 2008 happened but then nothing happened.

      Now I am thinking my children might live long enough to see the system blow up?

      • Wolf Richter says:

        WES,

        It blew up in 2008 just fine. Spectacularly, actually. But it was patched back together. Now it’s in worse shape.

        • historicus says:

          and it blew up in March of 2020

        • OutWest says:

          I almost lost everything in 2008…leverage, and lots of it. Lesson learned the hard way. Zero leverage today and I sleep well at night.

        • sunny129 says:

          Thanks Wolf, for pointing this out! Many think that it was fluke but forget the conditions (structural problems in the global Banking industry) which brought GFC. It lasted 18 months until Fed started insane cdreit creation with ZRP+QEs+stimulus and what not!

          Structural problems never got addressed but masked over by creation credit/debt. As of now Mkt cap to GDP ratio is almost 200%. but no one cares, b/c of Fed’s put in place since ’09! Only a massive global credit default(S) can correct this insanity.

        • California Bob says:

          re: “Zero leverage today and I sleep well at night.”

          My candidate for the best word-spin in history: ‘Debt’ (bad)->’Leverage’ (awesome!)

          Any others (calling Frank Luntz)?

      • Paulo says:

        Wes, (great comment)

        I remember my Dad and Father In Law talking about interest rates in the ’70s. They both said it would never drop below 12% in their lifetimes. That was when my mortgage rate ballooned to 18% on the renewal date. Well, the FIL is still living. :-) Regardless, when I see the prognostications about just how the rates can never be normalised I just smile.

        No one knows what will happen? Like a finely made watch, this economy is more and more complicated and integrated. Like a deficient computer program the makers produce patches upon patches. Anything could happen and people need to be prepared for a turn to take place.

    • RightNYer says:

      I’d be shocked if it goes on for decades. The 2009 “recovery” took 7 years of ZIRP and $3 trillion in QE. Now we’ve added another $4 trillion, government debt is now $19 trillion higher, corporate and private debt are several multiples higher, and interest rates cannot be held down any longer.

      The Fed appears confident and “in control” but that’s because they’re terrified they’re losing control. So jawboning is all they have.

      In conclusion, the last 12 years were in some ways “the last stand.” Those actions can’t be easily repeated. So now what? What will happen when the next crisis comes?

      • Anthony A. says:

        @RightNYer: “What will happen when the next crisis comes?”

        My guess is pretty much what happened in the GFC:

        1. Stocks will crater.

        2. The fake companies that went public will go BK when the exec’s run off with the remaining cash.

        3. Big Corps will look for a bail out.

        4. Housing prices will fall dramatically.

        5. Banks will start calling in mortgages.

        6. Old retirees like me will spend less and eat the equivalent of cat food.

        7. Other nations will laugh at us.

        8. College tuition fees will rise (LOL).

        9. People will keep their cars and appliances longer.

        10. Wolf will be putting out two articles a day to cover the happenings.

        Go Wolf!

        • VintageVNvet says:

          All good except for the cat food AA,,,
          You and I will be eating the caviar fresh from our RU buddies,,, and to be very clear, our RU buddies will be, like totally dude, doing every thing they can do to keep us on their side against their well known foe.
          That same foe has been the nemesis of the russkies for eva, and that will NOT stop being the case ever,,, and, as soon as the ”real politics” folks in RU, including Putin who is about as real as any one ever,,, come to grips with that real case for them (the russkies ) we and they will form a cooperative that will pretty much put the rest of EU and the northern part of Asia into a long long period of peace and plenty,,, and the same peace and plenty for RU and USA will prevail for a century or two…
          Not too worried about any of the geopolitical results after that, as I have foresworn trying to fix folks of the following generations, and am confident that the global educational system will have been worked out to provide ‘REAL’ education easily, as opposed to the hard trekking needed these days..
          And many many thanks to WR and his equals, or at least close, on all web presentations.

        • Anthony A. says:

          @VVN, I hope you are right about the cat food stuff. I do still have relatives over in Lithuania as I am 100% that species. That was my first language here in the states.

          And I hope you are right about the rest of the prediction.

        • cybersandiego says:

          I like #10 out of all the things you enumerated.
          Some of these may not be bad for the overall health of the nation. especially #1 , #2and #4 and may be #9

        • Swamp Creature says:

          1. Wolf will sell out of beer mugs. You’ll have to go to Ebay to get one. They will sell for a premium.

          2. AA will have a record number of people signing up. They will have a waiting list.

          3. Michael Burry will cash in on his leveraged short position on long term treasuries. He will make a big investment in water rights in California and cash in on the water shortage.

          4. Biden will issue an executive order allowing only $300/week of cash withdrawals.

          5. All ATM’s will run out cash

          6. Dollar bills will be printed on one side to safe money.

          7. A large German Bank will go under, (another LB moment)

          8. people will start hoarding cash and storing it under their mattresses.

        • California Bob says:

          @VintageVNvet:

          re: “… our RU buddies will be, like totally dude, doing every thing they can do to keep us on their side against their well known foe.”

          I give up. The Chinese?

      • Chris Herbert says:

        The Fed is always in control. It is just that oftentimes the folks who run the Fed overshoot their ambition, said ambition is to maintain the wealth and income of the One Percent. There is no ambition to help raise the material well being of the majority of working Americans. Biden seems to understand this shortcoming. But he better move fast because when the Feds decides to raise interest rates, the game is up. We will all need that infrastructure spending, because every where else the demand side will dry up.

    • Old school says:

      I think you nailed it. Total debt in US is about $80 T. For every 1.2% interest rises debt service goes up by $1 T or 4% of GDP. We pulled forward all the consumption possible so we are stuck in low growth as far as eye can see.

      Maybe more and more bad debt will get passed over to Uncle Sam as he pays negative real rate. I could see a lot of student loan and housing debt getting put into governments tab.

    • ru82 says:

      Exactly….as long as their is new liquidity….price will go up. Simple supply and demand.

      Things started to unravel in 2007-2008 when house prices platuead and so did new buyers. Nobody could refinance at a higher price and the subprime loans started to reset.

      You had a bunch of subprime people who would never be able to make payments on their 500k home once the low adjustable rate teaser rate went to a normal rate.

      Then add on a lot of speculators who were also buying.

      We ran out of buyers….and then things got interesting.

      Right now we have mostly Wall Street and the top 20% buying homes, investment homes, and vacation homes. Financially they are in pretty good shape.

      Next with the new upcoming infrastructure stimulus, they are once again pulling in the subprime buyers with affordable housing promises. We may need to wait until they join the party and then it will get interesting.

      I am seeing some cracks now. I am looking at two older homes that are for sale halfway through a remodel. I think they either ran out of money, time, or gave up?

  10. Xavier Caveat says:

    Nobody really saves money in a bank that much anymore, and homes have only gone up in value all of our lives (your flyover may vary) so we’re conditioned to the predictable track record that comes with the territory.

    This bump in the part of the housing bubble #2 is kind of a last hurrah, a flight to security similar to after 9/11 which is when the big returns were made in HB #1, but this time with people lining up to buy guns too.

    If the dollar falls apart, homes & guns will be the only thing of value left for most, and might even go up madly from here in $ terms, between a rock and a hard place.

    Imagine a:

    ‘$100 million 2/1 fixer upper in Fresno’

  11. Michael Grace says:

    Money is worthless as there is no interest which is its “value”
    Hence a last stampede into “asset” An asset is only an appreciating value
    Soon only your depreciating earnings will matter.

  12. BuySome says:

    The beer hall song coming from the top:
    “Oh let us buy homes where the average Joe roams,
    And we’ll charge him an arm and a leg.
    If it ain’t enough that the rent is too tough,
    We’ll put him with the bowl out to beg.”
    In other words, they don’t give a damn.

  13. MonkeyBusiness says:

    Jim Rogers saying there will be a crash. And even Michael Burry is now saying it.

    I bet you we’ll have a 10% correction and then it will be the usual “To Infinity and Beyond!!”

  14. JD says:

    What if the Fed can’t just “sell its assets”?
    What if there’s no bid for the Fed’s ‘assets?

    • Wolf Richter says:

      It wouldn’t need to sell them. These are bonds with maturities. On the maturity date, they get paid off. The Fed has $7 trillion of these bonds. Every month, there would be something like $100 billion or $200 billion or more maturing. That would shrink the balance sheet pretty fast.

  15. Pedro says:

    I love Wolf, but Wolf is rarely gets the market crash thing right. He said Tesla was worth $10/share (post split) based on his “calculations” in 2019. He shorted the market in dec 2019 and was lucky then shorted the market in 2020 and has been grossly wrong. And then his Bitcoin calls in 2017 were right but only for a few months and it rapidly recovered.

    He is a Perma bear and won’t ever concede a rally based on QE 4ever policies. We are gonna see insane asset price inflation for years as things beat up. Price of gas is the tell, already $4 in California.

    My guess is dow 80k , SP 9k and then a 50% crash. So if you get in now you’ll likely be ok if you HODL. Yes it will be volatile ride but the coveted 60-80% crash that every pundit loves to predict is far far off in the future.

    • Wolf Richter says:

      Look, Pedro, I love you, but you’re nuts.

      I NEVER said Tesla would go to $10. I said I might be a buyer if Tesla has a PE ratio of 15 or 20 which might have been $10 at the time you cited. It was a statement of where I thought TSLA would be priced reasonably. Anything above a PE ratio of 20 would make Tesla overvalued in my book. That wasn’t a prediction of the future of Tesla’s share price at all. Alleging that is just nuts.

      Yes, I shorted the market at the end of 2019, and it was very successful. It’s published info… the beginning, the middle, and the end when I covered in March 2020. Don’t try to twist it into anything else. It just makes you look nuts.

      You forgot to mention that I went long in March the day I covered my short, and those bets worked out. I sold all of them before I shorted the market again in June.

      Yes, I shorted the market again in June, and that short hasn’t worked out yet. I still have that short. So we’ll see. I might cover any time, or might hang on to it.

      I never predicted where bitcoin would go, not in 2017, not now, not ever. Saying so is just nuts. I documented where it actually went (historic charts) without prediction of where it will go, and I marveled at its actual movements, and I might have called it a scam, and I still do.

      The last two paragraphs are YOUR predictions. I would NEVER make those kinds of predictions. That would be nuts ;-]

      • Dan Romig says:

        One of the things about hustling sporting event tickets on the street for over four decades that I got pretty good at was being able to predict where the market was heading as game time got nearer. But you could see and feel it from the amount of buyers walking up to the stadium, the amount of people walking up with tickets to sell and what the other ticket brokers were doing – how much inventory they were holding and what was their bottom line on accepting offers for the sell price they’d take.

        Usually, the market would soften as game time arrived, and if you held too long, you could get stuck taking the tickets home and going backwards at the end. I saw a lot of guys who would do this often and I wondered why they let greed overcome logic. But occasionally the market would tighten at the end, and if you bought up on the cheap an hour or two before and held firm, there was a lot of money to be made at the end.

        Unfortunately, I have no freaking idea where the stock market is going to go, and I agree with Wolf that it is ridiculously overpriced.

      • Pedro says:

        Thanks for the response. I needed a little Wolf 1:1. Lol

        I was specific that I was “guessing” on where this fed induced rodeo is headed. I’m don’t have any conviction on whether the market is over valued or under valued as you do. Which is fine I just feel that neither of us can be so prescient to know how inflation will impact markets.

        The fact we’re at Dow 33k and Nasdaq 13k (20% compound since 2016) says to me the inflation we’ve all been expecting since 2009 after the money cannons began to be fired is embedded in the equity market. QE4ever is the mother of all money bombs and it will likely push markets higher than ever conceived. In my opinion this clown show has just started. The notion that we have arrived at nosebleed levels is amusing considering the last 10years of manipulation. Do we really believe the new created Department of Money printing ( formerly the fed + treasury) will allow a deflating market. That’s the point we seem to miss in these debates.

        They haven’t even started to prime the money pump. UBI and MMT are already in their tris phase. The next wave of payments will be even larger and more frequent. And you want us to believe the market is overvalued? Everything is about to inflate if businesses can’t convince workers to get off of unemployment. $15/hr is a joke. Min wage to get a good worker will be $25-30. Basic handymen on task rabbit are asking for $85-100/hr.

        Markets will head higher is my guess. Doesn’t mean they make one richer. In fact it might not keep up with real inflation.

        • RightNYer says:

          Your argument seems to be premised on the assumption that stocks are a good inflation hedge. They’re not. Rising inflation (from a rapidly expanding monetary base) means the public companies’ inputs (materials, labor, rent, etc.) costs more as well. There’s only so much of that they can push off onto consumers.

        • Fat Chewer. says:

          Not when they can change the rules at the drop of a hat. Remember how, not so long ago, they were hell bent on fighting inflation. 180 degree turn on a dime now. Remember, they care about their own ends, not yours.

      • California Bob says:

        Side Note: Reported on Jalopnik: A Tesla Model X owner bought a Mustang Mach-E and drove it home to the East Coast from the West. He reported very favorably on the Mach-E, including some things he felt were missing on the Tesla and some things he thought the Mach-E did better. He got death threats from Tesla fanbois.

    • Jon says:

      Principally I totally agree with WR but id not take this stand to short the market as it is difficult to time things.

      I have been waiting for real estate crash for last 5 years and for stock market normalization as well but we all know how is it going
      The market may crash 15 20 percent before the fed comes to save it but again people who are in the market for last 10 years made lot of money

      • Petunia says:

        I heard, on a real estate interview, banks are closing helocs and no longer offering them. If real estate equity is only going to go up, why aren’t the banks cashing in on the upside? They are not risking more exposure to real estate for a reason.

        • ru82 says:

          Maybe they are worried about the artificially low interest rates the FED guarantees. The low rates do not reflect the risk for a Bank HELOC as the HELOC is probably not guaranteed. ;)

    • ru82 says:

      The one thing we do not know, is what would have happened without all of the COVID stimulus money.

      Stocks like Biglots, Overstock, and many others were heading towards bankruptcy.

      Zoom and a few other WFH companies would not have the current valuations. Maybe one day they would but not for another 5 years?

      Would we have had a crash like in March…no. But I am guessing the markets would probably be lower than they are right now?

      Now they are using this crisis for things like a huge infrastructure stimulus.

      All this will do is make the wealth effect gap bigger which might actually cause a need for an MMT policy to keep the people at the bottom happy.

      Currently, housing affordability appears to be on its way to becoming a luxury. Similar to other 3rd world countries.

  16. Dano says:

    I’m 60%+ cash pretty much every day of the week. Was at 80% cash not long ago. Fully expecting this ‘market’ to roll over this year. Probably by fall, maybe sooner.

    Can’t complain though as it’s been a good year day trading.

  17. Gandalf says:

    Wolf,
    The problem with the idea that inflation will inevitably force the Fed to raise rates is that the CPI has been faked for so long that it is simply not a reflection of reality anymore.

    One reason that inflation was so high in the 1970s was that the cost of housing was listed in the CPI based on the property value of a home, and this was skyrocketing. So, in 1983, this housing component of the CPI got changed to rent equivalence.

    Since then of course, additional crooked fixes have been added to lower the CPI – hedonics and substitution.

    Healthcare, education, and new home building have consistently inflated at 5-10% levels for the last forty years.

    But, this inflation doesn’t show up in the CPI either, since the basket of goods assigns only a small fraction of these inflating costs to theCPI.

    Instead, the inflation in these three sectors of the economy go into the GDP figures – because they have inflated so fast, these three sectors now account for over 30% of the US GDP!

    Which is totally fake also, because a lot of this increase in healthcare, education and new home building is not from increase economic activity, but from the high inflation levels in these sectors.

    Without the inflation from these three sectors of the economy, the real GDP would almost certainly be shrinking. This would also correlate with fact that the numbers of Americans who are on SNAP or other social welfare programs have steadily increase over the last several decades.

    So, it’s all fake, the CPI and GDP figures, and they have been for many years.

    My theory is that high inflation numbers won’t be forced to enter the official figures until the USD has lost so much value that it is no longer the world reserve currency and the countries that we are dependent on to produce the goods we need will no longer accept our dollars in payment.

    That day looks to be getting closer, but it isn’t going to happen for a while longer.

    • Andrew Streit says:

      I agree with this. In the UK we switched from RPI to CPI measure in around 2010. Guess which historically measures lower?

  18. Micheal Engel says:

    1) Marin County Ca give 125 single women $1,000/m.
    2) Trade OHLC black bars for $3M home in Soulsalito CA.
    3) Golden Gate lead to inflation.
    4) Sugar will be sweater than Equal..
    5) Within a two years the 125 single women will ask for more, more reparation, $1,615/m to adjust for the higher inflation.
    6) Marin County section 8 will expand. Soulsalito will be Lynched.
    7) Eric & Cory will celebrate.

  19. rich says:

    Most of the blame for the huge hike in used truck prices can be placed on the mega used vehicle (buy here, pay here) dealers like car max. They make their money off the interest payments, and pretty much don’t care what they have to pay for their wholesale inventory, just as long as they have inventory that generates interest cash flow. Low ROI is still better than no ROI, just as long as the consumer is buying payments over price. The same mentality, along with low supply, is pumping up house prices. Financialization inflates asset prices.

    • Depth Charge says:

      The blame can be placed solely on subprime car loans. Take those away and it’s craters away. You don’t have to prove income or assets or anything to drive away with a new car these days. Fog a mirror, sign on the bottom line, take keys and go.

      There were close to 8 million auto loans over 90 days delinquent heading into this meltdown. All bets are off as to how many that has swelled to. The FED and banks know that if they stop lending, the whole PONZI implodes. They lend money to anybody, doesn’t matter who.

      These days, “non-bank lenders” are where the subprime is concentrated. These “non-banks” are funded by all the major banks. Once these “non-bank” lenders start blowing up, it’s curtains again. The banking system is a despicable cancer upon the country, minting debt-junkies by the tens of millions.

    • David Hall says:

      Ford has reduced production at six mfg. plants due to parts shortages.

  20. rich says:

    Two weeks ago, I sent this email out to my real estate investor friends, and their feedback was all over the map:

    Year over year, wholesale used truck prices are up over 43%. It’s a new mindset. People are also paying all the money for new trucks, new and used houses (new house sales are up a y/o/y 30%), new appliances, building materials, and Wall Street securities. Raising interest rates, shortening amortization periods and ending the Government stimulus money giveaways would bring these high flying prices back to earth. But none of that is going to happen. Welcome to the wonderful world of massive inflation, where FOMO (the fear of missing out) is a driving force. Remember, it was less than a year ago, when Americans were ready to pay almost any amount of money for a few rolls of toilet paper.

    Well, I found this dream house on a hill, with a sweeping big water view, in a killer Swansboro, NC neighborhood. That house would have cost at least $150,000 more in Wilmington. It was a FISBO that just hit the market that day. My wife loved it. It was in perfect condition. I was on the selling end of a 1031 Exchange, and needed to park money somewhere, so I wrote them a cash contract at their asking price. They signed it.

    I woke up at 1:30 in the next morning and thought, wtf am I doing? For the next two hours, the computer told me that what would have been a great deal in Wilmington, could be a high retail deal in Swansboro. I studied FEMA flood maps and found out that Swansboro received 34″ of rain during Hurricane Florence, and that the town had turned into a river as the White Oak River ran through the town. Where was I going to find someone to manage the property? Who would do the repairs after the next hurricane?

    With so little inventory out there, I had had made an emotional decision instead of a sound business decision. My metrics should have been to never buy a property to complete a 1031 Exchange that I wouldn’t buy without a 1031 Exchange, and to never allow a FOMO mindset to drive the deal.

    • Lisa says:

      Thanks for sharing, I wonder how many other people are actually thinking about their decisions.

    • fajensen says:

      I think, if you get to the “wife loved it”-stage, you are Done.

      From there, it will really be cheaper in the long run and less stressfull in the shorter term, to go along with “wife”. Because, If it is sold to another buyer, she will carry a permanent grudge about it.

      She will check up on all the renovations the buyers did, what valuation it now has and so on and so forth, and you will hear about this constantly – while also loading it all up under pressure, so, one day, when she gets pissed off about something entirely different and minor, you will get it with both barrels: Whatever she think you did right now and that perfect home that your deliberate stupidity and meanness, to her, caused her to lose out on!

      Then she takes Half, and the lawyers take whats left. Cheaper to buy the damn house!

  21. Swamp Creature says:

    I have another trivia question: Did the 2017 tax bill which eliminated SALT deductions and capped Mtg interest deductions help or hurt the values of real estate in a neighborhood of 1.3 mil new and 650K older homes? I’ve got the answer. Once again the answer may surprise you. I’ll give Wolf another chance to get it right. Anyway, I need to get another beer mug before he runs out.

    • Wolf Richter says:

      Swamp Creature,

      OK, I’ll give you a chance to get another beer mug. We know prices went up in many expensive markets after the SALT deduction was eliminated. But why they went up — cause and effect — isn’t as clear to establish.

      There was the Trump bump. It was very pronounced even in San Francisco: In 2015 and into 2016, rents and condo prices had been falling, and house prices were weakening, but a few months after the Nov 2016 election, they started rising again, and house prices jumped wildly and continued surging even after the elimination of the SALT deduction, which has a much bigger impact in SF than in most other markets due to the high home prices ($1.5 million median for a house). I ascribe this surge in prices to the Trump bump, and not to the elimination of the SALT deduction.

      In the neighborhood you’re describing, prices appear to be lower than in SF, but still high enough to be broadly impacted by the SALT deduction elimination. But prices went up anyway, and I would say they went up because of the Trump bump, and not because the SALT deduction was eliminated.

      • Swamp Creature says:

        Wolf

        “Did the 2017 tax bill which eliminated SALT deductions and capped Mtg interest deductions help or hurt the values of real estate in a neighborhood of 1.3 mil new and 650K older homes?” that is the question.

        The Trump bump doesn’t answer that question. We know prices went up after Trumps election but what caused it. Trump didn’t magically make prices go up by waving his finger.

        Hint. Something with the tax code change cause some (not all) of the increase in prices. I see it every day I walk the streets here.

        I hope you get it right so I can get that mug. If someone else jumps in and first you’ll be SOL.

        • Wolf Richter says:

          I think I’m going to run out of mugs before I try to answer more your neighborhood questions :-]

        • Swamp Creature says:

          Wolf,

          What’s happened is as you know the 2017 tax bill capped the SALT deductions and capped the Mortgage Interest deduction but left the latter in place if you did not move. It was essentially grandfathered in for high priced homes. Add to that, the fact that a lot of houses around here have a lot of equity or are paid off. So the incentive was to stay put resulting in a shortage of listings. In addition, the alternative to selling, renting a paid off home has turned into a gold mine for the owners especially with these near zero interest rates by the Fed. This was discussed in one of your other articles which parallels my analysis here. Supply and demand kicked in and drove up the prices. This supply and demand imbalance overshadowed the minor loss in market value due to the SALT deductions being capped. The Realtors are all complaining about the lack of supply. I get these notices in my mailbox every week. As soon as a house goes on the market here it is gone.

          I originally thought the tax act of 2017 would clobber the real estate values but I was wrong. It had the opposite affect.

    • Petunia says:

      It did not hurt prices because in those high tax neighborhoods people have higher incomes and those homes attract higher income buyers as well.

      We have relatives/friends on Long Island, NY who were unhappy with losing the tax break and it affected them because they are average wage earners. They could sell their homes for big profits, but have no better place to move they can afford. Most are trapped waiting to reach retirement to sell. One of our dearest friends didn’t make it, passed away last Xmas, at the age of 62.

      • Swamp Creature says:

        Sorry to hear the news of you friend. I grew up on Long Island. My parents and all my relatives are buried there in the Holy Rood Cemetary in Westbury L.I. I miss the place.

      • Depth Charge says:

        I had a neighbor pass away a few years ago after surgery, aged 54. His wife and her new boyfriend are spending his retirement.

  22. Micheal Engel says:

    1) Place for mom.
    2) Inflation raised mom’s home. Sell it, or rent it and send mom to a senior home.
    3) USD/MXN is rising in stepping stones.
    4) The strengthening Mexican Peso can pay Barcelona rent during a British and European recession.
    5) MIL escape Barcelona and fly back home.
    6) Mexico’s kaisers or queens don’t spend money on BLM, or on an English gentleman.
    7) Mexican will revolt in Marine county, Ca against the gov.

  23. Winston says:

    Houses are being sold like mad because of low rates caused by the central bank instead of teaser rates from criminal sub-prime lenders. Different cause, eventually a similar result. On the Fed raising rates, interest on the national debt was $523 BILLION last year. Tax receipts were $2.1 trillion.

  24. GvsCfa says:

    If the market’s rise since the GFC was due primarily to the central banks setting interest rates at or south of the zero bound how can those same central banks fight inflation if and when it arrives? Per your interview you say that the Fed has tools to fight inflation. I will have to call BS on that. If the central banks sell assets then rates rise which would more likely than not reverse the markets direction over the past decade. With the massive increase in leverage (government, corporate and personal) an increase in rates will also crash the debt market. Combine an increase in rates with duration risk of negative yielding sovereign debt and where does that leave you? There is no way that the central banks can or will fight inflation. They can say all that they want but that ain’t going to happen.

    • Wolf Richter says:

      GvsCfa,

      Long-term bond markets get crushed during periods of rising inflation. This is already happening, with long-term Treasuries and high-grade corporates having had the worst quarter in decades. They will have a rough time during a period of rising inflation and rising inflation expectations.

      However, when the Fed starts seriously cracking down on inflation by raising short-term interest rates and reducing its balance sheet and committing to it credibly, those long-term bonds will soon rally like there’s no tomorrow, driven by investors who want to lock in those high long-term yields for future years when inflation will be much lower after the Fed crackdown.

      Buying 30-year Treasury bonds in late 1981, when CPI peaked and as Volcker was starting to crack down on inflation turned out to be one of the best long-term investments of all times. These buyers locked in a credit-risk-free 15% yield for 30 years! And the prices of these bonds rallied for years.

      • RightNYer says:

        I’m a little confused. 10-year treasuries are now at around 1.7%. If the Fed were to, tomorrow, raise short-term rates to the same 1.7%, why would that have an effect on the 10 year treasury rate?

        • Wolf Richter says:

          Wow. The financial world would implode on a 170-basis point rate hike in one fell swoop from zero. The 10-year yield might turn negative. Who knows. That would be a massive black swan event.

          What I was saying is that in an environment of rapidly growing inflation, long-term bonds get crushed. If the Fed cracks down on inflation, and it’s credible, long-term bonds will rally from the lows.

        • RightNYer says:

          Haha, I clearly don’t understand something about bonds, because here’s the part that confuses me:

          Say a bond’s face value is $100. The short term rate is pegged at .25%, so the annual coupon is 25 cents. Aren’t the long-term ones ALSO a face value with a coupon of 25 cents, but the bonds themselves sell below par such that the 25 cents and the payout at the end of the $100 equals what would be a 1.7% yield?

          In other words, if the Fed raised short term rates to the 1.7% to slow inflation, why would that change the prices that the already issued long term bonds trade at?

      • Swamp Creature says:

        The phrase for that was called

        “Shooting the Treasuries” and using huge leverage (10 to 1 or more was allowed)

        You wait till just before an economic depression and buy long term bonds.

        I bet Michael Burry is doing the same thing in reverse. Shorting the entire long term bond market with 10 to 1 leverage.

      • sunny129 says:

        Wolf

        I like your analysis but the key phrase is ‘committing to it credibly’

        Fed has already lost it’s credibility IMHO. Powell is no Volcker!

        I entered the mkt when the 10y was 14+%! Inflation around 15%!

        • Depth Charge says:

          I hope Wolf is right, but he seems to have some sort of confidence in the FED doing something which I have zero confidence in. The FED has proven that they are pathological liars. Nothing they say ever comes to fruition. Ever.

      • GvsCfa says:

        RE: those long-term bonds will soon rally like there’s no tomorrow

        I agree but can you even fathom the destruction of the equity markets, debt markets, housing markets, et al if all of the central banks turn from massive money printing (to invoke the wealth effect) to removing liquidity and raising rates to unwind that very same wealth effect that they have inspired? What about the pension funds who were forced out on the risk curve? Do you leave them high and dry? What would happen to Joe Lunch Pale who couldn’t tell you what a central bank is but knows that his house is suddenly worth half of what he paid for it because Joe Lunch Pale does not buy a house because of its value but instead because bases the purchase decision and price paid solely on a house payment predicated on low rates? Would the EU, where the cost of borrowings for Italy is less than the US treasury rate, simply implode? What would happen to the reputations of Greenspan, Bernanke, Yellen and Powel when the tide goes out and we find who has been swimming naked (i.e. lying to us for years that they have everything under control). Does what happened to Neville Chamberlain’s reputation ring any bells? Raising rates ala Big Paul just ain’t going to happen. It should happen but it ain’t.

        What needs to be done is for the central banks to reverse course and let the markets set interest rates. Given the full scale apocalypse and discrediting of central bankers that would occur takes this option completely off of the table.

        • ru82 says:

          Remember when Trump was asking the FED for NIRP like in Europe as it would reduce the Governments cost of borrowing and make is budget look better.

          Higher interest rates would surely effect Government borrowing and budget restrictions. ….hmmm…the more I think about it….maybe not.

      • Auldyin says:

        Classic Wolf
        I remember it well, I was there when Steady Eddie did it for Thatcher in the UK. Long bonds moved to hefty premiums even some irredeemables came to par which was unheard of then.
        It came after a spell when it was deemed by all to be impossible (26% rpi) and Heally got stopped at the airport by the IMF. It was very painful at the time but it worked and basket-case UK became a player again until Blair & co said ‘things could only get better’ and started printing again. Nothing new except debts are orders of magnitude bigger now and any interest increase will cause orders of magnitude greater pain. No politician who wants to be elected will do it in my opinion. So I won’t hold my breath on seeing it again at my age.

  25. otishertz says:

    Demand has been pulled forward in a massive way in most markets. Expect things like durable goods and second homes to have a crash in demand in the future.

    • MiTurn says:

      “Demand has been pulled forward in a massive way…”

      An important point! This will become telling soon enough.

    • RightNYer says:

      Yep. The other thing you have to keep in mind is that a lot of consumption, whether on second homes, luxury cars, jewelry, etc. did not come about from people selling their stock gains, and using that money to buy that stuff. Heck no. Why would people sell, because stonks only go up?! So what the rising stock prices did was cause people to be confident to spend OTHER money they had or to take larger leases/mortgages, and so forth.

      That means that the “wealth effect” is what caused that consumption. But what can be giveth can be taketh away. If stocks drop, watch that confidence disappear. And obviously, most people did not lock in their gains or the stock market would have plummeted.

      • Walker says:

        This is a terrific and nuanced point regarding psychology and behavior. If accurate, the downside is amplified because people wind up with the worst of both worlds: declining net worth and low cash on hand.

        In anticipation of a sudden collapse, I have limited my equity and real estate exposure in favor of holding cash.

        Time will tell if I am left holding a sack of dollars while my neighbors continue to enjoy their massive home equity increases, remodeling projects and new cars.

        • Phoenix_Ikki says:

          Yup only time will tell people like you and me will have the last laugh. So far in the last couple of years, people like us are the ones with eggs on the face while everyone else think they are financial genius because they bought a crappy house in the ride up. I dream of the day when these people get the rude awakening.

        • Swamp Creature says:

          Same here. Moving everything into my credit union. Need to ride this thing out. Weren’t credit unions started in rural Germany in the mid 1800s? to serve the local farm communities. This is old school on steroids.

      • Swamp Creature says:

        Yep, they spend money that’s on a paper or a screen on a computer. They don’t have the money until they sell, but are too greedy to cash in and take their gains. They want more.

        • RightNYer says:

          Right. If I decided I was going to splurge on a fancy car because of my stock gains, I would actually REALIZE those stock gains so that if the stock drops, I didn’t spend money that I now don’t have.

  26. MiTurn says:

    My favorite Wolf quote from the interview:
    “This is what you get when there’s a mania — psychological — the fundamentals go out the window…it’s becoming irrational.”

    Time to get off the train, next depot!

    Also, viz. Wolf’s comments, I’m prompted to believe that the CPI is intentionally disinformation.

    • polecat says:

      The problem for many is that they’re shackled to the train seating, on the last car of great extirpations. So when that LocoFedmotive pitches over the broken trestle into the gorge of depression, many lowlymokistanis will get crushed – Crushed I Say!

      • VintageVNvet says:

        Exactly proven true for our/the generals/admirals fighting the last war pc.
        While I was on a destroyer built in ’43 and saw the incredible advances of THAT time, including a completely functioning analog computer that had NO DIGITAL components what so ever,,, it was clear in ’65 that the entire ship and all its parts were SO obsolete…
        And now, seeing the US Navy going down that same road,,, I can only hope that ALL of our municipalities/GUV mint entities are at least TRYING to get into this century,,, and, one would hope, at least trying to go forward in all respects,,
        Especially those investors who realize the current model of the PE and Hedgie folks are going to end up sooner AND later, on the short end of some fairly serious forks/sticks, etc., etc.

  27. Micheal Engel says:

    1) There is a pent up demand for dentists, for people who dare
    opening their mouth.
    2) Comatose patients run a marathons.
    3) Big, bold and old.
    4) SPX might choke by the momo fomo inflation flames.
    5) Dr. Michael Raynor : be humble !! The stimulus plan and infrastructure plan should be an option. Option might bring success. Options can expire with a small loss. A full commitment in the wrong direction is too risky. It can lead to large losses and no resurrection.
    6) SPX trigo.

  28. fred flintstone says:

    Recent fed and congressional meeting…..
    We’ve only just begun……who rah!
    Pass the pipe!
    Recent central bank meeting…….let the Americans spend themselves into bankruptcy…….then we can finally shut them down and their navy will be downsized to two tugboats and a corvette. After all we are their allies……HAHAHA. The Euro at 25 to the dollar ought to be about right. No more crappy Americans in Rome admiring the Colly and drinking capo.

  29. timbers says:

    This morning I checked SOLD listings in my town at realtor dot com. Several nicer split level ranch houses sold for $650k. That’s an WTF for my town. Next stop is a million, perhaps.

  30. Swamp Creature says:

    This is a repeat of the Jimmy Carter Miller Fed Chief scenerio. Interest rates then started to go up and the Fed was late to the game. By the time they did inflation was out of control and we had the oil shock to boot. Volcker was appointed Fed chief to replace the incompetent Miller and the Fed began tightening. Too late. Interest rates went up to 21% prime and 18% mortgages in 1982. I would like to see what all these lemmings out there that are bragging about their appreciation of their leveraged real estate investments would do if they had to sell into that market.

    • Anthony A. says:

      I had to buy into that market in SoCal when I was transferred there from CT in 1981. Had to go for an 18% mortgage…..I was the only one in the bank applying for a mortgage in Los Angeles that one day.

      Scary stuff, now 3% mortgages look unbelievable to me. Lowest mortgage percent I have ever had was 8%. Now we are debt free, but living on a fixed income (SS + savings).

      • Swamp Creature says:

        My 1st home was suppose to be a starter home. Wound up staying there 21 years because of this BS. Took that long to break even and get the hell out of that neighborhood, after it went to hell. Made out on the purchase of my next home big time. I’m batting 500. Not bad.

      • Depth Charge says:

        “I had to buy…”

        No, you didn’t. Nobody has to buy. And that’s why volume drops to next to nothing as rates shoot up.

        • Anthony A. says:

          @ Depth Charge: According to my wife and two pre-teen daughters, and the Company’s offer to help (with $$$) with the mortgage funding, I had to buy during that job transfer! LOL

      • SocalJim says:

        Anthony A, I know an aerospace engineer who is in his 60s that bought a cottage home in the sand section of Manhattan Beach way back in the early 80s. He paid $140K. He still lives there. Place has to be worth at least 4M, perhaps much more. He had big profits by the late 1980s … How could you miss?

    • sunny129 says:

      S C

      Most of the newbie investors (45y or below) have NEVER under gone through a secular BEAR. Their perception since ‘9 is that Stocks always go up,b/c of implied Fed’s PUT in various ways.

      Last March when mkt tanked nearly 35%, Fed showered 3 trillions and brought it back up and again it has gone up! One buys stock for it’s growth and or stream of earnings. But when all the future demand has been brought forward, premium is paid in overvalued mkt is NOT justified.
      Of course, it matters little for investors giddy with speculation mania!

      • Phoenix_Ikki says:

        This is not just limited to people under 45, this is general mentality of good old Murica. I am younger than 45 and I remember both GFC and Dot com burst. The problem is FED is the ultimate drug dealer and actively encouraging moral harzard, why would investors think they can ever lose when they know they got pus boy Jerome by the balls?

  31. Mr. Wake Up says:

    The market will still push higher then a pull back then higher etc etc. This bull market most likely is not over.

    This is more likely the beginning of the end.

    With all the malfeasance yet to be discovered fake CCP stocks for sale, how many more hedge funds are playing the same game?

    We keeping making new market collapse banners place on the highway to hell
    “2nd largest margin call since Lehman Bros”

    how many more exist?

    Chase branch has over 100 locations on the market for sale in the state of NY. (These are all vacant)

    SPX will mostly keep going higher. Everytime we have all the good sense to agree this is the end its extends further.

    Since we only put crazy glue on the crown jewels since the GFC this time around she falls the peices won’t be able to be put back together.

    Most Banks will fail this time, FDIC will be crippled, capital controls, reduction in social benefits, and even if you have $2000 in benefits what will that really purchase? $500 in goods in today’s money?

    Social justice in a world that 99% of the people know nothing about how finance works and hence are redirected in the finacial assets traffic jam.

    Social unrest, shortages of everything, political instability lack of leadership.

    The end is near but it still has to get worst with corruption and malfeasance before the trains runs off the rails because there is too much greed and blood in the streets thats should be pouring out the pipes is currently on forbearance…

    • Here it comes says:

      EXACTLY. See my post below. The top is a few years away and I don’t like Wolf posting about calling the top. He deserves a ton of respect for his analysis on the underpinnings of things but making calls like this is working against him.

      • RightNYer says:

        So you think P/Es will go to 60 before the top? How about 70?

      • Wolf Richter says:

        Here it comes and Jon,

        LISTEN to the entire interview — and not just get tangled up in the headline that was somewhat tongue in cheek — so that you know what you’re talking about.

  32. Bobber says:

    Can it continue? To answer that question I look to the consciousness of the population. Right now, nearly all people have no clue the Federal Reserve is the source of our problems. The lies and deception can continue for many more years until there is an awakening. The leeches, whiners, and speculators actually have tons of momentum and political power right now.

    If there is a problem, the popular answer is to print more money.

    I think it will be the job of foreigners to bring sanity. It will start with a decent drop in the USD.

    • Swamp Creature says:

      Yep, people always look at the symptoms of a problem without looking at the root cause. The symptoms are sometimes five steps removed from the origins.

      • MiTurn says:

        That, SC, is true for so many things that it helps explain why people make the same mistakes over and over.

        Oh, but it’s different this time…

    • sunny129 says:

      There are at least 2 Trillions or more Euro-dollars pegged to loans to EM mkts+. US $ used almost 60% of the global commerce. The remainder of national currencies are worse shape than US $! I won’t bet too much against $.

  33. stoneweapon says:

    Excellent analysis…. I can’t help but consider how a new unprecedented issue and allocation of $650 Billion IMF Special Drawing Rights will alter the historical trend of how US equities, bond and the dollar valuations react under a stock and bond market correction.

    home.treasury.gov/…

    After reading the treasury report on the new SDR’s it seems there will be a fundamental change in how developing countries are funded when they are faced with problematic currency devaluation due to a “dollar shortage” in terms of USD denominated commitments being much larger than earnings in their foreign currencies.

    The USD portion of the SDR will only be 17% ($113B out of $650B) of the new loans issued.

    As we know from the past, a stock market correction tremendously increases the demand for dollars. It will be interesting to see how much the “dollar shortage” can be tempered via SDR liquidity.

    My expectation during the period of a 10-20% stock market correction under SDR currency support could result the following:

    1) The historical USD appreciation is significantly limited
    2) Treasury Yields will not be pushed down as much as expected
    3) Commodity prices and precious metals will hold more value than anticipated.
    4) Real estate prices will finally start moving down

    I believe what we are seeing is the beginning of a transition to a more centrally controlled IMF/NWO currency system that will either kick the debt down the road further than expected or face significant resistance from those who will defend their sovereignty.

    I’m interested to hear other views on the implications of the Globalist IMF’s financial imperialism of SDR’s.

    • Petunia says:

      It’s a new class of collateral and will impact the demand, by the basket countries, to buy the sovereign bonds of the other countries in the basket. They won’t need the sovereign bonds as collateral to trade, they can pledge the SDRs.

      As the size of the basket grows, those that can’t buy in will lose share, and those that can buy in will gain share. This will be what can tip dollar dominance in the world. Especially if the buy in is in gold.

      • stoneweapon says:

        Is it probable the IMF is reacting to nations that are determined to decouple trade from the USD, in other words the IMF is attempting to retain and expand its power over the fiat debt money system via consolidating a basket of currencies into a more centralized layer of control? It looks evident the C-19 repression can be used as an economic weapon to bring distressed economies under increased IMF financial control.

        The gold factor is most interesting….

    • lisa2020 says:

      IMF was established in 1944. Today with the decrease in the amount of time financial transactions can occur, I think the added SDR’s allows for a “float” mechanism that has been lost due to technological time compression of global financial dynamics. Another however, that really concerns me is the opacity that may be allowed. The situation with Greensill and direct involvement of people like Cameron with MBS really concern me as a US citizen. Presently, it looks to me like the US is functioning to the beck and call of the Saudis, as is Softbank and possibly others within Japan, while the Israeli’s may fill-in as a quiet banking arm also for MBS.. There are just too many companies in the US, especially I contend even a big possible in this latest radioactive and poisoned water scenario in Mamatee County FL. Too many deals behind closed doors and they all seem to very quickly, without much research reveal quick hits to MBS. The SDR basket will only be the Fabreeze that is only a quickie fix without doing anything about the cause of the stench. I don’t really want to be accused of throwing any stones, so I thought some softener was called for, whether justified or not for all the players. Of course, it’s all stinky as far as I can see.

      • stoneweapon says:

        JP Morgan Chase and Citigroup are the US side of the IMF.

        Too many multinational corporations, especially US defense contractors who rely upon governments for billions in contracting, tax breaks, & loopholes to off-shore profits.

        The creation of debt money is largely controlled by the multinationals who pick the politicians that are writing checks to them and the governments who profit from it. It’s one big fascist mob.

  34. Paulo says:

    There might very well be a speculation tax on RE in Canada’s upcoming budget. The idea has been floated by banks as well as economists. Every one knows the housing market needs a cooling down, especially out west.

    I think it will happen. The idea is that if you sell the house in under 2 years, (or some other arbitrary time period), there will be a _________tax. 2nd homes will also be taxed.

    It’s pretty bad here, in BC. Unsustainable and something has to give. The housing price rise is a nightmare for all but the agents.

    Now, back to the renovation for the rest of the day. :-)

    • Petunia says:

      Maybe the tax should be applied to foreign money deposited in the banks and stop pretending they don’t launder money out of Asia. That should help the real estate market come back down to reality.

    • MiTurn says:

      “The idea is that if you sell the house in under 2 years…”

      I like it! Tamp down speculation.

      Renovation? Me too! Almost done converting a former deck into year-round living space.

    • RightNYer says:

      We have something similar here (but the tax is in the form of a subsidy you don’t get). An owner occupied home gets $250k (single)/$500k (married) in free capital gains, if you’ve lived there 2 of the last 5 years.

      If you lived there for under 2, by definition you coudln’t get that break, so it would be a capital gain.

  35. Uncle Salty says:

    I’m trying to figure out how to make the following hypothetical RE transactions work:

    Speculator A possesses vacant home.
    Speculator B borrows vacant home and pays interest to spec A.
    Spec B sells spec A’s home on open market.
    Spec B buys back spec A’s home in the midst of panic sell-off.
    Spec B returns home to spec A.

    Is there anyone from Goldman Sachs who might be reading this that can help me out?

    • MonkeyBusiness says:

      This is tough to do. The new owner of the vacant home might default and then just squat there.

      The Goldman guys went to Harvard, etc so that they don’t have to do “nasty” stuff like dragging people out of houses.

    • Petunia says:

      When all the real estate transactions go on the blockchain. You will be able to borrow your neighbors house, sell it, buy more houses on margin, and close out the trades via the squid. Your neighbor could also do the same. And since it’s all transparent on the ledger, that makes it ok.

      • Old school says:

        I have a friend that is a contracts manager. I have come to understand that nearly every substantial sales transaction has a contract defining the terms of the sale in case things go sour. These things can be many pages. Is this going to be part of a block chain transaction.

    • Here it comes says:

      Im pretty sure this was a sarcastic post guys.

  36. Ronnie F says:

    Market Bubble??? Not so fast….
    Market corrections we know for sure are coming when supply & demand curve changes direction.

    Bitcoin – benefits from income tax rates
    I paid 37% tax on earned income and sold bitcoin for 20% long-term capital gains.

    Pickup Trucks – haul Lumber!
    Over priced depreciating pickup trucks are in higher demand because a honda civic can’t haul construction materials during an economic expansion.

    Suburb Housing Bubble?
    Everyone is so excited to get back to the downtown living, entertainment and experiences!!!! Ummmm yea right… who’s excited to walk the streets of San Francisco!
    Then the opportunity is knocking to purchase office and retail real estate since it is down 20% from precovid.

    Stock Market Bubble – is a back to back bubble forming in front of our eyes when everyone experienced the S&P 500 drop of 34% in feb 2020.

    Are financial institutions that manage retirement assets moving out of the equity markets due to signs of trouble? Where will they park 6 trillion in 401k and 12 trillion in IRA assets safely?

    For the opportunity of good returns you have to indure the chaos

    • Wolf Richter says:

      Ronnie F,

      “Pickup Trucks – haul Lumber! Over priced depreciating pickup trucks are in higher demand because a honda civic can’t haul construction materials during an economic expansion.”

      I don’t think you understand who is buying pickups. 99% of the people that buy them will rarely if ever haul lumber. Pickups are THE best-selling vehicle in the US. They’re incredibly popular with urban office folks. They might not be hot in San Francisco and Manhattan because they’re tough to find a street-parking slot for. But they’re hot just about everywhere else. Many versions sell for $60k+.

      • Swamp Creature says:

        Yep, pickups are the new status symbol in the suburban DC Swamp. Not so in the inner city because they can’t find a parking space big enough. Also popular are SUV’s and compact SUVs.

  37. sunny129 says:

    Archegos is a Chinese family office. (Wonder how many out there!?)

    Archegos was building up stakes in its various holdings: unlike most other investors, the fund never actually owned the underlying stock or even calls on the stock, but rather transacted by purchasing equity swaps known as Total Return Swaps (TRS) or Certificates For Difference (CFD). Similar to Credit Default Swaps.

    TRS exposed Archegos to the daily variation margin on the underlying stock, and as such while the fund would benefit economically from increases in the underlying stock price (and, inversely, would be hit by price drops forcing it to put up more cash as margin any day the stock price dropped) it would never be the actual owner of record of the underlying stock. Instead, the stock that Archegos was long would be “owned” by its prime broker, the same entity that allowed it to enter into TRS in the first place. As such Archegos also never had any disclosure requirements, allowing it to transact completely in the dark while being fully compliant with SEC disclosure requirements – since it didn’t own the underlying stock, Archegos did not have to disclose it. Simple and brilliant. SEC allowed this kind of opacity under their watch.

    Most of the primary dealers (major banks) are involved in it. At several points during those exchanges, bankers implored Hwang to buy himself breathing room by selling some stocks and raising cash to post collateral. But “he wouldn’t budge.” They ended up holding the bag, when this scheme fizzled! You know the rest of the story!

    Credit mkt (upon which) equity mkt is built is the ACHELLES heel of US Economy. China can bring down the US Economy without going to the war! How many sleeper ‘Achregos’ are there!?
    h/t ZH

    • sunny129 says:

      This is a worser opacity than the dark pool trading under SEC! Many banks didn’t who were trading with Achrego with collateral equity NOT directly owned by that entity!

      Why is SEC is allowing this kind of ‘secret’ transaction? It’s like FAA letting Boing keep flying their 737 Max, until 330 lives lost!

    • MonkeyBusiness says:

      Please do your research. Bill Hwang is a Korean American!!!

      The level of ignorance is off the scale.

    • Petunia says:

      If I remember correctly, the Madoff Ponzi was run out of a family office. The family office scams are wide spread.

  38. Yort says:

    Wolf – peak liquidity could be a few years from today, impossible to predict with any accuracy. As long as every asset continues to go up a few percent a year, people can perpetually scheme loans from appreciating assets to keep the perpetual ponzi scheme going indefinately, until “something someday” stops asset appreciation. But how does it stop when you can get a SBL (securities backed loan) to buy more securities, and a home equitiy loan to pay higher property taxes and buy second homes, etc. The leverage becomes somewhat perptual and infinate as long as we never see a decrease, on a yearly basis, on the major hard and income producing assets. And until we lose reserve currency status, the Fed, Treasury, and govt can print infinite amounts of currency, as currency is a commodity, not a store of value…currency is simply “trust in paper format”, and people will trust any scheme until it falls apart, as history has shown for thousands of years…

    “Peak liquidity” happens when people lose faith/trust in the reality in which they exist. And because a large majoirty of the population are emotional thinkers versus logical, there is no means to predict when people lose trust in base reality. And with almost 75% of the populace “feeling” that the direct payments are amazing and should continue, one could even say we are at the beginning of the end of capitalism as we knew it…a common theme thoughout civilization.

    I’d say embrace the change, don’t fight the Fed, have an exit plan, as this is bigger than all of us combined at this point. I’ve learned to accept it as the “old me” would have been concerned that my house property tax went up 27% last year,and it will increase by 30%-ish this year from current sales comps. But today I cheer with the neighbors literally dancing in the cul-de-sac streets as best to accept our fate than fight it, and have an escape plan as near 3% property tax on a house “tax value” going up 27% per year in is not a great idea on a future fixed retirement income that will do good to achieve a “safe” 3-5% yearly…yet I degress as reality checks are just a peak liquidity euphoria buzzkills, so for now I’ll embrace ignorance as bliss…HA

    • George says:

      and you with 27% gains can not see the lost in faith/trust that is occurring right now for those who will not enter the US housing market. Soon there will be no one left to purchase homes purchased in 2017 for $180K and offered over price four years later at $399K. I mean, who buys into this stuff eyes wide open?

      • fajensen says:

        Robots will buy them, or whatever.

        I live in scandinavia. In my experience, whenever there is the risk of even a mild slowdown in the property markets, some new gimmick will come out and make it go higher.

        Sure, there was a “blip” around 2008, and all one had to do was to sit tight for 2 years, the banks did not call in any non-perfoming loans if they could possibly find a way to avoid it.

        In some of the really expensive, totally overleveraged homes, the banks employed the home owners as Caretakers, their pay being what they should have paid in interest on the mortgage.

        All of these guys are a lot more than whole now, they are Golden!

        The lesson from 2008 is that the best investment strategy is simply to be so overleveraged that your losses and subsequent margin call will make a good dent in your banks assets, big enough for the board to notice.

  39. Depth Charge says:

    I see this doddering old fool who was installed as the latest swamp puppet is peddling billions upon billions in mortgage help for degenerate debt junkies, yet I see no help for the millions of homeless who line the streets of every city in this country, sleeping on the concrete. A very sick man.

  40. Here it comes says:

    Wolf I highly respect your analysis and believe you are correct about everything but the timing. People on this site use your input to make decisions with their finances and calling a top right now is waaaaay wrong (at least for stocks, housing I have no idea).

    People, please do not start shorting this stock market!! We aren’t even close to a top. In fact we are just “inches” away from a melt up. We will be reaching close to 5000 at the end of this year, with 6000 to follow in the next year or two.

    The stock market does not work on fundamentals. It works in sentiment. The only way I know to accurately and profitably analyze it is to completely ignore fundamentals and apply rigorous Elliot Wave Theory. When you do so, it shows us going to 6000 within a few years. THEN we will begin the massive crash everyone is predicting right now, which will begin the “Greater Depression” and make the financial crisis and COVID crash look like child’s play.

    But we aren’t there yet. I saw you begin shorting SPY last year when the market was at 3200 and I warned the market was heading to 6000. In not sure how many followed you, or where you or they bailed, or if they are still short and now down 30%. But please do not call a top.

    While there are numerous good reasons to believe we are not at the top, the one I can say most people would agree with is that right now EVERYONE is calling a top. Sorry, but we don’t have a crash when everyone sees it coming. Real crashes are rare events that occur once in a blue moon. They’re caused by mostly unforeseen events that spark what sentiment already had built up – a bubble.

    Yes, we are in a bubble. But it will get bigger. In a few years when people have capitulated and everyone thinks this is the new normal and the Fed is all powerful in being able to make markets go up forever, that’s when it starts.

    • Jon says:

      Inches away from a melt up? What do you think has been happening? Please people don’t take the advice from someone who can’t even see what’s in front of them.

    • Wolf Richter says:

      Here it comes,

      Ha, there are hedge funds and others that use the topics I cover as a signal to do the opposite. Sometimes it works, sometimes it doesn’t. I’ve been ranting and raving about the huge leverage in the stock market for a few months, and now we have the second biggest margin call in history as an overleveraged hedge fund (Archegos) blew up. I’m gonna have it both ways :-]

      • MonkeyBusiness says:

        Archegos is technically a family office. I don’t think they are allowed to take outside investments.

        • Wolf Richter says:

          Yes, they’re a family office legally, in terms of registrations and regulations. But what they do is pure hedge fund high-risk speculation with the banks’ money.

      • Here it comes says:

        Wolf, to be clear I’m not saying you are wrong on the topics you cover. I learn a lot from you and find the time and energy you spend writing extremely valuable. I’m just saying we aren’t anywhere near the top. And I think you don’t need to make that call. From my perspective you provide a more valuable service without that, as the fundamentals are always detached from the stock market. I’m nit suggesting you are going to make hedge funds do something, I’m just talking about the little guys.

        That said, most market articles are bearish so if someone wants to believe the market is going down they don’t have to work hard to find articles that support their thesis.

        @Jon, the melt up hasn’t actually happened yet for the SP. It’s hard to believe and you could certainly say it’s been melting up for the past year, but we are about to enter the strongest upward phase for the SPX over the next 6 months or so. It’ll be similar to what we’ve seen in RUT for the last few months (that’s a bit ahead of the SPX).

        Again just to clarify, I’m only speaking of the stock market. I have no idea about housing or the rest of the fundamentals. They will likely just get uglier, more leverage, more at risk, etc. but it won’t come crashing down yet.

        if we go under 3500 on the SPX then I’m wrong and we can all get bearish together.

    • Alku says:

      “he only way I know to accurately and profitably analyze it is to … apply rigorous Elliot Wave Theory.”

      Give me a break. It’s just ridiculous.

      This “rigorous” theory is absolutely worthless for predictions.

      For a long time I’ve been reading emails from EWI and they have been predicting the crash for many years now – but.. you see, the 5th wave of the grand supercycle just keeps extending and extending…

      And they can always re-label if need be:)

      • Here it comes says:

        EWI is a complete joke, agreed. Most EW analysis you’ll see out there is crap, which gives it a bad name. I can tell you from experience that when applied rigorously, it’s scary how accurate it can be.

        If anyone is interested, check out Elliot wave trader founded by Avi Gilburt. They are awesome. And he hates EWI :)

        • Alku says:

          EWI was mentioned just for a sake of an example since [they claim] they are the biggest :)

          My main point was this theory can principally not be used for accurate timing. One example being that the extension of the 5th wave is just a part of the theory itself :) – a rule or a guideline, don’t recall.

    • RightNYer says:

      Given that nearly everyone is fully invested, including retail investors, I don’t know how you can claim that “everyone” is calling a top.

      • Turtle says:

        Everyone calling the top? More like everyone urging real estate, bitcoin and tech stocks because “don’t fight the fed.” It’s total mania out there.

        Everyone’s crystal ball is broken when it comes to timing.

        • RightNYer says:

          Exactly. Even those “analysts” who think the market is grotesquely overpriced are recommending to go “all in,” because “Don’t fight the fed” and “Where else are you going to put your money?”

      • MikeG says:

        So if everyone is all in, who is left to buy to push it higher?

      • Here it comes says:

        Everyone isn’t fully invested yet. There’s a surprising amount of cash still on the sidelines.

        • Wolf Richter says:

          The “cash on the sidelines” is a myth.

          Every dollar is invested in something, such as Treasury securities or bank debt (deposit) that is placed by the bank somewhere else. One this must be sold by person X to get the cash to buy the shares. But person Y must then buy what person X sells.

          Every time someone buys a single share of company A, someone else MUST sell that share for the exact same amount. And that cash just goes from hand to another.

          The only thing that changes is selling pressure or buying pressure.

    • Old school says:

      There are many methods that will work. I like long term valuation models myself because they have a rational element. For a broad based stock index you can compare expected dividend income to income from 10 year treasury.

      Timing has a fatal flaw in my opinion. The future can not be known. An event could change stock market sentiment like when Pearl Harbor was bombed or 9/11. You don’t want to be holding massively overvalued assets when bad stuff happens.

      • Yort says:

        The Fed can and most likely will buy stock ETFs if/when the next black swan changes sentiment. The Fed is like a religous cult, and there is no way to predict with any accuracy when people lose faith in said cult, thus peak liquidity timing is indeterminate. Therefore, to short the market is to gamble that logic will wake the religious Fed cult gamblers to there senses. Never bet with or against emotions. Easier to just find other ways to make money or even better yet, save money by simplifying ones life and living well, well below their means. So much easier than attempting to predict the future emotional status of the human herd, even if headed toward the proverbial cliff…

  41. Depth Charge says:

    Meanwhile, another parabolic rise in futures.

  42. fred flintstone says:

    No idea what the heck is going to happen…..but this blog is really interesting……thanks to all that keep an old man entertained.
    I’d love to have lunch with Buffett right now and ask him……do you really think the US is healthy right now?

  43. Maximus Minimus says:

    I am saying for a good twelve years, this chit cannot go any higher, and then it does. When this blows up, we will all be fighting for scraps, leftovers from the FED’s maniacal rampage.

  44. Ravi Masand says:

    Wolf mentions that pending home sales in San Francisco have plunged from year ago levels. Two questions – i. Where can I find this information and ii. Could this be a consequence of the ultra-tight inventory that the media is so enamored with?
    Thanks.

  45. K says:

    I am amused at how most persons in media and even commenters are just terrified about saying anything truly negative about the parasitic banksters’ (privately owned by deceptively named to mislead taxpayers into believing that it is a federal agency) “Federal” Reserve. The banksters are just like Voldemort in a way.

    No one wants to point out that they and their “Federal” Reserve have GIGANTIC CONFLICTS OF INTEREST, which I opine actually reveal their corrupt motives for doing what they are doing. The “Fed” can create and has created TRILLIONS in US legal tender under congressional authorization (obtained by lying as to its creation and who was sponsoring it) either by getting the US government to print it for them or by just creating it digitally to buy trillions of treasuries, and the GOVERNMENT THEN HAS TO PAY THEM BILLIONS IN INTEREST ON THEIR FUNNY MONEY!!

    It is as if you played a game of monopoly, but the other players owed you whatever you gained playing in the game in real gold and had to pay you interest in real money on all worthless, funny money sums that they received. That is why the “Federal” Reserve is not likely to want to hurry to unravel the QE: it is being paid billions by the government on the TRILLIONS of dollars that the “Fed” fecklessly created.

    It drove the economy into a catastrophe, because it kept interest rates low, so that the banksters could lend you and me at 15% to 25% each year on our credit cards but borrow that money from their “Fed” at (ultra low rates, e.g.,) 2% annually or get that money from depositors by paying them 1.5% per year. Do you see the profit motive there: 13% to 22% a year on TRILLIONS, RISK FREE?

    (It was risk free because their “Fed” just created the money that the banks then lent out for the banksters’ profit. It has created more for them when they lose on investments: e.g., way over $2 TRILLION to buy the banksters’ uncollectible, mortgage-backed securities in 2019-2021. The “Federal” Reserve is responsible for the coming financial catastrophe, because its low interest rate for the banksters policies resulted in US companies and consumers becoming over-leveraged and soon insolvent.)

    In fact, since the “Fed” has been and will continue to push for more inflation (e.g., by using the lowest, possible measure of inflation when actual inflation as measured by shadowstats is about 8% to 10% per year, as it has been for a decade!), the banksters are actually getting paid each year to borrow vast sums from their “Fed.” The banksters, who own the private banks that own the “Federal” Reserve, may pay 2% now per year, but inflation at 9% means that they are actually getting 7% of the money free each year.

    The cherry on top is that from their earnings from bamboozling the US government due to political corruption their “Federal” Reserve actually pays the banksters DIVIDENDS on that funny money that they print or digitally create to make your savings and your wages worthless and decrease the banksters’ debts!! See the New Republic’s “This is the Fed’s most brazen and least known handout to banks” which discusses the BILLIONS in handouts (dividends on funny money creation!!!!) that the banks and their bankster owners get each year for parasitizing America and running our economy into the ground. Read Simon Johnson’s “The Quiet Coup.”

    NATIONALIZE THE “FEDERAL” RESERVE (WHICH IS AN INSTRUMENT OF FINANCIAL DESTRUCTION) AND PUNISH THE BANKSTERS WITH TOTAL ASSET FORFEITURES FOR FINANCIAL FRAUD AND BRIBERY!

    • Petunia says:

      The “Federal” came about because it would have been impossible at the time to create just one central bank. The bankers in the east were hated in the rest of the country and having only one central bank in NY was politically impossible.

      They came up with the regional banks as a way to create the illusion of decentralized power. And they came up with 13 banks in total to mimic the original 13 colonies. The number 13 is also important in Christianity, Christ and the apostles are 13, an added bonus in their deception.

  46. Mark says:

    Question for anyone:

    Since everything is a bubble about to burst, where DO I park my money?

    • Wolf Richter says:

      Look, investors had it really good for a long time. Don’t worry about losing a quarter or half of it. You’ll still have plenty left :-]

      If that possibility doesn’t appeal to you, you can always sell your stuff and park the proceeds in Treasuries. But don’t get mad at me if you earn 0%. Get mad at JayPow.

    • Swamp Creature says:

      Mark

      Just be patient.

      I heard they going to come out with 3rd Mortgages, as the money for 1st and 2nd is starting to dry up and doesn’t cover the huge spike in prices of residential real estate. I can see them pushing these on new 1st time homeowners and then packaging them into CDO’s and selling them in the junk bond market. They will carry a rating of CCC and be snapped up by yield hungry investors and pension funds. You can join the party.

    • YuShan says:

      It’s painful at the moment, but remember that 0% deposits or bonds have an option value too. I mean you may be able to buy the S&P500 for less than half what it is now in a few years time. Suddenly, that 0% yield doesn’t look all that bad.

      If this sounds outlandish to you, remember that we have seen a 50% drop twice in the past 20 years, and right now we are more leveraged and overvalued than we were then.

    • Joe says:

      Bubbles pop, inflation does not. First you gotta decide which we have going on.

    • K says:

      There are some companies that may be value investments: i.e., they have assets that will not dramatically drop in value, have products that would still be in demand during a depression, and their price to earnings ratios are not as out of this world as others. However, given what I have heard, and what news reports about Enron-style accountants discussed, you always risk investing in the next Enron-lite.

      Personally, I am investing in healthcare stocks. I think that a certain lab is likely to release another little gift to us if they decided that they want to move on a certain, wealthy island. Thus, we may be going to need more healthcare.

  47. historicus says:

    Money forced to be placed in the market by the end of the first quarter..

    Sell in May and go away.

    It just might be that simple

  48. Al says:

    Worth noting that Venture Capital activity in Boston has been decelerating for the past 60 days – “end-of-pandemic-be-damned”. Lots of these firms have pivoted – at least partially – to investing client proceeds in crypto. We can argue as to whether or not that’s a safe investment – but “wealth preservation” has become the name of the game for the present.

  49. wakarimasen says:

    Hi Wolf, you pointed out the FED will step in when the inflation gets well above 4 to 5 % or so, for some powerful interests do not fare well with that high inflation. Who are these interests ?

    • Wolf Richter says:

      For example, the people with fixed income securities (bonds, MBS, CMBS, CLOs, ABS), plus stocks can get run over by inflation (costs increase), which is what happened in the 70s…

      In other words: inflation hammers the purchasing power of your assets. If asset prices don’t go up with inflation, you get hammered. And bond prices fall with rising inflation.

      Just some samples.

      • wakarimasen says:

        Yes, normal people get hammered but not the rich.So, who cares. Right ?
        The housing bubble would disappear and a lot of houses would exchange hand from the poor to the rich at a nice price. The stock market bubble would disappear and the invested money would change hands. From the poor to the rich. Isn’t that the way it always was. The reason the markets are designed for.
        So who cares.
        Seed and harvest thats all.

  50. Al says:

    Wolf,

    Something you are missing in your analysis…

    The shift from CDOs to CLOs in the previous decade carries the implied guarantee that the Fed will not let the value of the underlying financial instrument wrapped in the CLO drop.

  51. Chuck says:

    So what would you do in my situation? I just sold a house and have some money that I was going to invest in (no debt other than mortgage). The mortgage is at 2.25%. I was going to invest in total index funds and hold for 15-20 years. Is there something I could do to hedge my bet? I normally would do bonds.

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