Surging Inflation No Problem, Junk Bond Yields Drop to Record Low, Dish out Negative “Real” Yields to Fed-Whacked Investors

The market is broken. “Raging mania” rules.

By Wolf Richter for WOLF STREET.

In these wondrous credit markets were everything is now completely out of whack, the first thing that happened, after the freak show of CPI inflation hitting 5.0%, was that junk-bond yields fell to new record lows. Even the average yield of B-rated junk bonds – considered “highly speculative,” per my cheat sheet of corporate bond credit ratings – dropped below the rate of CPI. When bond yields drop, bond prices rise, and a good time was had by all.

The average yield of CCC-and-below-rated bonds – ranging from “extremely speculative” to “default is imminent with little prospect for recovery” – dropped to a new record low of 6.83% as of the close yesterday, as investors apparently don’t mind exposing their capital to the massive credit risks offered up by CCC-and-below-rated junk bonds, for a “real yield” (adjusted for CPI inflation) of just 1.83%.

Those CCC-and-below-rated bonds are the only category in the US corporate bond spectrum whose average yield is above the rate of inflation.

Everything else has negative real yields, where the purchasing power of capital is being destroyed by inflation, while yields are too low to compensate for that loss of purchasing power. And there is nothing, zilch, nada in terms of compensation for the substantial risk of default and getting mostly wiped out during a debt restructuring.

The average yield of B-rated bonds – “highly speculative” – dropped to a record low of 4.46%, or to a negative real yield of -0.53%. And the average yield of BB-rated bonds – “non-investment grade speculative” – dropped to a record low of 3.27%, or a negative real yield of -1.73%.

Even if CPI inflation, after averaging maybe 5% this year, comes back down next year, as the Fed keeps promising, the purchasing power of the capital plowed into these bonds would be reduced by 5% for the year, and the yield from those bonds purchased at today’s prices would be below that, and the investor would be in the hole in real terms. And that doesn’t even consider the risks of default:

So, on average, these are very unappetizing substances, except perhaps for leveraged short-term speculators who bet on yields to drop even further, despite the surge in inflation, and who could then sell the bonds for more (when yields drop, bond prices rise) to the greater fool down the road.

But long-term investors – bond funds, pension funds, or insurance companies – buy bonds to hold them, usually to maturity. And those junk bonds at these yields today, given the credit risks of the companies that have issued them, are a shitty deal even if CPI inflation were at 2% for the remainder of their maturity.

But now inflation has been unleashed. The Fed is officially surprised by how fast it jumped, having totally underestimated this in their earlier pronouncements. And they’re still saying it’s just temporary, it’ll pass next year. And if it doesn’t pass next year, and if inflation doesn’t magically go back to 2%, then the Fed will act surprised again.

What is permanent is that the purchasing power of those bonds is getting chopped down by the current rate of inflation, and that purchasing power won’t ever bounce back. It’s just a question of how fast the purchasing power declines further next year, 5% or 3% or 2% or whatever.

The yield from interest payments is supposed to compensate investors for that loss of purchasing power, and also for the risk of default – where they could lose much or all of their capital. But investors aren’t getting compensated for hardly anything.

What it has come down to is this: In the Fed-engineered out-of-whack credit markets that are drowning in a sea of Fed-created cash that is now causing all kinds of issues in the banking system, the Fed is trying to control it with it via overnight reverse repos, while investors are trying to find a place to put this cash, and some accept zero yields or negative yields in the repo market, while others are vigorously chasing yield wherever they can find it regardless of the risks.

With so much excess cash floating around, what else are investors supposed to do with their cash – even as inflation is eating it up on a daily basis? That was a rhetorical question. Everyone is trying to find a place for it, but all assets are already overpriced, and yields are already repressed below the rate of inflation for most bonds, in markets that have aptly been described as “raging mania.”

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  273 comments for “Surging Inflation No Problem, Junk Bond Yields Drop to Record Low, Dish out Negative “Real” Yields to Fed-Whacked Investors

  1. rodolfo says:

    The WTFs keep comin

    • Phoenix_Ikki says:

      WTF is the new normal..better get used to it then fight it I guess.

      • historicus says:

        So the Fed is complicit, via their cheap money policy, in the employment predicament and the record job openings, unfilled. If the federal govt had to borrow at real rates, the doling out would not happen to this degree, or at all. Nice job Fed.
        And we have 5% inflation with zero Fed Funds rates. Never happened before, and all at the hand of the Fed who promotes inflation.
        And we have near record lows in long rates, immoderately low.
        So, lets review.

        Mandate #1 The Fed is supposed to promote maximum employment yet what they do with rates has had the OPPOSITE EFFECT. Fail.

        Mandate #2 The Fed is supposed to promote stable prices, yet they promote just the opposite, INFLATION. Fail

        Mandate #3 The Fed is supposed to promote moderate (not extreme) long term rates, but we have near record lows, 30yrs almost 2% below inflation. Those rates are IMMODERATE and EXTREMELY low. Fail.

        Arrest J Powell for breach of Fiduciary responsibility in his post as Fed Chairman, and let that be a warning shot to all the Fed governors.

        • wiley says:

          SoundsGood!Arrest them all,let Them eat bread and We the people confiscate all their stuff so They own nothing and are happy,or is it dead????Cash should be going into gold and silver,some real estate before Lloyds and Blackrock gobble it all up.Heard Blackheart just gobbled up a whole ,newly built singlefamily Neihhborhood in Texas.Zillow moved into homebuying.Berkshirehathaway signs quietly and quickly popped up all over n.w. Cook County,IL after 08 shakedown evicted thousands of families.More of the same on steroids.Do Not sell a home to them,they jack rents up %30 adding stress to already stressed people.They are also jacking home inflation in some markets.

        • David Hall says:

          They advertise jobs paying below market wages or salaries, then complain they can not find workers.

        • eg says:

          The Fed cannot constrain the spending of the US Federal government, which is not currency constrained.

    • K says:

      This has got to indicate some toxin like lead is in our water supplies or food. Given the Enron like shenanigans in even prominent, US companies, I would not get even investment grade bonds today.

      • Thomas Roberts says:

        It’s not just America, it’s everywhere. Collective global delusion. I wouldn’t buy a bond anywhere in the world, at present.

        • roddy6667 says:

          You buy a bond when rates are high, so that you receive high interest dividends for the term. Right now they are at historic lows.
          Worst. Time. Evar.

        • Tyson Bryan says:

          Take your covid shot, go to the back of the bus, sit down & shut up. Big brother knows what’s best for you.

      • Depth Charge says:

        Nope, just a corrupt, rotten-to-the-core FED and .gov.

        • NBay says:

          Yeah, but nothing that a genius businessman who understands absolutely everything going on couldn’t eliminate. But naturally the evil people he was out to eliminate, destroyed him first, but not completely, fortunately.
          It took a famous corporal a while to rise to a position where he could eliminate all these “the enemies of the people”, too, but he and his followers didn’t give up until he had the banking and corporate organizations behind him, and of course the common man.

    • Wisoot says:

      Not long now

    • gametv says:

      My theory is that we are just a couple months away from a very difficult point for the Fed and the markets. The big problem will arise as the reserves at the Treasury are tapped out and instead of merely spending money that they had already borrowed, the Fed is forced to raise that capital in the markets.

      Think of it this way. Over the past months, since February, the Fed has spent down from 1.8 billion to 670 billion and soon to be 500 billion, the reserves that were financed last year at very low rates due to the excessive fear in the markets. But now that the predominant theme in the markets is inflation eating away at capital, the Fed is going to need to raise capital in a market where 1) it must cut back on borrowing to stop the run-away inflation and 2) the dollar is under pressure, so foreign investors will have little reason to want to buy Treasuries when the dollar might drop more than the interest paid and 3) foreign central banks are cutting back on treasury purchases, including BOJ cutting back on purchases.

      When you think about the totality of the recent stimulus it includes the Biden stimulus plan (unemployment plus PPP plus stimmies), the Fed buying bonds each month PLUS the amount of money that was spent down from the Treasury balances which did not need to be financed by markets.

      Even if the Fed plans to hold down short term rates, how are they going to keep a lid on long term rates if there is little to no investor demand and they need to lower Fed purchases of these bonds to keep a lid on inflation.

      I am feeling that the dollar is actually not going to fall further simply because interest rates will begin to rise very soon. It will likely happen after a Treasury auction where there is no demand. That will be the shock the market needs to sell off bonds. I am going to try to plot out that point in time and watch the Treasury auctions closely.

      Anyone have an idea of the most efficient way to bet on higher interest rates? Would it be going long on banks, or an inverse ETF on bonds or is it some futures contract?

      • ru82 says:

        They cannot raise interest rates very much or the Government will get hit with increased interest payments….. in theory.

        But high inflation will make paving old debt easier as it is worth less.

        But you need wages to rise too with inflation otherwise people will vote you out.

        • K says:

          You are absolutely right. Moreover, if the interest rates on rolled over treasuries increased enough to tame the rising inflation, as happened during Volker’s tenure, the government will not be able to meet its required interest payments and still pay its current military budget and entitlements. Something will have to get cut drastically.

          With extremely low rates being paid now, due to the “Fed” manipulation to profit the banksters who pay their “Federal” Reserve 2.5% a year on sums that they borrow from it and charge you and I approximately 25% a year on credit cards, the interest payments are currently only 9% of federal revenues. See “How High Are Federal Interest Payments?” in crfb dot org. That amount paid is $303 billion a year.

          If interest paid on treasury bills just doubled, then the payment would increase to $606 billion, which means that $303 billion would have to get cut from other programs. As the article cited puts it, “For example, if interest rates were one percent higher than projected for all of 2021, interest costs would total $530 billion — more than the cost of Medicaid. If rates were two percent higher, interest costs would total $750 billion, which is more than the federal governments spends on defense or Medicare. And at three percent higher, interest costs would total $975 billion — almost as much as is spent on Social Security benefits. On a per-household basis, a one percent increase in the interest rate would increase costs by $1,805, to $4,210.”

          Thus, if the “Fed” were to raise interest rates now (after they have stealthily transferred TRILLIONS covertly to their bankster owners for decades) as some have implied can be done easily, the federal government’s interest expense would rise to catastrophic levels as far as the federal budget is concerned. There is a strong motive not to raise them: if they raised them, they would then face greater pressure to close the loopholes that have enabled the rich to evade/avoid paying taxes for decades. See “”The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax” in propublica.

          (I was astonished that some IRS official had the big brass ones that enabled him or her to risk their lives to release these records that will enrage the ultra rich. I hope that the whistleblower’s identity is never discovered for their sake.) See also “Britain’s Second Empire: The Spider’s Web.”

        • ru82 says:

          @K Thanks for the information you provided

      • Jason says:

        Sell TLT, or buy TBT, or trade options thereon, or sell ZB or ZN or trade options thereon.

  2. RobertM700 says:

    Working as planned. But one day the music (printing) will stop.

    • MonkeyBusiness says:

      One day could be a decade away.

      • gametv says:

        See my post above. I really think we are mere months away from a real inflection point in interest rates. Think of it as a simple supply and demand equation. The supply of Treasuries has been seriously limited due to the Fed using Treasury balances to finance the deficit over the past 4 months, plus the monthly purchases of bonds. That has propped up Treasuries and the whole chain of corporate and municipal bonds whose interest rates are priced in relationship to the US Treasury interest rates.

        In just another month, the Fed will need to start floating lots of debt each month. At the same time, they will probably cut back on bond purchases to stem inflation. What happens? Much higher interest rates. I also wonder if some of the CCC rated bonds start to spike, as not only the whole interest rate pictures worsens, but the reality of an economy that will not get back to normal starts to set in and credit quality gets sucker punched on any over-leveraged company.

        My guess is the Fed announces they will stop buying mortgage bonds as the first part of their efforts to get inflation under control.

        • MonkeyBusiness says:

          The Fed loves inflating things. Why would they want to get inflation under control. Also as Wolf has REPEATEDLY pointed out, deflation has been rare in this country.

        • Tom S. says:

          Treasuries are in demand to the tune of half a trillion dollars. It’s an everything bull market due to essentially unlimited liquidity. People are under the impression when the fed says inflation is transitory that prices will eventually come back down. There will be a long lag period before people grasp what is currently happening and come up with policy to change it. It’s a monetary policy solution to a biological crisis, fundamentally it can only fail spectacularly.

        • BirdyTurdy says:

          Haven’t you herd of the AMC/GME squeeze that’s about to happen? 500K floor? That’s where they will park all this printed money to divert inflation. That’s why they are saying HOLD.

    • Bead says:

      We’ll all escape at once. Enormous wide door; the way to heaven is broad, no?

      • Yancey Ward says:

        Oh, the door to Heaven is broad, but the guy at the door is a real brute.

        • Michael Grace says:

          Hell is more accessible

        • Yancey Ward says:

          Well, they will wave you right through to Hell- they will even pay for your parking.

        • Heinz says:

          “Oh, the door to Heaven is broad, but the guy at the door is a real brute.”

          For the demonic elites and plutocrats (demonic in sense of boundless greed and willingness to trample over the unwashed masses) running this crazy B-grade horror show, their mindset might as well be, as Milton wrote:

          Better to reign in Hell (current conditions they have created on earth) than to serve in Heaven.

        • polecat says:

          Heaven is a carboy, negative rates are the sugar component, and people .. both market participants and non , are the yeast!

        • polecat says:

          Forgot to add that that yeasty respiration of CO2 is the inflation, turning Heaven into HELL!

          Only the ‘bestest’ boyz n girlz survive to imbibe in the Squeeze.

      • Augustus Frost says:

        No, that’s actually the road to destruction.

    • MCH says:

      This is like the beginning of an all new big short. If anyone has the stomach for it. Although the premiums will be sky high.

      The Bs are the new AAAs. And the AAAs is the new cash+++, putting + because I don’t know what to put.

      When these come crashing down and all defaults, it will make the depression look like a minor correction.

      • ru82 says:

        That is true but I feel as if the Fed will buy up the bad bonds?
        why wouldn’t they.?

  3. raxadian says:

    So this is not a Bull market or a Dove market but a “Why are you even bothering?” market?

  4. Phoenix Rising says:

    Inflation is not going to pass, nor is it going back to that (BS hedonic quality adjusted) 2% level next year. It’s like freshly poured concrete that’s currently setting up in the psyche of the consumer. Once it cures, it’s going to take some pretty heavy-duty jackhammers to bust it apart.

    • historicus says:

      “….go back to 2%, then the Fed will act surprised again…”

      And what will be missed is the simple math…
      the 2% will be ADDED ON TOP OF the 5%….
      never gets mentioned…ever…

  5. ARTEM says:

    These rates going higher is very likely. The FED is supposed to start outright selling bond ETFs pretty soon.

  6. MonkeyBusiness says:

    Jeff Bezos does not like inflation. That’s why he’s going to space ;)

    • Bead says:

      11 minutes (unless he does a Major Tom) and when he returns Janet & Lizard have promised to give his loot to the proles. Democracy!

    • SnotFroth says:

      Too bad he’ll find that space inflates the most of all, what with Hubble’s law.

      But perhaps… the Fed… knows something more about “dark energy”…

    • LK says:

      I for one approve of launching billionaires into space. I only hope they do global society a favor and burn up on re-entry.

      • roddy6667 says:

        They should name the rocket “Icarus”.

      • Ron says:

        Billionaire s don’t pay taxes or give raises while government gives them money hand over fist our money as trump said musk owes us

  7. Trinacria says:

    “Fed Whacked Investors”….what a great term and so appropriate!!! More than ever, “pay no attention” to that man behind the curtain! That’s why it had to be Toto the dog to expose the “almighty” Wizard of Oz…we people, well, we’re just to smart, in fact so much so, that we fool ourselves. So, the question is: who will be “Toto” to expose the “Almighty” Wizard of FED???
    Wolf: do you have any ideas?

    • historicus says:

      Trinacria…

      “Fed Whacked Investors”…..
      How did the Fed expand their powers to minting and taxation.?
      For to expand the M2 by 27%, on a whim from likely ONE UNELECTED UNACCOUNTABLE man is remarkable.
      And for the Fed, who is obliged to “stable prices” to promote ANY INFLATION is at the least a violation.
      5% inflation and 0% return on savings. That is a THEFT arrangement.

      • OutsideTheBox says:

        H

        We heard you the first time.

        • historicus says:

          Brace yourself. You’ll here it again.

        • historicus says:

          “hear” it again.
          Powell gets to repeat a promotion of inflation time after time… his self authored mandate….and not a word or mention of his “stable prices” instructions.

  8. Trucker guy says:

    Such a weird set of circumstances.

    You put money in a bank, inflation eats it.
    You put money in bonds, the yields are lower than inflation.
    You put money in cryptocurrency and you have lost half your gamble since Elon went on SNL.

    You basically can only put money into the vastly overvalued stock market or real estate market and hope it doesn’t crash.

    I don’t see how this ends. Either everyone just keeps funneling money into the only two places turning profits and defying inflation and the system ends up with housing and the stock market being non starters for the working class or it all busts and we have an economic disaster on our hands.

    Honestly, I can’t really blame the fed for lying about inflation. I think they want to believe their lie because this is a bad situation that they’re in, and a lot of it is their fault but not all of it. They can’t fix the system by raising rates and turning off the money spigot due to politics because it’s already too far gone at this point. Anything other than free money at this point will crash the house of cards if you ask me. We’ve seen how easy the market is to spook.

    • Resjudicata says:

      Agree. They are trapped. I expect more of the same. Just my opinion. Of course it’ll all unwind someday. But isn’t the USD the cleanest dirty shirt? I think they have more runway. And when they run out of runway they’ll come up with a new currency or some other trick and life will go on.

      • Rcohn says:

        The US budget deficit was ~ 18% for 2020 and is estimated to be about the same in 2021. The average budget deficit in 2020 for countries in the EU was 8.5%
        After the end of this year the US debt/ gdp will be around 140% , double the 2008 number and is exceeded only by Italy, Greece and Japan among major industrialized countries .
        In 2020 the US dollar was down over 5%
        The US easily leads the world in the amount of trade deficits at north of 650 billion.

        The US might have been considered the “cleanest shirt” in the past. That is no longer the case.It us now among the dirtiest of shirts
        The Feds policies has created massive distortions in ALL markets. It along with the Federal government has resulted in the second highest GINI coefficient( a measure of income inequality) in US history , exceeded only by a short period in the 1920s . We are dependent on the government for 34% of income. By any standards the middle class which has distinguished the US from other countries in the past is at the lowest level in decades.
        We have the highest % of low income and low wealth and the highest % of high income and high wealth groups in many decades.

        • Thomas Roberts says:

          Alot of countries fudge various numbers and metrics. The 2020 and 2021 budgets are ridiculous, but, don’t necessarily reflect future deficits. It also matters who owns the debt. In America, Americans and American corporations own the vast majority of debt.

          Right now, there is only 2 major economies, America and the EU (Japan and China are large economies, but not major economies). The question of who will reign supreme, comes down to many things. The question of how integrated the EU will be in the future, is the biggest factor, if the EU cannot become more integrated successfully, it will probably lose by default. Right now, the EU is at an unsustainable level of integration, it will have to become more or less integrated. There are many factors in play and alot could happen at any time.

        • Ron says:

          Sounds like Russia or China but never hear how much I is worth

        • David Hall says:

          An air conditioning repairman told me he gets $25/hour. It is not like he is a galley slave forced to row a Roman warship.

        • MyLadyHumps says:

          Those are the facts, the US is not “the cleanest dirty shirt”. At this point it is just a lie that has been repeated so often that the majority accept it to be true.

          US politicians and bureaucrats decided to coast lazily along the path of currency dominance, but you can only coast for so long before you come to a stop.

          Also, the US dollar is not “the” world’s reserve currency it is “a” reserve currency, it may have been the dominant currency but the Fed and politicians are ending that dominance.

          I’m glad I got out of there. It may be seen as unpatriotic, but I think those who stayed, only to milk the last drop of easy money, are the ones who have betrayed the country and the people who worked and fought so hard to build and protect it.

        • Thomas Roberts says:

          MyLadyHumps,

          And just who is “the cleanest dirty shirt”? Right now, debts are rising globally. All the major and large economies are stagnant at best. Only a handful of developing countries are actually still developing, even prior to pandemic. Those developing countries that are developing are only so, because factories leaving China, are going there, such as Vietnam. Just what is this fabled country with a benevolent government, at the moment?

          Until the developed countries snap out of it, there’s not gonna be much growth anywhere.

    • Robert says:

      “I don’t see how this ends. ”

      Real estate and hard assets are likely not over-priced for the simple reason a great currency reset may very well be coming. Look to Modi in India who nullified much of the nations cash overnight.

      As the US dollar becomes worthless there will eventually come a time when a reset is necessary and a new currency is born, probably valued against gold. All your old dollars will marked be down to their new gold adjusted price.

      Or the US could just tax billionaires at a 90% tax rate like in the 1940s. I doubt though that our millionaire congress will allow such an event to take place. Much easier to destroy the currency since the rich are all flush with assets that don’t suffer from currency depreciation.

      • Rcohn says:

        A sure recommendation for chaos .
        Remember Americans own 450million guns and will use them if they perceive that they have little to lose. The Jan 6 situation in Wash. would be a nothing in comparison to what will happen with a currency reset.

        • bb says:

          Quite true.Also was going to suggest investing in guns and ammo as theyve become scarce or much more expensive.Chickens also would be useful.

        • MyLadyHumps says:

          Wealthy people control the supply of bullets. If threatened your precious bullet supply will come to an end. Your typical gun owner cannot make his own bullets.

          Non-cooperation and non-participation are what the ruling class fear. Without you, none of their “assets” have any value.

          If the game is rigged, stop playing the game.

      • Heinz says:

        “Real estate and hard assets are likely not over-priced for the simple reason a great currency reset may very well be coming.”

        Real estate prices are denominated in dollars. When $ fiat currency reset occurs and everything in dollars is devalued accordingly, guess what happens to real estate?

        • p coyle says:

          it gets valued in whatever replaces the dollar?

        • rhodium says:

          Intrinsic value is intrinsic value. It doesn’t need a price to have value. Money is just a tool, mind-blowing, so use it or lose it I say.

    • Depth Charge says:

      “Honestly, I can’t really blame the fed for lying about inflation.”

      Give me a frickin’ break, man. The FED is destroying the poor and middle class and you’re making excuses for them?

      • You could argue that from an objective, unbiased viewpoint, the Fed is destroying the poor and middle class, but at the same time the poor and middle class (the bottom 99%) are destroying themselves. It takes two to tango.

        The viewpoint that the Fed is to blame is useful if it makes people angry enough to get back at the Fed and the system they are enabling. The system collapses as soon as some fraction of the population chooses to work less and consume less. Make GDP decline for more than a few quarters or years. The system is too dependent on growth to handle it.

    • I don’t have any good guesses as to how exactly this will happen, but I imagine that once the financial system resets, everyone will take a 99% haircut and the whole financial Ponzi game starts over from the beginning with 0% debt to GDP. We’ll just have to have a debt jubilee every 100-200 years until people get tired of it and make up a different economic system.

      All this means is that all prices go up by 100 times. So gasoline now costs $349 a gallon instead of $3.49 a gallon. If you have cash, you lose 99%. If you have a house, maybe the value goes from $300,000 to $5 million. So it goes down 84% in value in real terms, but up 1667% in nominal terms. If you have a $250,000 mortgage, you still have that mortgage, but it’s only 5% of the value of the property, so it’s almost paid off. If your net worth was $1 million, maybe it becomes $75,000 in today’s dollars. Maybe Jeff Bezos and Elon Musk will be worth only a few billion dollars in today’s dollars. But they’ll be one of the few with the purchasing power to snatch up things at bargain basement prices.

      If this happens, it must feel pretty stupid to have spent a lifetime toiling for your nest egg only to see it disappear. Actually, this happened to my grandfather who was a wealthy businessman in Japan. He sold most of his real estate prior to the war and bought government war bonds that would pay off big if Japan won the war. After 1945 he survived through subsistence farming.

      • Michael Gorback says:

        “All this means is that all prices go up by 100 times. So gasoline now costs $349 a gallon instead of $3.49 a gallon. If you have cash, you lose 99%. If you have a house, maybe the value goes from $300,000 to $5 million.”

        $5 million isn’t 100 times $300,000, nor is it a bargain basement price.

        “Maybe Jeff Bezos and Elon Musk will be worth only a few billion dollars in today’s dollars. But they’ll be one of the few with the purchasing power to snatch up things at bargain basement prices.”

        What bargain basement prices? That would imply deflation and strengthen the dollar. You said everything would go up in price 100x.

        How about stocks? Up or down? Because up means Bezos and Musk will be 100x richer. Their wealth isn’t in cash. Do you think they have savings accounts holding billions of dollars?

        The lesson that your grandfather taught is to stay diversified.

        • In a reset, you take the leverage out of the system. So if the current market is dependent on people paying 15% down and financing the rest, in a cash market, the price might go down 85% so that the 15% downpayment is enough to purchase a home. Indeed, $5 million is around 85% less than $30 million.

          I think stocks are even more dependent on leverage as corporations keep borrowing more money and are valued increasingly for their intangible assets. When you look at what happened to big corporations of the past, such as Xerox or Exxon Mobil, it’s only to be expected that Bezos and Musk will lose 95% of their wealth.

    • gamet says:

      The problem is that the Fed has been unwilling to say the truth. The american dream is dead because 1) we shipped all the jobs to china to make profits for the corporate fat cats and wall street 2) we have imported cheap labor from Mexico with illegal immigration to suppress wages, but then taken on the tax burden of providing these poor immigrants with free healthcare and education and other social services and 3) we have enabled a massive bubble in real estate and stocks to create a wealth effect that is a temporary mirage that keeps our numbers looking good.

      The core problem is that both the democratic and republican party are 100% corrupt. if you are a partisan who believes your party is not the problem, you are a fool. wake up america. simply cross out every name on the ballot that has a D or R next to it and send washington DC a message.

    • Ron says:

      Stock market crashes black rock buys everything 50% off rinse repeat been happening to long

  9. JustTruth says:

    Lookout below, falling timber…..

    • Michael Gorback says:

      Yep, timber futures fell 5.6% last week due to increased supply and decreased demand. You want another WTF? WTF do you think happens when the price of a commodity soars? People smell opportunity.

      But then there’s this from one of the timber companies’ spokesman:

      “We’re at a new normal,” Reaves said in a phone interview. “We’re going to see this sustained level of housing demand and a new normal for a pricing floor in lumber.”

      I’m trying to decide whether he’s Lawrence Yun’s timber equivalent or the reincarnation of Irving Fisher.

      • Paulo says:

        This is not a new normal. I live in production country and always have. In 2018 there was a downturn in the industry and ALL companies cut back logging and milling. It seemed reasonable until Covid hit and the insane RE market really climbed. Then, the planned harvest reductions were amplified by circumstances. Simultaneously, many mills shut or curtailed production due to infections and Worksafe restrictions, trucking and transportation was affected, and a shortage of truckers began to develop.

        I have lived alongside and worked within this industry for most of my 65 years. It is a boom and bust industry, and always has been. It never stays the same. This summer wildfires might really make spot prices climb, yet it could also continue to drop. My construction supplies were down in price about 10% for May over April. Too bad this years work is done for me as I had to shell out at least 30% more in materials. :-)

        In Canada there are new mortgage qualification requirements and a concerted effort to slow the RE surge. The US doubled lumber tarrifs under Biden. Read all the comments on WS and it is easy to see that home purchases, the biggest decision most individuals will ever make, could collapse in a matter of weeks, all dependent on interest rates and/or mortgage restrictions. The same is true of auto sales.

        These times are anything but a new normal.

        Meanwhile, our forest industry has thundered along and done very well this year. It has helped offset the hospitality and tourism sectors.

        And a reply up above about dirty shirts, Canada’s deficit was 10.66% last year, a bit over 1/2 of the US deficit. Plus, our infrastructure has been in continual upgrade for as long as I can remember. If a bridge needs repair, it gets done. New ferries introduced the past 10 years. New icebreakers, a fighter jet decision, hasn’t missed a beat after stopping the F 35 purchase. Water system upgrades, etc…it is all budgeted in and undertaken with parliamentary cooperation, even with a minority govt. Communication and cooperation is the key takeaway.

        The US consumer economy is so damn big that dysfunction in any aspect of the Country ripples throughout the World, especially with neighbours and allies; suppliers. I look at the deficits and dysfunction and simple increase my savings and preps. :-)

        • MyLadyHumps says:

          One more point about the “cleanest dirty shirt”, not only is Canada’s deficit much smaller than the US and more of the money spent on quality infrastructure (rather than targeted to transfer payments to lazy people for consumption) but Canadians also receive healthcare in the bargain – that is huge.

      • gametv says:

        What really needs to happen in construction is an evolution away from building with timber. It is a really labor-intensive process and timber is at risk of water damage and is just a horrible way to build a home. There just isnt much innovation in the building industry. Too much risk in building with techniques like aerocrete that are common in Europe. Once again, our problem is a horrible government.

        • VintageVNvet says:

          As a passionate participant in the construction industry for over 60 years, I could not AGREE MORE with your comment gtv!
          Time and enough for our industry to get its head out of the sand/mud/ a***,, and get to work with all the modern and much more efficient AND long lasting techniques/materials such as 3D printing of solid concrete for where the earthquakes do not permit ”blocks” AKA Adobe,,, etc…
          OTOH,,, some of the ancient techniques, Adobe for one,, work well for ”home made” houses,,, and many other similarly home made techniques, though usually labor intensive, continue to work well, EXCEPT for red tape not allowing them…
          Friend bought an Adobe, reputed to be over 100 years old,,, completely burnt out of any and every wood component, but all the Adobe ”bricks”,,, 14 inches thick,, were still perfectly OK,,, they, ( he and his significant other, ) added floor, roof, windows, doors, and interior walls, plumbing and electrical, and had a very nice house for about $20/SF…

        • nicko2 says:

          My home is bricks and concrete; it will last 1000 years. :)

  10. Philip says:

    ” what else are investors supposed to do with their cash….but all assets are already overpriced, and yields are already repressed below the rate of inflation”

    MPLX

  11. Supports my thesis that corporate bonds are bulletproof. Fed sold theirs and etfs are surging. Meanwhile the treasury YC is coming down a bit harder at the short end. That is probably also positive. Interesting that Qa and QE are almost the same thing, conspiracy theories with mainstream credence and support.

  12. ThePeanutGallery says:

    The only logical explanation to investor acceptance of zero or slightly negative yielding bonds is that they believe there is a crash coming soon??

    • Wolf Richter says:

      ThePeanutGallery,

      If you expect a crash of any kind, the last thing you’d buy at the top are junk bonds. They will take a huge beating (look at the yields during the financial crisis) because many of them will default.

      If you expect a crash, you wait (with your money in Treasury bills) until the crash has played out, and THEN you pick through the rubble and buy junk bonds when they yield 30% or 40% and hope that the companies survive.

      These low yields show that no one is expecting a crash (which is of course one of the required conditions for a crash; you don’t get a crash when everyone is expecting one).

      • Resjudicata says:

        Excellent comment. Revealing. It points out the duplicity.

      • Doubting Thomas says:

        Wolf,

        Thank you for yet another fantastic analysis. I am one of those who, sadly for society, expects a painful crash. I am heavy on cash. I stand ready to pick through the post-crash rubble for properly priced assets (“there are no bad assets, just bad prices”). I am sure that assets in all classes are overvalued. But I have no idea *when* the crash will occur. What chain of events might trigger the mass selloff that can reign in the current market mania across asset classes? I think many of the regular readers of this forum have exactly this question on their minds. If you have any insights on triggers and/or timing of a correction, I would love to hear them. Thanks again!

        • Junior says:

          Basel 3

        • economicminor says:

          Looks like Fall is a good candidate for the crash. When much of the stimulus has run out and the drought caused food shortages show up. Inflation will have taken its toll on corporate profits. Lots of signs point to Fall.. So it won’t happen in the Fall..

      • Robert says:

        I’m not trying to be a wise guy, but I was listening to Harley Bassman on a podcast the other week and he claimed that up until 1998 stocks and bonds moved in unison. It was only after the creation of the Feds new policies at the time, that bonds became a hedge to stocks (that is they moved up in price when stocks moved down). Hence we saw birth of the all weather portfoli by Dalio that rely on this principle as a hedge.

        So maybe we’ll see at some point stocks and bonds go down together? Many funds will have zero hedge!

        Just a thought.

        • Junior says:

          That’s because Clinton removed all of the post depression era rules like the Glass–Steagall Act, sherman anti trust act ..etc that prevented these types of fed manipulations

    • Augustus Frost says:

      No, if they believed this, they would get out. A real crash will result in most debtors defaulting.

      The best explanation for this behavior with pension funds, bond funds and insurance companies is that those directly making portfolio decisions aren’t putting their own money at risk. It’s someone else’s. Same goes to a substantial extent for all institutional money.

      This explains a lot of the behavior in this manic environment.

      As for the buyers of the bond funds and insurance products, I’d guess most of them don’t have a clue what they actually bought or own. Those that do presumably are relying on the FRB put.

      Or doing it due to TINA or FOMO (though not for bonds).

      • ivanislav says:

        Mike Green talks about flow of funds into passive index funds being an important feature of today’s markets, without historical precedent. According to him, something like 90% of new money going into the stock market is going through passive index vehicles, so with a diminishing share of active managers (50% of assets), you have an increasingly illiquid market that operates on simple flow-of-funds via automatic IRA contributions, pensions, etc. That is great on the upside, but not on the downside, and would explain some of the manic action in markets.

        • RightNYer says:

          I assume you say it’s bad on the downside because the “good” companies get dragged down with the bad?

        • ivanislav says:

          RightNYer – when I say “good on the upside / not on the downside”, I just mean for whoever is invested at that time. It’s not a social or economic critique on what a desirable outcome would be.

        • gametv says:

          and flow of funds only continues because the monetary supply is debased constantly by both our Fed and other central banks.

    • fajensen says:

      Maybe they just shorted the hell out of them, like some did in 2008, but it didn’t go as expected and now we have got a good short squeeze going?

  13. David Hall says:

    Core inflation is at its highest rate in nearly 30 years. People warned about the dangers of deflation. Have not seen it in awhile.

    Once they get this computer chip shortage solved, they might output more new vehicles.
    People working from home may not need two cars.

    More states will be ending extended unemployment benefits this month.

    Eviction moratoriums are also scheduled to end. A landlord put the tenants’ furniture by the curb and changed the locks. They were evicted.

    • Winston says:

      “Once they get this computer chip shortage solved”

      Due to pent up demand from the now known to have been pointless shutting the world down for a year combined with the HUGE lead time and COST for more integrated circuit production facilities (“foundries”) and a reluctance to greatly ramp up capacity due to that lead time and great cost only to have expensive excess capacity sitting idle after the crunch is over, the shortage is going to last a long time. One industry expert claims at least into 2022.

      • RightNYer says:

        What is the “pent up demand” in electronic? In travel, restaurants, theater, yes, but I haven’t heard one cogent argument in support of this meme. If anything, demand for electronics was pulled forward.

        • El Katz says:

          Nearly everything has “electronics” in it. Refrigerators, washing machines, HVAC, cars, boats, planes, even your doorbell and your kid’s toys.

          The “pent up demand” is from manufacturers who need components to continue production. From customers who need a new fridge.

          There is no “pent up demand” for experience (restaurants, theater, travel). Those meals / plays / trips will never occur because you can’t recover the time that has passed. There may be “demand” but, with the cost of necessities skyrocketing, there may be the will, but not the economic means.

  14. Noelck says:

    It’s amazing junk bonds are trading at less than a 5% yield. Pension funds can’t buy them so who is buying all these? Is it Hedge Funds?

    How the bond market shrugs off inflation risk is unbelievable.

    This economy will be a case study in the future.

    • Bead says:

      Stocks are wildly overpriced. Gold doesn’t provide any income. Vaporcoin is gambling. So pension/insurance hold their noses and go in the Fed’s outhouse.

    • historicus says:

      The Fed is making water run uphill…
      by creating, now….$120 Billion A MONTH!
      The Fed is the biggest enemy of free market economics and forces.
      They print and print….
      They promote inflation when the understandings and mandates for their existence is to FIGHT INFLATION (Stable prices).
      They STEAL the value of past labors (savings) and steal the value of present earnings and wages.
      Where is the the outrage?

      • Phoenix Rising says:

        There’s no outrage because the majority of the population is financially illiterate. It’s difficult to be pissed about something that you don’t care enough to understand.

        • makruger says:

          You’re absolutely correct. It would take Fox news or OAN to break everything down into more digestible sound bites to get the masses riled up over it. I got to hand it to the right side of the political spectrum, they have messaging figured out.

          Anyway…more to the point, the masses are far more interested in baseball than the economy.

        • bb says:

          I do not know that the so called lack of outrage is attributable to ignorance.Firstly,I have gone to many other sites where there Definitely IS Outrage.People are trying to contain themselves and take individual survival action.They are encouraging and helping others.Secondly,someare outraged but do not know how to turn that into useful action.Should they visit their corrupt madon congressperson or the blackmailed puppet Senator?Should they vent very angry,hate-filled comments/emails and get arrested with the kids taken?

        • Phoenix Rising says:

          One way to address it longer term is to start teaching the basics of personal finance to students from kindergarten on up through grade 12. How far do you think a proposal like that would get in the face of the financial planner industry lobby?

        • Heinz says:

          The average citizen is willfully ignorant about the economy and finances. Period.

          The savvy ‘literate’ ones may make up only a small percentage of population– but even most of them are all-in on current market manias now– so they are willfully and obligingly participating with full risk-on during the craziest economic environment imaginable.

          But one thing social upheaval phenomena like the Arab Spring teach us is that complacent masses do have a breaking point. When they can’t fill their belly or afford decent shelter in large numbers you will see a seismic shift in popular opinion and action.

          People who have nothing to lose are likely to ‘lose it’ and vex their ruling regime.

        • RightNYer says:

          There’s really little to be done with any situation where the leadership is either failing or pillaging until it gets so bad that a critical mass of people willing to support insurrection or violence to fight it.

          If you don’t have enough people on your side, whatever you do will be considered terrorism and you’ll be crushed. You have to have enough people first. And right now, people are generally comfortable, so there isn’t.

      • Gordian knot says:

        historicus; Spot on. The fed needs to pick a winner and a loser at this critical juncture and the american people have been deemed the losers under their current policies. BY the people for the people of the people thank god for this representative republic /s

        • historicus says:

          Gordian….
          Thanks and absolutely!!
          Congress is complicit as they hold the reins on the Fed.
          But free money is FUN!

    • Rcohn says:

      AMC sold 800m in stock last week. It can use this money partly to buy back bonds. As long as companies can sell stock at silly prices , there is no need to finance via the bond markets. Those companies whose stock prices are selling at the silliest prices often are the same companies with the most junk bonds. At this rate there will no longer be junk bonds

    • economicminor says:

      “Who is buying them?”

      Most likely it is the ETFs..
      and
      The Bond Funds

      Spread out the risk and get a return. No Personal involvement..
      And So Far there has been no huge blow up.. So there is No perceived risk.

    • MyLadyHumps says:

      The bond market? What bond market? There is no bond market, there are only those who are forced buy bonds and those who are not.

      The Fed is buying treasuries, with money they create, at a rate of $80,000,000,000/month.

      There is no market in bonds. Bonds exist only as a conduit for the Fed to monetize government spending – that does not constitute a market.

  15. Swamp Creature says:

    This economic stew is turning my stomach. I thought the Carter administration’s economy was the worst in US history but now I feel this is worse. There is nowhere to run and nowhere to hide. Whatever you do you are a loser. So said Rich Edelman on his financial talk show to people who play it too safe. He advocated getting into the casino because there is no other choice to preserve capitol.

    I’m getting so fed up I’m going to protest by cleaning out my bank account and holding cash. Yes, green US dollar bills. I will only keep enough to cover monthly expenses. Why leave anything in there when they are giving you negative interest.

    • VV says:

      Thanks Wolf for your great coverage of what’s going on!

      SC,

      Read this and immediately thought if you. We’ve been here before.

      “Deustche Bank’s chief credit strategist Jim Reid correctly points out that “the data isn’t going to change anyone’s mind of whether inflation is transitory or not.”

      Still, as an aside for those who still care about fundamentals, he notes that the current gap between 10yr US yields (c.1.5%) and US CPI (5.0%) is a whopping 3.5%, the highest since 1980. In fact, the gap has only been more negative for 10 months in the last 70 years, all of which were in 1974, 1975 or 1980.”?

      • This is why you own Tips, for the spread. The Fed will always be behind the curve. Nominal inflation is not the issue. The Fed will have no choice but to implement YCC, keeping yields within reason. Now corporate bond yields are dropping, that’s more incentive to repress the surge in Treasuries. By the end of summer, inflation, supply chain problems, and unemployment numbers will have corrected, and the recovery will not look so red hot. That will be a scary moment, and they reissue the 30yr TIP in July.

        • economicminor says:

          You forgot to include the drought induced food chain shortages and disruption. We might have to add in some social/political disruptions too.

          I just don’t see how any of your list will have corrected by Fall. These things take time. Low rates and disruptions/shortages will mean higher input costs and that either means higher prices or lower profits. Or Both!

          I don’t think that things will look very Rosy in the Fall.
          Then again, I have been wrong much more than right so Maybe!

        • RE;Econ. You know this, inflation expectations are tied to growth, and when they comeback that will not be a rosy moment. The yield in July will probably be higher yet than it was at issue, however inflation expectations will have come down to earth. Should the dollar collapse, hard, you could double your principle, which you may be able to invest at a discount. Nothing gets by the smart guys, you just have to wait and see.

    • whatever says:

      Max out $10k a year at Treasury Direct ibonds yielding 3.5%, which are basically inflation adjusted. As a US bond no risk of default

      https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_ibuy.htm#what

      • Swamp Creature says:

        Sorry, this 10K is chump change. Its not protecting the rest of my nest egg from inflation.

      • makruger says:

        Since my total holdings outside of tax advantaged accounts are still rather meager, I’ve been considering these I-bonds. However, with official inflation figures moderately understated, I’d still be losing purchasing power.

        In this regard, stocks look more attractive. But we also know the equity markets are eventually going to reset and return to the mean. So, perhaps for the next year or two, I-Bonds might make sense. When the dust settles for the equity markets then naturally I would want to revert to stocks once again.

      • Ensign_Nemo says:

        If they are paying interest based on the CPI, then they are paying you below the real rate of inflation. The website states that they pay a fixed rate and an inflation-based rate, but that fixed rate is set at 0.00%. They are thus paying interest based on the government numbers for inflation, which are widely believed to be intentionally set low.

        They are paying 3.54% right now but the CPI just hit 5.0%, so it’s really paying interest based on the lagging CPI numbers from the last full half of a year.

        This is indeed better than nothing, and actually beats the interest on most bank accounts, but it’s still not a good long-term investment in a time of accelerating inflation. If you want to park $10k because you intend to buy something big such as a car or house in a year or longer, then it would be a sensible alternative to a checking or savings account. You can’t redeem the bond for a year, so it’s not suitable as an emergency fund.

        If somebody wanted to build up $10k a year for a down payment on a house, and they don’t intend to buy for a year from now, then this might be a good spot to park the money every year.

    • historicus says:

      “There is nowhere to run and nowhere to hide”
      Yep…
      and not a condition created by free market economics, but by decision making by people who have power, power based on assumptions of conduct as outlined in their mandates, who IGNORE THOSE MANDATES!
      “Stable Prices”? “Moderate long term rates?”
      The Fed promotes INFLATION which is a TAX…
      they are suppose to FIGHT INFLATION and they have no power to TAX.

    • MyLadyHumps says:

      Actually Carter put Volcker in charge at the Fed and told him to do whatever it took to stop inflation.

      Carter is blamed for a necessary policy of austerity made necessary by the poor policies and decisions of his predecessors.

      Carter took his lumps unfairly but he can be proud of who he sees in the mirror – something Powell must be incapable of.

  16. Mark says:

    Gold is not over-valued

    • Wolf Richter says:

      I understand. But the people that sold Gold today thought so or they wouldn’t have sold :-]

      • Mark says:

        Great Site Wolf, Thank you. In reply, I am not worried about daily moves or even short-term changes , just the preservation of my hard earned money.

      • Anthony says:

        Not much physical gold being sold only the paper stuff

        • Depth Charge says:

          Doesn’t matter. When you go to sell physical, the first thing they do is look at the paper price.

      • Michael Gorback says:

        Who “sold” gold today? Were there big lines at the local coin shops? Did people empty their safes?

        No, it was gold contracts and the vast majority of buyers will not stand for delivery. Theyll settle in cash. Comex is bullshit.

        The US Mint announced months ago that they would not be producing certain silver coins due to the fact that they couldn’t get enough physical silver. Why isn’t silver at $100 if the US Mint can’t find enough? That’s definitely a broken and manipulated market.

        • Michael Gorback says:

          BTW spreads between spot and physical have been increasing for quite a while. You can’t buy physical anywhere near the spot quote.

          Spreads tend to widen during times of uncertainty. In 2008 physical gold cost 25% more than spot. So if spot was $800, physical was $1,000.

          At the beginning of this month spot was about $1900 while a 1 oz gold coin went for about $2100. 10% premium.

          THAT IS ALL ABOUT TO CHANGE (maybe. I hope)

          Basel 3 is going to destroy the fake gold market. Before Basel 3 banks could hold reserves in either physical or paper form. Perversely, unallocated paper gold (contracts) could be valued at 100% for calculating reserves. Physical gold (allocated) was valued at 50% for reserves. Hey, we found another WTF!

          Basel 3 moves physical gold from Tier-3 to Tier-1, allowing it to be valued at 100% for reserves. Up until Basel 3 there was obviously a disincentive for banks to own physical.

          Paper gold going forward will be valued at 85% for assessing the banks assets, but the bank will need the equivalent value in reserves to offset those assets. Unallocated gold would no longer be considered reserves; it would be an asset requiring matching reserves.

          Starting to look unappealing? These rules go into effect at the end of the month. It will either kill or badly cripple paper gold. Then there will be little or no spread between physical and paper.

          There will also be no monthly slams of the price as expirations approach.

          ATTENTION FED HATERS: another reason to hate the Fed (and its fellow travelers the US government, BIS, and other central banks)

          The paper market enables these entities to manipulate the silver and gold prices through . . . . . wait for it . . . . fractional reserve trading.

          By selling large amounts of unallocated metal without having to deliver it in physical form the US government and the NY Fed can make it appear that there is a lot more metal than there is, thus suppressing prices.

          Precious metal prices are a reflection of perception of the stability of the economy. If PM prices rise, currency values will likely fall and interest rates go up. You might have seen discussions about how bonds went this way while gold went that way. That’s what’s behind it. There are some who say the Comex was formed in the 70s precisely to enable fractional reserve trades.

          It’s estimated that the ratio of paper gold to physical is about 100:1. That’s why I have said repeatedly that if only 5% of Comex traders stood for delivery it would destroy the Comex. There wouldn’t be enough physical gold for delivery.

          Paper gold is down but not beaten. There are very powerful forces with huge stakes here: The US government, the Fed, BIS, Comex, LBMA, and banks in general.

          There are a lot of pigs feeding at this trough. We have about 3 weeks til lift-off and I wouldn’t be surprised to see the implementation date moved back to allow more arm twisting or back room deals.

          Anything to deny us free markets.

        • Wolf Richter says:

          Michael Gorback,

          Just to this one point:

          Try this: buy some gold at a dealer and take this gold with you and then two hours later sell it to another dealer. There will be a spread, a big one. That’s how dealers make their money. They will SELL to you above the spot price, for sure for sure, and they will BUY from you below the spot price. That’s their business model. How big the spread is depends on the dealer.

        • Augustus Frost says:

          The US Mint has a shortage of physical coin blanks.

          One reason there is a perceived shortage of physical silver is due to the insane buy-sell spreads. Physical silver has terrible liquidity right now, unless you can find another retail buyer and avoid a coin shop or bullion dealer. Buy physical silver since last March and you are immediately in the hole 20% to 25%. Add the unfavorable tax treatment, storage and insurance costs, and zero yield – it’s not exactly compelling, except for buyers who think it’s going to the moon.

          Based my recollection of it’s current and historical relative price, it’s not relatively overpriced but not that cheap either.

        • nick kelly says:

          I don’t pretend to know a lot about PM markets but I know this: the opposite of ‘spot’ is not ‘coin’. No one buying PMs for other than numismatic value buys coin. Even if the coiner is not a govt and wants a profit for its currency creation privilege, a private mint will want one.
          I’ve bought the Canadian one oz silver Maple Leaf coins over the years and always knew I was paying extra, or as the dealer put it: ‘it’s too much for an oz of silver. But they are prettier than the wafer. And of course, you are no more likely to get a great price buying an oz of sugar than an oz of a PM.

        • nick kelly says:

          PS: clarification: ‘spot’ does not equal ‘coin’. Coin is a special category of spot and will always be higher priced. You would pay a higher spread over spot aluminum if you commissioned medallions in aluminum.

        • Michael Gorback says:

          Yes Wolf I understand the cost of a round trip in physical. I’ve been in the game for years.

          Buy an ounce of gold at spot for $2,000. Pay 10% premium of $200.

          Turn around and sell at $2,000 spot and get a bid of $1900.

          Right now I’m on Kitco looking at a 1 oz Canadian Mint gold bar for $1946, while spot is $1878.

          Bid from Kitco for the same bar is $1863.

          I’ve never seen a way around it no matter what the vehiclev- bullion bank, funds backed by physical, etc. For example bullionvault let’s you trade physical atvspot in real time, but then there are the trade commissions, storage fees, etc.

        • Junior says:

          Wolf This statement is not true ” they will BUY from you below the spot price ” they are buying above spot price. Here is an example

          look at the buy back price compared to spot

          https://www.providentmetals.com/1-oz-canadian-gold-maple-leaf-dates-our-choice.html

        • Wolf Richter says:

          That’s a coin. You cannot compare the price of a coin to the spot price. You pay a premium for coins.

        • Junior says:

          This same coin 6 months ago was going significantly below spot price for the buy back. That’s what I was getting at.

        • Brant Lee says:

          If you are really interested in buying and selling PM you need to start hanging around the coin shops and visiting coin shows. Getting to know people who are involved full time, not just dealers, but also collectors. It does take some involvement to know how to buy and sell at the right prices.

          I say that to say this. There are quite a few people out there with wads of cash money. Lately, they are looking to buy PM, about anything they can get at decent prices. Hang around the coin guys and coin shows, you will know who they are.

      • historicus says:

        Wolf…
        The Fed is partnered up with Blackrock, are they not?
        And the Fed is buying mortgage backed securities at rates below the current inflation rate…well below. This seems to be idiocy.
        But Blackrock is a GIANT player in residential real estate..

        Seems a massive conflict of interest to me…
        Your thoughts

        • Wolf Richter says:

          historicus,

          The Fed partnered with a number of large bond funds, including Blackrock, when it set up its corporate bond and ETF buying SPV. But it only bought about $13 billion in bonds and ETFs, which is minuscule. It stopped buying last year, and it is now selling those bonds and ETFs. That “Blackrock partnered with the Fed” theme has been obviated by events.

          PE firms, pension funds, etc., have long bought single-family houses to rent out. This is not new. In recent years, they formed REITs of single-family rentals and sold them to the public in IPOs, such as Invitation Homes.

          I agree, there is a surge of investor buying in the housing market right now, but it’s a lot of investors that are doing that, small and large.

      • Wakarimasen says:

        The gold market is a rigged market. The value of physical gold traded on the shanghai exchange is around 100 times smaller than the gold derivatives which are traded. That practically could mean that even in times of high inflation the gold price will decrease. Of course everything is legally correct but if you create a lot of paper stuff around the real thing, it is manipulated by those which move the paper.

        • nick kelly says:

          We read again and again that the derivative totals are much higher than the physical amount on hand. True. And true for ANY commodity traded or not on Comex. The supply of copper in warehouses is a small fraction of the positions. So is copper manipulated? Daily, no doubt, but if short it’s best to take a profit, because there is lots of copper.

          It costs money to have an idle ‘float’ available for actual delivery. Since most traders don’t plan on ever taking delivery, it would be wildly uneconomic to have enough on hand to deliver if per chance they stood for delivery.
          There are vast amounts of silver that are not available to trading houses for spot delivery.

          Factoid about silver. Don’t know it was true last year or two, but not long ago Franklin Mint was the largest US user of silver AND the largest US buyer of silver, including scrap. A lot of the silver it bought was Franklin ‘collectables’, eventually sold for melt.

    • w says:

      Neither is silver.

      • Ron says:

        So is gold and silver going up or down my guess down

        • Gold is reacting rationally at the moment. The dollar went below 90 briefly and bounced back above that number. Yields are dropping. On any day these things and PMs move in tandem. The last term you can associate with gold at this juncture is panic. Silver tends to reflect monetary issues, and has a better chart than gold. Some of the speculative energy came out of the markets last week. Palladium and Platinum consolidating their gains. Oil prices are the inflation wildcard. No economic reason for $70 crude, and on the way to $100?? OPEC+ (Russia) content to squeeze the Imperialists? Potus going to lay down the law to Putin. Saudis lose a friend in Netanyahu. And so the dollar bounced.

    • David Hall says:

      The price of gold is up 50 times the value of the dollar since 1970.

      Nixon took us off the gold standard. I used to hear about the devaluation of the dollar on the evening news. That was when there was no such thing as ZIRP. Savings accounts paid interest. There were phone booths.

  17. Micheal Engel says:

    1) UST10Y = 1.5%. // German 10Y = (-)0.27%. // US inflation rate spike = 5%.
    2) If US real rates will be minus 1%-2%, in the next 10Y, on $30T
    debt, the gov will collect : 10Y x $30T x 0.02NR = $6T. For 1% = $3T.
    3) US pension & health promises are down, because 500K elderly perished
    during the pandemic.
    4) US gov can sustain an average deficit of 5% – 7%, for 10Y, to stabilize the economy, including few deficit spikes. It cannot be done under
    the gold standard.

    • Ensign_Nemo says:

      This was in 2020, the last full year for which they have collected statistics, deaths this year are not counted yet as the year is not yet over. I’m using this study to compare annual mortality rates. Those went up by 15.9% last year, which is significant, but not enough to affect future demographics by a huge amount in a population of 330 million. 375,000 / 330,000,000 = 0.1136%.

  18. Jdog says:

    I am so old, that when I began paying into Social Security, a dollar was actually worth a dollar. Today Social Security is repaying me in dollars that are worth less than nickels.
    So think about that if you are a younger worker… If that trend continues by the time you retire your benefits will be worth about 1/4 of one cent per dollar….. But at least you can look forward to 1.5% increases as inflation goes up 8%…

    • historicus says:

      Premeditated THEFT by the Fed that exists with the understanding they will promote “stable prices’.
      We have been made love to right up the digestive canal.

      • Anthony A. says:

        You sure are drilling this FED is not doing their mandated job message into our heads!

        • SnotFroth says:

          I remember actually hearing Kashkari smirking over the radio in 2017 when he said “… and the Fed defines stable prices as two percent inflation”

          Well, that’s stable inflation, not stable prices.

        • VintageVNvet says:

          As as equally aged ‘investor’ as you AA, I can only reply that it’s about damn time that everyone knows what the FRB has done to us working and now formerly working folks.
          I was ranting about the Fed back in the 1980s when I decided to get out of the SM after 30 years of so, because it was obvious then,,, just like now,,, that the Fed was absolutely conniving to distort that market and the RE market.
          Been on Wolfstreet trying to figure out anything ”safe” and worth investing idle cash, just trying, so far without success.

    • Chris Herbert says:

      This was precisely the dynamic that created the populist push by William Jennings Bryan in the 1890s. Farmers took out debt but then the ‘gold standard’ some readers here are fond of took over and farmers didn’t get the prices they anticipated. So they ended up paying with expensive dollars that which were borrowed in cheap dollars. They couldn’t pay. Good old gold. Screwing the working stiff while the rich laughed all the way to the gold bank.

  19. WES says:

    My take on all of this financial repression is that governments are slowly but surely closing all of the escape routes out of fiat currencies.

    An example of this is the new Badel III gold regulations. The net result of making it more expensive to operate in the gold market, whether paper or physical gold, is to reduce the number/and or size of market makers involved. This reduces the overall size of the gold market. This then reduces the number of market options available for investors to invest in gold.

    So if investors suddenly decide they want to buy gold with their fiat currency, the door maybe too narrow to squeeze through or even be closed during a crisis.

    While physical gold supposedly pays no interest, holding some over long periods of time, pays a higher rate of return than fiat currencies do. One can also sleep better for whatever little that is worth.

    • Ubik says:

      Basel III should not prevent buying physical gold. It only makes life harder for paper) unallocated gold.

      It appears that it will cause problems to the bullion banks. Doesn’t make sense why the BIS would do this.

      There’s gotta be a catch, I just don’t know what it is yet.

      • b says:

        Like after Roosevelt had most gold forcibly redeemed by Americans and then voila,magically it went up Drastically in value!!Ancestors got screwed.Hide your metals in various hideyholes,Not security boxes,especially at a stripmall.

    • Augustus Frost says:

      The easiest way to discourage buying the physical metal is to make it subject to sales tax or VAT and increase income taxes on it.

      • David Hall says:

        There may be capital gains taxes due on metals, coins or other collectibles.

  20. Bruce Adlam says:

    The USA the leader and protector of the Democratic free world BULL SHIT .Your FED and congress are so corrupt and have been robbing you and the rest of the world blind You sleepy stupid Americans are allowing it to happen. A disgrace to your forbearers.The mistake they made the fed should have been elected by the people not appointed by government where is the independents. How bad does it have to get before you stupid Americans wake up to being lied to and screwed where is the protests at the Fed and congress what a big FAT DISGRACE not only to your country but to the rest of the world

    • drifterprof says:

      World keeps buying U.S. Treasuries and investing in U.S. for most stable safe yields.

      Which means the world are greedy insecure amoral enablers.

    • Zantetsu says:

      Given your rant I am going to assume that you would do no better. It’s easy to be an internet keyboard warrior. Perhaps you should be protesting outside your own government demanding that they take action. If your government is letting these stupid Americans “rob you blind” then maybe you should be complaining to them.

    • Depth Charge says:

      What country are you from, Bruce?

    • historicus says:

      The Fed should be held to their mandates…

      Mandate #1 The Fed is supposed to promote maximum employment yet what they do with rates has had the OPPOSITE EFFECT. Fail.

      Mandate #2 The Fed is supposed to promote stable prices, yet they promote just the opposite, INFLATION. Fail

      Mandate #3 The Fed is supposed to promote moderate (not extreme) long term rates, but we have near record lows, 30yrs almost 2% below inflation. Those rates are IMMODERATE and EXTREMELY low. Fail.

      Arrest J Powell for breach of Fiduciary responsibility in his post as Fed Chairman, and let that be a warning shot to all the Fed governors.

    • Winston says:

      “You sleepy stupid Americans are allowing it to happen”

      Please get a clue. The following is most likely the case for your country, too:

      Study: Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens [Princeton University, 2014]

      Excerpts:

      A great deal of empirical research speaks to the policy influence of one or another set of actors, but until recently it has not been possible to test these contrasting theoretical predictions against each other within a single statistical model. We report on an effort to do so, using a unique data set that includes measures of the key variables for 1,779 policy issues.

      Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence. The results provide substantial support for theories of Economic-Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism.

      In the United States, our findings indicate, the majority does not rule—at least not in the causal sense of actually determining policy outcomes.

      When a majority of citizens disagrees with economic elites or with organized interests, they generally lose. Moreover, because of the strong status quo bias built into the U.S. political system [that describes the overwhelming influence of the administrative state and lobbyists – W], even when fairly large majorities of Americans favor policy change, they generally do not get it.

      To be sure, this does not mean that ordinary citizens always lose out; they fairly often get the policies they favor, but only because those policies happen also to be preferred by the economically-elite citizens who wield the actual influence.

      • Augustus Frost says:

        Elite dominance is a major problem but not the inability of the electorate to get what they want. The solution to this problem (if it were possible) is decentralization and cutting the size of government drastically.

        The majority of the voting electorate can barely manage their own life properly and has no business making decisions for anyone else.

  21. Seneca’s Cliff says:

    Obviously you have to get in to meme stonks , AMC and GME to the moon.

  22. breamrod says:

    as long as there’s beer and ball games it’s all good! ( sarc) You know either the fed is buying everything forcing rates down or there is an incredible deflationary collapse coming out there somewhere and that’s being reflected in these low rates.

    • Petunia says:

      If money has little to no time value(interest) it is essentially worthless. Read a real estate story out of Austin, TX where a woman was going to sell her home for $400K, based on comps. In the month it took to prepare the house for sale her agent upped the listing to $450K. The house went for over $700K. I saw a picture of the house and thought it was worth $250K on a good day.

      While some see this example as exploding value in the real estate market. I see worthless money and disaster around the corner. And I have seen this before, in 2008 in Florida. And to a lesser extent saw it in NYC in 1987, after a bad day in the market.

      • b says:

        Blackrock,Lloyds,and others are sucking up huge numbers of singlefamily homes,sometimes whole neighborhoods.They are becoming huge landlords.Heard on other site this week that Blackheart did this and summarily raised rents %30!!!!These assets can then becomefoundations for margin in markets,no?ETFs and other ways to squeexemore$$$?Must be nice to get free money and buy Actual,useful assets which you then get even more money for all because you are well-connected to cabal.

  23. LK says:

    Waiting for Wolf’s posts to bust past WTF and into Dogs-On-Fire “This Is Fine” messaging.

    Can the crash come so Wolf doesn’t get whiplash whenever he checks market data?

  24. historicus says:

    Jerome Powell…

    “Let them eat inflation” June, 2021

  25. Rcohn says:

    A major War with nuclear weapons delivered from a variety of platforms. If that happens all major cities will be obliterated , all major military sites will be extinguished and the earth will be polluted by radiation for decades.
    The chances of a major war are as close to zero as you can have imagine, while the chance of nuclear explosions by accident is not

  26. DR DOOM says:

    Chasing yields is fine if you have no debts of any kind and all your living expenses for the next 10 years is salted away and you don’t need that money for even a whim.Inflation on $700 a month for food for two at home and at restaurants at 10% a year ain’t going to bother you and in fact the masses will revolt way before you collapse. The Fed, which is Congress’s bitch, cannot inflate its way out of its box without destroying the country. The Oligarch’s are not part of the country and they will be made whole,always are. Not you or me. There has never been a nation that has inflated or taxed itself to claim the sound money it de-based. It’s a bullshit wet dream that people repeat and never think about it. If you are chasing yields while carrying debt you may get screwed when this bizzaro economy flushes out , and it will. It is not different this time and you ain’t going to know when it will happen. Price of junk silver is $35 an ounce which is a 20% fear premium over the “market price” of silver at $28 an ounce. When you see fear premiums of 20% on a tangible there is no rational market. If you ain’t an oligarch you better start thinking like the peasant you are in the neo-feudal system that we have allowed to happen.

    • Nicko2 says:

      Great comment!

    • Ensign_Nemo says:

      Believe it or not, the US did tax itself back onto the gold standard after it issued greenbacks – paper money – during the Civil War. During the Civil War, the ratio of gold money (coinage) to greenbacks was an effective barometer of the level of success that the North had on the battlefield. Read “Battle Cry of Freedom” – a great history book – for more detail. After the war, the government very slowly retired the greenbacks and went back on a true gold standard.

      It CAN be done.

      Then the Fed was born in 1913 and that then led to the de facto end of the gold standard in 1933, when all the gold was confiscated and the government just bullied everybody into accepting a dollar that couldn’t be converted into gold by the average citizen, because it was illegal for anybody to own gold.

      We just have absolutely nobody, except maybe 1% of the most fanatical true capitalists, who wants to go back to the gold standard. Hell, we can’t even balance the budget for a single year during the best of economic times. Imagine demanding a $1 trillion annual surplus for 28 years to pay off the national debt – nobody would elect a party that ran on that platform.

      Today there is so much fiat money and government debt that we’d need to value gold at something like $50,000 an ounce to have any chance of reinstituting a gold-backed currency. Otherwise, everybody would immediately redeem all the paper fiat for gold.

  27. Swamp Creature says:

    The music may have stopped playing for condos in the Swamp.

    Just did one today in a good location and it had sat on the market for almost 90 days. They had to drop the price 5K to make the deal. The sellers had already bought another townhouse and were trading up, so they owned 2 homes for 90 days or more. If this is indicative of a trend then look out below. This is what happened in 2005/2006 when time houses sat on the market increased dramatically.

    • Wolf Richter says:

      Condos have been wobbly in other cities too.

      • Swamp Creature says:

        This condo softening is something new here, but I’m not sure its due to people trading up to townhouses, shadow inventory appearing on the market, or just people moving out of urban areas to the suburbs. Will have to get more data.

      • Geoff says:

        Seeing price reductions on condos, land and a few SFHs here in SD.

    • SnotFroth says:

      I hope you’re right.

      Now all eyes turn towards Fed.gov to see what stimmie plan they’ve concocted next to prevent the dreaded fall in housing prices or rent.

      • Michael Gorback says:

        And the injection of free money into the economy is a surefire way to cause a huge amount of inflation.

        • Island Teal says:

          Good write up re Comex and Basel3.
          TFMR and especially TF would be proud of you.
          AG and AU to the moon ??

  28. Micheal Engel says:

    1) CCC Labor Force Participation 16Y – 19Y old : at nadir since mid 2010 < 35%. It's not about $15 min wage.
    Solutions :
    2) Send them to protest in the streets, to BLM, or the gangs.
    3) Mommy will take care of them.
    4) Send them to colleges to pileup $2T student loans debt.
    5) A mandatory army service to get them some discipline, train and give them tech skills and pledge loyalty to the country.
    6) The Labor Force Participation was rising between 1965 and 1978,
    during the inflation period, peaking @60%.
    7) The baby boomers were either in colleges, or the army, in the labor force, or hippies in NYC streets.
    8) A hot summer of love is coming to Portland. De-fund the police will
    send a former black cop to Gracie mansion. Chicago might form paramilitary units to patrol the streets with the police.

    • Michael Gorback says:

      You can’t put them in the military. A lot of them don’t meet the physical requirements. As in too fat and and soft.

      • Micheal Engel says:

        1) Fat and soft. Skinny ironmen within three months.
        2) A change of character.
        3) The cause : 70% of them are unemployed
        4) The reasons : reasons don’t matter. Any reason can be a spark and ignite. The reasons are the symptoms. Treat the cause of the disease : 70% unemployment.
        5) Young people between 16 – 28 are sick, angry, jealous, with nothing to do all day, desperate young people with nothing to lose, nothing !

        • Anthony A. says:

          You are dreaming.

        • Nicko2 says:

          Your bullet points are making less sense as of late.

        • Ron says:

          Maybe why 14-16 year old shooting each other daily as the song says in the ghetto

        • w says:

          Nothing?Animal shelters,foodbanks,domestic abuse shelters,others clamoring for help.Oldies need friends in l.t. Homes.Trees need planting.Farmers need help.Forest preserves need invasive weeding.Tons of Free courses online should be utilized from yoga and taichi-advanced physics or Japanese.These people should thoroughly self-educated in prep/survival knowledge,various medical/healing knowledge bases,languages,self-defense,nutrition,debate,philosophy,law.They have alot to do,but are distracted and not self-directed.Theres a world beyond videogames,fakesocialmedia,selfies,videostreaming,tv,music.

  29. Andy says:

    How it all ends:

    1. 20% inflation in the US for each of the next 5 years.

    2. US govt debt reduced to zero in 5 years – Happy times

    3. Fed doesn’t care – the Fed is private bankers who take a fee, whatever happens. Happy times

    3. Joe Blow (and all the Blows, nod to Michael Moore) see a 95% reduction in net worth. Not so happy times.

    Ho Hum, next please?

    • Jdog says:

      It ends the same way it always does. Recession. Financial irresponsibility has consequences whether it is an individual, or a government.
      The government is losing what little credibility it ever had, I have not seen such a loss of belief in government since Watergate.

      • Swamp Creature says:

        During Watergate I had just gotten here and the Nixon Cabinet was composed of the best qualified people ever. Not the criminals and incompetents that we have now.

    • Nathan Dumbrowski says:

      Every single person or company has faced a challenge of the financial kind. Some times we have to ask for help in the form of aid, loan, credit line or other support. Rainy day funds or whatnot. But if you know somebody who has every single emergency in the book and begins to live like that they welcome the constant hand outs and say they are really sorry but this time was different. Well the .gov has done this and claimed emergency power. They can’t put that genie back in the bottle

      Hoping the .gov learned their lesson

  30. Chris Herbert says:

    We were all taught a pile of manure when it comes to national finances and the fiscal tools of monetary sovereigns. You tax the wealthy when they get too powerful. That’s it. No other way because the wealthy will simply pick up the best of the detritus left over after the asset inflation bubble deflates as long as you protect this class. Pump money into productive investment and create a job guarantee program. A real right to work dynamic. The rich will scream bloody murder. As they should.

    • lenert says:

      You can only tax back so much before it becomes cost-effective for the wealthy to hire experts to avoid it. But maybe we could dial back a few of the things done over the last 40 years that have increased the INTRA-generational, PRE-TAX INCOMES of the wealthy including carried interest, stock buybacks, derivatives trading, longer and stronger patent and copyright monopolies, trade deals favoring “shareholders” over labor, m&a deals eliminating competition across all industries, privatizing education, healthcare and the military. If you want hear a CEO squeal like a pig, and I mean no offense to pigs, start changing these things. Billy G. Whiz threw a fit when the feds wanted to loosen up the trade rules to expand global access to the government-funded virus vaccines.

    • It would make a lot more sense to redistribute the wealth in profits back to wages, say 10%, and then tax the people who are benefiting. Half of something is better than nothing. The wealthy don’t pay taxes because they have no income. Mush gets no salary, when he needs cash he borrows it from his equity, tax free.

  31. Thomas2702 says:

    On one side:
    – we want higher yields, higher interest rates
    – we want lower inflation
    But for that to happen, we know we should have a huge biblical crash
    On the other side, we have the Fed, which is:
    – not going to let a crash happen
    – actively debasing the dollar
    So why should we wait with the cash?
    If you believe the above mentionned, then any stock will cost more in dollar terms in one year, any house will cost more in dollar term in one year, bitcoin will cost more in dollar term in one year. Gold and silver too, even if they are artificially suppressed by paper gold & silver.
    That’s what I don’t understand: why wait?
    Nothing is overpriced if it’s going to cost more in one year time…

  32. Nicko2 says:

    Gotta say, the content on this site continues getting better and better as this crazy time we are in goes on. ?

  33. Micheal Engel says:

    1) SPX in the danger zone. SPX bull run might be ending soon. Might !!
    2) Take a line from Oct 30 low to Mar 4 low.
    3) Take a parallel line from Sept 24 low. It’s a RSI line.
    4) Take a RSI line from Oct 30 low to Mar 4 close, forming a diagonal fractal zone.
    5) SPX osc inside this zone for a month.
    6) PnF x3, 20 pt x9 columns can send it down 540 pt to : 3,700.
    7) Option #1 : once there, SPX can build a larger cause with Jan or Feb highs.
    8) Option #2 : build a cause with Jan or Mar lows, for a move to a new all time high.

  34. Mike R. says:

    No one knows how it will end or when it will end.
    One thing is certain however, when it ends, everyone is going to be hurt bad. Even if you are well prepared with gold stock, other provisions, if you’re living in / around the rest of society, it is still going to be a shit show.
    Lot’s of violence and death. Only those that have some wits, resourcefulness and luck will survive.

    This is what a large majority of “ignorant” Americans see coming. Why do you think heavy gun sales are out the roof? These people live in rural America and so have a better chance of survival than the masses crowded in urban areas.

    If this all sounds way too severe, think Germany in the 1920’s. Forget about trying to exactly match up their hyperinflation event with one here. It won’t be the exact same. But German financial leaders lied to the German people over and over about the economic situation and money supply. Of course they had to. The ultimate crash set up an entire generation to embrace Nazism because so many people got crushed and lost everything.

    America continues on this same path because we don’t want to accept any pain. Our politicians simply mirror our desires. Each year, the hole gets deeper and deeper. Simply reading about all the economic ‘haywireedness’ should be enough to convince us that things are really bad economically. Everything the government does/is doing is just trying to put a band aid on the most recent problem and keep all the plates spinning the air.

    Throw in climate change, and more importantly…that we’re almost out of cheap oil in the world, and even most importantly that we’ve raised generations of lazy, fat, stupid citizens….well what else can I add.

    Good luck.

    • Petunia says:

      I agree with much of what you say and didn’t have the nerve to say it because that ugly future is pretty much here. I smile and shake my head as I read many of the comments about where to put money. That isn’t that important, when the news tells us that 13 people have just been shot for no apparent reason in Austin. A swarm of people recently stole $100K of designer handbags from an upscale store in San Francisco. The red states are kicking off people from unemployment.

      Keep track of the violence because it is the only thing going up in the near future. I see real estate that nobody can afford going up in smoke too.

      • Wolf Richter says:

        Petunia,

        Hey, that handbag heist and a similar one a month earlier happened at the Standford Shopping Center in PALO ALTO. Not San Francisco, for once :-]

        • Petunia says:

          Sorry Wolf,

          I think of SF as being the center of SV, so basically the same area.

          BTW, not to single out your area, these robberies of high end stores have been going on in NYC and elsewhere, this past year. It’s a highly coordinated form of criminality.

          Just as a side note and because I’m assuming those crooks don’t read WS, those bags they stole are probably chipped and traceable.

        • Brent says:

          Handbag heist ?

          Ahhh….the old B&W gangster movies with Jim Cagney…Last time I heard this word was in 1978-Lufthansa Heist.

          Nowadays LE uses “civil forfeiture” term.Just grab & go,possession is 9/10th of the Law.Finders keepers,losers weepers,yay !

          Military uses the word “liberate” since WWII, when B-24 “Liberator” liberated numerous German and Japanese cities.

          Then we liberated German heavy industry and transported it to the US.

          Russian Commies did the same and even more-they liberated 1/2 of Europe.

          Last year I bought a brand new 100% cashmere Navy Pea Coat on eBay,price tag says $1,800,I paid 1/25 of that.

          I was so impressed with the fine workmanship,attention to details and cashmere soul-warming qualities that I decided to order another one.But the seller sold just this one item and was gone.

          Since the package arrived from Chicago South Side my guess is that he “liberated” my pea coat from some posh store in the Gold Coast-Lake Shore Drive.

          We are all Liberators now !!!

          Ho. Ho. Ho Chi Minh !!!
          NLF is gonna win !!!

          Handbags and Walgreens in SF area yearn to be liberated !!!

        • historicus says:

          Wolf
          I invite your thoughts on the Blackrock partnership with the Fed..

          Blackrock apparently is in control of the asset purchases for the Fed, and I assume that MBSs might be part of that.

          Couple that with Blackrock’s very big, very aggressive investment in residential real estate, and it starts to smell.
          This might begin, sadly, why the Fed is buying 30yr mortgages 2% below the current inflation rate.

        • Wolf Richter says:

          historicus,

          “Blackrock apparently is in control of the asset purchases for the Fed, and I assume that MBSs might be part of that.”

          No. That’s totally wrong. The New York Fed’s trading desk handles the asset purchases, including the MBS.

          Blackrock was one of several bond fund firms that were involved in the CORPORATE bond purchases and bond EFT purchases, which amounted to $13 billion with a B, which is nothing. This program ended last year, and the bonds and ETFs are now being sold.

        • historicus says:

          This is the only way I could find to respond to you regarding Blackrock…

          It seems, yes, the NY Fed does the buying. But it also seems that Blackrock advises them what to buy. The NY Fed is using Blackrock’s “expertise” in the MBS market.

          “BlackRock Financial Markets Advisory is honored to have been selected to assist the Federal Reserve Bank of New York during this extraordinary time,” the New York firm stated.“[It] will not engage in discussions with market participants and issuers” without more specific details.

          The New York Fed claims it selected BlackRock on a “short-term basis” for its expertise in commercial mortgage-backed securities”

          https://goldsilverbitcoin.com/blackrock-to-oversee-the-federal-reserves-asset-purchases/

          The NY Fed is still buying the MBSs (40 Billion a month?) …and apparently they are buying what Blackrock “advises them to buy”. Blackrock (and others) also has gobbled up entire residential communities..
          https://www.dailyveracity.com/2021/06/11/corporations-are-buying-up-thousands-of-houses-and-pricing-americans-out-of-the-market/
          It seems to me something is a little too cozy between those making big bets in residential properties and the Fed.
          Why is the Fed essentially lending out 30yr money at 2% under posted inflation? In 1999 and 2006, with similar and even lower inflation, 30yr mortgages were 6%!

        • Wolf Richter says:

          historicus,

          In terms of MBS, this is just nonsense. If you want to find out what and how the New York Fed is buying, go to its website. It’s all there. Sign up for its email updates, you will get all the updates and technical notices, purchase and sales schedules and results, etc.

          Even the article you linked doesn’t say that Blackrock is advising the Fed on MBS purchases. You just made that up. It seems you didn’t even read the article, you just read the URL.

          The article talked about exclusively about “CMBS” – “commercial mortgage backed securities.”

          Blackrock, Trepp and some others advised the Fed on CMBS (commercial mortgage backed securities) The ended up buying = $9 billion (with a B).

          Blackrock and other bond specialists, were involved only with CORPORATE BOND and bond ETFs purchases. The Fed ended up buying = $13 billion (with a B).

          Both of those programs ended last year and are getting unwound.

          The $2.2 trillion (with a T) in MBS have nothing to do with that, and the New York Fed has been handling MBS for 12 years on its own. There is a lot of material posted at the NY Fed’s website on this, lots of technical stuff because MBS are complicated. So read it there — and quit spreading this nonsense around here. Future comments on this Blackrock fiction will be deleted.

    • c_heale says:

      Peak oil was supposed to be around 2008… we’ve been running on fumes (fracking, tar sands, the remnants of Ghawar etc) for a while now…

  35. Micheal Engel says:

    Nicko 2 : your bullet points make sense too :
    1) Buy a small rundown house/ apartment in a good area, in a bad condition.
    2) Buy it when everybody complain and hate RE.
    3) When there is no more hope buy. Hire unemployed Old contractors
    to fix it for half the price, because they want to do something, to break to build, even at a loss.

  36. willie mays says:

    that twitter facebook sent everything into a sht

  37. DanS86 says:

    Everything is going according to script laid out in “Fiat Money Inflation in France” which is a free PDF now. Politicians and bankers will never take the blame.

    • Ensign_Nemo says:

      “When Money Dies”, a book about Germany’s 1920s hyperinflation, is also available as a free PDF.

      The last two hyperinflations in Western Great Powers created Napoleon and Hitler. The third one could be much worse, as humans now have weapons of mass destruction.

  38. Tammy Simms says:

    This is why I have been cutting very deep my expenses and property taxes, fees etc. for the last 20 years. I used to own a condo and 2 cars, eat out at least 3 times a week, used to smoke and drink quite a bit, used to go on vacation at least 2 times a year stopped doing all that. I used to have an I-phone got rid of that too. I used to buy much more expensive clothes stop doing that. I used to be overweight got in better, healthier shape now used to be taking cholesterol, high blood pressure medication but sopped buying and needed them. I used to buy at least 2 coffees a day at coffee shops stop doing that.

    Th bottom line is with me saving now for 20 years on car insurance, maintenance etc., mortgage insurance, condo insurance, monthly condo fees, condo property taxes, gas for my 2 cars, coffee from coffee shops, beer, wine, alcoholic beverages, cigarettes, I-Phone, vacations, cholesterol medications and higher health insurance premiums etc. my calculations is $850,000.

    This does not include all the future increases in these expenses, costs, fees, taxes etc. and interest and investments returns of even a modest 3% to 4% a year compounded annually. I would not be surprised that it comes to $1.3 to $1.35 million net after all income taxes paid etc. on this money.

    The way to deal with inflation and this low interest rates, manipulation of bond markets, T-bills, CD’s etc. is just buy less crap and don’t buy in the help the economy fib. Why should I help their economy when they are using massive financial repression to make my life more and more difficult. People need to grow up and be an adult knowing what the difference is between a need and want.

    Even worse many people for decades were and still are going in deep credit card debt, mortgage, line of credit debt, personal debt etc. to live like this false lifestyle that they could never afford plus keep lying to themselves that someone, somebody, something will bail them out. It is living in fantasy land.

  39. Heinz says:

    Wolf: “With so much excess cash floating around, what else are investors supposed to do with their cash – even as inflation is eating it up on a daily basis? That was a rhetorical question. Everyone is trying to find a place for it, but all assets are already overpriced, and yields are already repressed below the rate of inflation for most bonds, in markets that have aptly been described as “raging mania.”

    This paragraph aptly sums up a ‘perfect monetary storm’ conjured up by recent Fed and partner in crime .guv actions.

    The average little guy or gal is lost at sea in a dark, raging, spitting storm with colossal waves of inflationary pressures, market distortions, and financial repression threatening to capsize them.

    We must don our life vests, trim our sails, and have to ride it out until we find safe harbor at the final end of this stupendously stupid era of reckless monetary experiments. I hope no one has a weak stomach.

    • Nicko2 says:

      Task one; get out of debt. Extra cash you have stockpiled will come in handy after that.

  40. MCH says:

    Wolf,

    Don’t give too much credit to just the Fed. Remember, it takes a village, or more precisely, it take a team to get us to this point. The J team.

    Although I think the J team is rather fortunate in that most of today’s younger generations are too with it to be able to stand up and tell them in a Greta like voice: “you stole my future, HOW DARE YOU.”

    They are instead with the J team pushing ESG, justice, equity, or whatever all of the media is peddling today. We are all better off listening to a used car salesman than the drivel that is spouted on the airwaves. At least with the later, he is honest and telling you that you are being ripped off.

    • Swamp Creature says:

      MCH

      Be careful what you say about used car salesman. I think WOLF said he used to be in that profession in Texas or OK.

  41. 2BFrank says:

    Just buy assets now before even more people get on the asset bandwagon, the Fed and Blackrock et all will soon own every home, and parcel of land in the USA, via bonds, mbs and the rest. Huge pension funds are buying whole new housing developments to rent out to get a long term inflation proof return. You will own nothing, most people don’t now, the car is on a 7 year loan, the house is mortgaged, the bank owns it, anyone under 21 will only own anything if their parents leave it to them, they have no futures.

    • Petunia says:

      I think all those SFRs are going the way of the South Bronx circa 1980s.

    • w says:

      You forgot Bezos,Gates and China apparently buying up our land.Dont sell it to them.If anyone wants an affordable,decent place to live or farm or you want food choice away from gmo frankenfoods,there must be a diversity of smslltime owners,not More concentration of wealth and power.

      • Petunia says:

        They are not just buying the land, they are buying the water under it too. I heard Gates’ land sits on the biggest aquifer in flyover country.

  42. Bobber says:

    The Fed and the “powers that be” frame this debate in terms of interest rates, productivity, and compliance with mandates.

    But the higher issues facing us today are generational theft, excess speculation, moral hazard, bailouts, handouts, suppression of competition, wealth concentration, financial instability, and cronyism.

    It’s time to re-frame the issues.

    • Jdog says:

      How about this.. There are some stats just out giving the outrageous numbers of small business that are no longer operating.
      The government has waged war on everything from Viet Nam to drugs and poverty. One of their latest wars, on terror, actually turned out to be a war on the privacy of the American public and their Constitutional rights.
      Their war on Covid, now appears in truth to be a war on American small business, and the American consumer. Reminds me of an old saying about if you cannot figure out who the sucker is, it is probably you….

  43. Micheal Engel says:

    1) More borrowing by the gov to finance the budget deficit, less available to the private sector .
    2) The gov choke the private sector. Less available for expansion and
    new investments, slow down the economy.
    3) US unemployment rate is shortening it’s thrust, falling grudgingly since Oct 2020.
    4) When the unemployment rate rise, junk bond tranquility will turn
    into volatility. It will be quick.
    5) Investors will have to be compensated for the risk they take, because
    junk cos might go bk within 5 years.
    6) Higher interest rates lower prices.
    7) Compound 15% junk rate for 5Y : 1.15^5 = 2.01, good enough.
    8) Compound with 25% for 5Y ; 1.25^5 = 3.11, better value.
    9) Snakes eat snakes in a junk bag…

  44. Kerry says:

    Hard to comprehend that people do not see the total and willful destruction of our economy. Just like 19 hijackers with box cutters took down the towers…

  45. Gian says:

    If “all assets are overpriced” and inflation is “eating up cash on a daily basis”, would it not be a good time to unload these assets fo cash and wait for the crash, then use this cash to purchase assets at a much reduced cost thereby negating the heretofore inflation? I see all this as an opportunity to grow your wealth. This concept worked out well for me during the 2006 RE meltdown.

    • Petunia says:

      I lived through the inflation of the 1970s and didn’t feel it much because we lived as cheaply as possible. Found it cheaper to eat out in Manhattan than to cook at home, so we ate out, mostly diner food, chinese, and pizza. Went to the dollar movie every week. Learned to love foreign films.

      Inflation doesn’t take hold until people actually buy at higher and higher prices. If you don’t spend you don’t experience the inflation. Right now I’m only buying really discounted items, unless it’s something I have to buy.

      I see the inflation in food and I am substituting a lot and trying new things. Also had sticker shock on a couple of car repairs. Otherwise, not buying much on purpose to keep inflation away.

  46. Scott Diarona says:

    I’m sorry but most people today are really morons when it comes to managing their financial and other parts of their lives. What did they think would happen when you let others from government to corporations take control of your lives. By the way, when they own everything and nobody can pay them to rent, mortgage, go in deeper debt then what are they going to do with all their stuff. Remember monopoly when the bank owns everything and nobody play their game anymore. It is useless to own everything and nobody plays you game anymore.

  47. yxd0018 says:

    The current actions of the Fed have violated the goals and preconditions of austerity that he has been mentioning all the time, with an inflation rate of 2%, at this time there is nothing to say but no reason to find reasons.

    Inflation did not raise interest rates. There have been signs since February. At that time, I still looked forward to it. I thought it was a turning point. I felt that Powell would at least say something about tightening expectations, which was naive. Because the forecast in March has exceeded the target, the CPI gambling products have already predicted CPI data, which is almost a clear sign, but most Fed members have avoided talking about this matter and are turning to discussing other than 2% inflation. Other data, exceeding expectations in April, are still avoiding discussions. In May, the market is no longer sensitive to CPI data.

    If an incident repeatedly violates his own rules, it shows his attitude. As for explaining anything, there is no need to study it. The facts have already given the answer. This kind of short-term inflation is to find it for yourself. This step has no practical significance. Compared with other possible problems, inflation is the least problematic problem, and even the Fed is happy to see it. Those who look forward to raising interest rates can only look forward to events at the level of the new crown, but if an event of this level occurs, I am afraid the Fed will be even crazier and too big to fail.

    • historicus says:

      The mission statement of the Federal Reserve is …

      “It is the Federal Reserve’s actions, as a central bank, to achieve three goals specified by Congress: maximum employment, stable prices, and moderate long-term interest rates in the United States.”

      Mandate #1 The Fed is supposed to promote maximum employment, yet what they have done with the interest rates has had the OPPOSITE EFFECT. The artificial rates provided by the Federal Reserve has allowed the Federal government to borrow at near zero and dole out the money in a fashion that dampers the will of workers to fill employment positions. If there had been real borrowing costs, historical borrowing costs, the doling out would either have been sharply curtailed or not implemented at all. Fail.

      Mandate #2 The Fed is supposed to promote stable prices, yet they promote just the opposite, INFLATION. We now have 5% inflation and they do not lift a finger to “promote stable prices”. Fail

      Mandate #3 The Fed is supposed to promote moderate (not extreme) long term rates, but we have near record lows, 30yrs bonds almost 2% below inflation. Those rates are IMMODERATE and EXTREMELY low. The Fed is buying $120 Billion a month in the market to promote these rates. Fail.

      That’s 0 for 3. That is THREE STRIKES.

      • yxd0018 says:

        You will be too naive to believe Fed chairman and governors still believe in these mandates.
        Last time the tapering happened when core CPI is 1.6% and this time no words about thinking of tapering when core CPI > 3%.

  48. gametv says:

    One of the biggest mistakes some people are making is to assume that inflation will increase home prices. The opposite is actually going to happen. Higher inflation means the Fed needs to allow interest rates to rise. Higher interest rates mean that at the same price the monthly payment on a mortgage are higher. Which means that less people can afford a given home price, which means prices adjust downward. As prices fall due to a shift in the supply/demand balance, people stop looking at a home as an investment, because falling prices are a disincentive to invest. The higher home prices of the past 30 years were built on two long term trends – lower interest rates and more two income households. But labor participation rates are falling, not rising and interest rates are set to spike MUCH higher in the near future.

    Investors have accounted for double the normal percentage of buyers so watch for investor money flows to real estate to plummet as prices fall. Foreclosure moratoriiums and mortgage forebearance also going to hit the market in the next six months and push prices lower. Big deleveraging of home equity is set to happen as we try to deflate this debt bubble. Real estate is one of the few assets classes that is highly leveraged and that is a bad thing in a melt-down.

    Once the economy and stock market turns downward, Biden will lose support and become a highly unpopular president and democrats will lose the mid-term elections in a huge way.

    • yxd0018 says:

      gametv,
      If home buyer locks in the fixed rate, it will not affect the monthly payment even rate may go higher and the house price goes down a bit. For first-time buyer, it’s hard to predict where the monthly payment goes in the near future.
      With double-digit price increase over last year and US debt size, It’s interesting to see bond yield actually goes down a bit recently.

      • gametv says:

        yxd0018 – It does not matter if a home buyer locks in an interest rate, the home is worth what future buyers can/will pay. So if the owner is fine with losing money on the value of the home, fine, but I am talking about the future prices of the home. Most home buyers are thinking that their home will appreciate, not depreciate in the future.

        Bond yields only started to go down as the Treasury stopped selling bonds as they decided to fund the deficit with the cash reserves. The timing is almost perfect to when interest rates stopped moving higher. Simple supply and demand. So as soon as the Treasury stops draining the cash reserves and is forced to sell massive supplies of bonds to the market, interest rates move up.

        The Fed is caught in a place where it cant just monetize that debt or it risks more inflation.

        MMT is a joke and so are the intellectuals that invented it. It is really like borrowing on credit cards, it works fine until the credit line is pulled.

        • ru82 says:

          I looked back in time and housing prices many times go up with rising rates. Housing prices rose in the late 70s as interest rates went from 7 to 18 %

          I thought the same thing you did but until I looked back in time.

          Housing prices will drop if liquidity dries up. But if interest rates are rising because of inflation then housing will probably go up to.

          What I think will happen is yes, my 2k a month mortgage at 5% interest will mean I will have to buy a smaller house than I would with a 3 % loan. Why, because land, labor , and supplies may actually go up in price. Builders will just have to build smaller homes? I could be wrong on this analysis

        • yxd0018 says:

          ru82, gametv – That’s what I saw during last high inflation period. Besides higher replacement cost, with higher inflation, usually the wage also increases to cushion house price.

        • yxd0018 says:

          I doubt the rate can go much higher given the debt load. If the rate goes a bit higher and house price stalls or drops a little bit, what about the extra mortgage interest you need to pay due to higher rate? It’s hard to say which is better given there is a lot of IF. There are a few people I know trading up in good area, definitely not FOMO type.

    • historicus says:

      Gametv

      “Higher inflation means the Fed needs to allow interest rates to rise. ”

      I dont think we are in Kansas anymore, said Dorothy. (Wizard of Oz)

      We have 5% inflation and zero fed funds….never happened before.
      We have 30yr mortgages 2% under the inflation rate….never happened before. (last time we had any inflation at this rate 30yrs were 6%!!! 1999 and 2006)
      Never has the Fed been partnered up with an outside entity “advising them” on what MBSs to buy….when that partner has a MASSIVE bet on in residential real estate.
      The Fed ignores, certainly, their second mandate of “stable prices” as they promote inflation…and the third mandate of “moderate” not extreme long rates as they press them to all time lows.
      The Fed is rogue and Congress should/ will call Powell on the carpet. At LEAST!

  49. 2BFrank says:

    The problem with debt it when it ceases to be taken seriously, for example Student Loans, no student with even an ounce of IQ has paid their loan in the last ten years, it is dismissed as “no point repaying it, they will soon have to forgive them anyway, and the Fed will bail out the colleges by printing money”.
    If you extend this to mortgages, car loans, utility bills, taxes, etc etc, without any sanction for default, then the whole system collapses.
    I am not defending the greedy colleges or any other entity in the system, merely pointing out some of the consequences of issuing unpayable debt, and at the same time inflating the money supply and thus devaluing its worth.

  50. yxd0018 says:

    Wolf,
    Regarding your statement in the other post
    “Slow down. You’re skipping a step. We’re still in the Trump recession that started in March 2020 and that Biden & Kamala inherited in Jan 2021. First we need to get out of this Trump recession before we’re ready to get into anything else.”

    I think ending the current recession in technical term by now has no doubt. Do you believe otherwise?
    Do you think the asset bubble will grow bigger in the next economic expansion or make drastic turn in this fall?

  51. Swamp Creature says:

    Talked to one of my friends that was the manager of the local community center here. While the center was closed for 16 months he was handling eviction cases for Montgomery Country an affluent suburb outside of the Swamp . He told me that the big landlords largely ignored the eviction moratorium and evicted tenants who didn’t pay their rent. They didn’t hesitate one moment. The law passed at the federal level was largely ignored. You are going to see more of this. Flagrant violation of the law and a descent into barbarism.

    Enjoy

    • Jdog says:

      The law was stupid. The government has no authority to tell a private property owner what they can and cannot do with their private property. If someone cannot pay rent, they are in violation of their contract and should not be entitled to the benefits of the contract. It is that simple. With the massive amount of stimulus doled out to the public there is no reason whatsoever anyone should have not been able to pay their rent. I have no sympathy for anyone evicted because they were given the means to pay and decided not to. Screw them.

      • Swamp Creature says:

        I agree the law was stupid. But it was the law. My point is that the local and fed government has lost so much credibility because of their own corruption and incompetence that flagrant violation of the law is going to be the norm as we move forward. I see it every day. This is just the beginning of a lawless society.

  52. ru82 says:

    I am doing my part to help with inflation ?.

    Current renter left who was paying $655 / month for the past 4 years. I found out the rental house next door was charging $1095/month. Looks like I will be raising my rent by over 70%.

    But inflation is happening. I had been getting a quote on siding and windows the past 4 years for a rental I own. each year it has risen by over 10%. 4 years ago $7500, next year 8400, next year9600, and this year10,750.

    How will house prices drop in some areas when there is a huge increase in the cost of materials and labor?

  53. Rich says:

    Not all assets are overvalued, platinum is still very cheap, has a lot more uses than gold, and will explode if it catches investor interest

  54. wemmick says:

    It occurs to me that we’re looking at bonds through the wrong lens. Long-term QE and low yields has created a scenario where investors treat bonds no different than value stocks. I don’t think bonds are overpriced. I think investors have just fundamentally changed their behavior since 2008. The interest earned from the debt is less important to investors than the appreciation of the bonds themselves. Investors aren’t just accepting low yields, they are driving them. Negative yield bonds have strong appreciation. I see this in my long- and short-term bond mutual funds. The rate of return from appreciation for me right now is much higher than even the “normal” interest rates from the ’90s, or even some of my indexed stock mutual funds in some cases. I don’t think the Fed can control CPI inflation as long as investors prioritize bond appreciation over interest. Is this a kind of liquidity trap, Wolf? Except investors are using bonds instead of hoarding cash?

    • Wolf Richter says:

      Treating bonds like value stocks works for a little while. But as the bond gets closer to maturity, its price approaches face value (assuming the bond doesn’t default beforehand). When it matures, all you get is face value. If you bought at a premium because yields were declining when you bought, you lose that premium that you paid. That doesn’t happen with stocks. They’re perpetual. They don’t mature. And there is no face value.

      • wemmick says:

        Right, for an individual or small group of bonds. But what about institutional investors trading many, many thousands of bonds? I’ve seen my large bond mutual funds sell lower value bonds with higher coupons for higher value ones with very low coupons over the past few years. The value of the funds keeps appreciating because of the trading strategy. The unrealized gains over the last few years equal about 6-8 years of interest. Not too bad a rate of return, but I wonder if this type of behavior has become endemic?

      • historicus says:

        According to a statement released by the New York Fed, BlackRock was retained on March 24 to manage the $750 billion corporate bond buying programs for the Fed. The commercial mortgage-backed securities contract was entered into with BlackRock on March 25. The contract includes this language:

        • Wolf Richter says:

          Historicus,

          I deleted all the rest of your comment, which cited from a brain-dead website by people that produce braindead clickbait fiction. No one needs to read this nonsense.

          You’re doing exactly what I asked you not to do. You keep posting this nonsense. What you’re referring to is from March 2020.

          I’ll say it again: In all of 2020, the Fed bought $8 billion in corporate bond ETFs and $5 billion in corporate bonds and $9 billion in commercial mortgage backed securities (CMBS) with the involvement of bond fund managers. There were a number of bond fund managers involved, one of them was Blackrock.

          There are NO bond fund managers involved in the Fed’s purchases of its $2.2 billion MBS portfolio. Those trades are handled in the TBA market by the massive trading operation at the New York Fed, and have been for over a decade when they started.

          The corporate bond buying program was shut down on Dec. 31, 2020. The Fed has now started SELLING those $13 billion in bonds. the CMBS are winding down too. That’s what the bond fund managers were involved in.

          Forget that bullshit about $750 billion. That never happened. It NEVER bought $750 billion of corporate bonds, ETFs, and CMBS.

          You can check that out on the Fed’s website. It discloses the specific ETFs and bonds and CMBS it has bought.

          I have reported on it since March 2020 in numerous articles from the initial announcements at the very beginning to the wind-down, and I listed what it bought, and if you had ever read any of my articles, would not now regurgitate this BS.

  55. yxd0018 says:

    Greece’s 5-year bond yield turns negative for first time —
    Investors head in to riskier European debt confident that the #ECB has no plans to taper support.

  56. Swamp Creature says:

    Saw some mid to long term weather/climate forecast charts of the SW USA. I see big problems with a major drought brought on by a warming of the Pacific Ocean. No one is talking about this yet. Wait till this starts hitting the food supply chain. Then people will start mentioning it. I used to be in the weather/climate forecasting business. This is serious s%it. If you think food prices are high now just wait. And to add to this there will be fights over the water supply to farmland and residential homes in some of these impacted Western States. Even Michael Burry warned about this in one of his recent posts.

  57. yxd0018 says:

    Wolf,
    Isn’t the M2 velocity dropping like stone? That can explain why so much printing since 08 didn’t trigger inflation and current inflation could be temporary.

    https://fred.stlouisfed.org/series/M2V

    • Wolf Richter says:

      M2 has become a useless and meaningless number. It doesn’t tell me anything anymore. People have stopped paying attention to it because it just doesn’t indicate anything anymore except that the metric has become flawed. Someday I might spend some time to try to figure out why.

  58. yxd0018 says:

    Black Knight Mortgage Monitor for April; Highest Annual Home Price Increase on Record
    Foreclosure rate way down.

    • Wolf Richter says:

      Over 4% of mortgages are still in forbearance! So if you can just put a defaulted mortgage into a forbearance program, there won’t be a foreclosure. Simple as that.

      • yxd0018 says:

        If ppl in forebearance can’t afford and start selling, they will have no problem to sell it in the current market. Don’t you think the forebearance is just red herring?

  59. Manny Kimer says:

    What happens when the US Federal Reserve is replaced with a global or global regional central bank, authority. It will create massive inflation, currency devaluation and skyrocketing interest rates.

  60. Auldyin says:

    I reckon psychiatrists are buying these.
    It makes their job easier. For a patient on the couch they just ask,”Would you like to buy one of these nice bonds”
    If the patient says, “yes”, boom, he knows he’s got a nutter on his hands. Oops, excuse non-pc, I meant a mentally disturbed person on his hands.

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