“So far so good. But we have to be nimble here, these are big numbers.”
By Wolf Richter for WOLF STREET.
One of the big Fed doves, St. Louis Fed President James Bullard, is making “hawkish” noises, projecting higher inflation and pulling the first rate hike into 2022, after the Fed pulled the first two rate hikes into 2023 on Wednesday, from 2024 back in March. Things are tightening up quickly here. It’s when the doves turn “hawkish,” as it were, that things get real at this Fed.
The “hawks” – in reality, there are no hawks on this Fed, there are only folks who are more or less dovish – have already spoken, and no one paid attention. For example, over a month ago, Dallas Fed President Robert Kaplan once again pointed at surging inflation and all kinds of distortions, including in the housing market, and advocated for tapering purchases of mortgage backed securities, “sooner rather than later.” At the time, he was the odd man out.
But dove Bullard got everyone’s attention today. The Fed and Chair Powell already jostled some nerves on Wednesday with their inflation concerns, and with revelations that, one, there had been an official “discussion” about how and when to taper asset purchases, and that the phrase “talking about talking about tapering should be retired,” as Powell said, and that, two, it has pulled its median projections for the first two rate hikes into 2023, from 2024.
Bullard normally gets trotted out on the financial TV channels when markets sag, and gets to make dovish statements that then end the sag. But today was a little different.
Bullard, who will be in a voting slot at the FOMC in 2022, told CNBC this morning that the FOMC “has been surprised to the upside over the last six months,” in terms of GDP growth, the labor market, and inflation.
“We were expecting a good year, a good reopening. But this is a bigger year than we were expecting, more inflation than we were expecting, and I think it’s natural that we’ve tilted a little bit more hawkish here to contain inflationary pressures,” he told CNBC.
“The inflationary impulse is more intense than we were expecting,” he said. “The 3% on core PCE inflation, how long has it been since we’ve seen that! There is some upside risk to that, with more reopening to occur in the second half of the year.”
“So I think you could even see some upside risks to the inflation forecast. But that’s OK, we were targeting to get inflation up above target. I think we’re going to achieve that in 2021 and 2022, and we’ll approach 2% inflation from the high side, and I think that will be a good path for the US economy, and that will help cement longer-run inflation expectations at 2%.
“So far so good, but we have to be nimble here, these are big numbers,” he said.
These are truly big numbers. Over the past three months, inflation has surged at the red-hottest pace since the early 1980s.
Bullard’s own inflation forecast, based on core PCE, is higher than the median projection offered up by the FOMC on Wednesday.
He justified pulling the rate hike into 2022 by his inflation forecast. “By the time you get to the end of 2022, you’d already have two years of 2.5% to 3% inflation,” he said. “To me, that would meet our new framework where we said we’re going to allow inflation to run above target for some time, and from there we could bring inflation down to 2% over the subsequent horizon.”
In terms of tapering the asset purchases, Bullard said he might favor a more rapid reduction in MBS purchases. “We don’t need to be in mortgage-backed securities with a booming housing market and even a threatening housing bubble here, according to some people,” he said. Which is what Fed hawk Kaplan had said a month ago.
“So we don’t want to get back in the housing bubble game. That caused us a lot of distress in the 2000s.” He’d be “a little bit concerned about feeding into the housing froth that seems to be developing.”
And they might not taper on automatic pilot, unlike last time. “This time around, I mean look at this data,” he said. “Look at how outsized all these numbers are [$8 trillion as of Wednesday] and how volatile everything has been. I think we’re going to have to be more state-contingent than we have been in the past.”
The official discussion about how and when to taper the asset purchases started on Wednesday – Powell already said that. Powell pointed out repeatedly that the Fed will end QE before it starts the rate hikes, same as it had done last time, when QE ended in late 2014, and rate hikes started in December 2015.
But there is a big difference. Last time, inflation was relatively benign. The Fed’s measure, core PCE, was running at around 1.5%, and below the Fed’s target of 2%. And the Fed still ended QE and then a year later began the rate hikes. Core PCE didn’t rise to the Fed’s target of 2% until 2018, by which the Fed had already started quantitative tightening (QT, the opposite of QE).
Now core PCE is at 3.1%, the highest since 1992, and the pace over the past two months was much higher, the hottest since the 1980s. And this is what we’re seeing now: The schedule of ending QE and hiking rates is getting tightened up.
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How fragile is this market? The idea of two rate hikes over the next two years, and people are freaking out? Has 0% just become the new normal? I guess bubbles are fragile….
Not sure, but I think 10 year Treasury market isn’t too manipulated and it’s telling you that a lot of people think collecting 1.5% nominal interest is an acceptable return. That is telling me that US economic growth and inflation is most likely going to be low.
The Fed buys 120,000 Million a month of federal paper (120 Billion QE) and you suspect it isnt too manipulated? I think you should rethink that one….
Maybe so. They seem to be at around 25% ownership of treasuries, but to me the market is still dominant at long end. Anyway if people thought economy was going to be hot enough that inflation was going to average 5% over the next ten years, I don’t think they would be buying treasuries at 1.5%.
When the Fed buys bonds at US$120 billion every month, it will become a weapon to raise interest rates. A large amount of US dollars will return to the United States. China, which has thrown out a large number of long-term US debt, will have even more shocking domestic inflation and bravely sell. The Chinese stock market embraces US dollar assets until the Chinese bond market and the bank fail
” a lot of people think collecting 1.5% nominal interest is an acceptable return.”
Yes, including many foreigners. In Europe, lots of 10-year yields are still negative! In Japan, it’s close to 0%. So 1.5% sounds pretty good.
Here is fact – in Europe, if a person has >100K Euro cash balance in an individual brokerage account (like at Interactive Brokers), that balance is charged a negative interest.
So only option to avoid the negative interest is to stay fully invested.
OR – to pay the minimal negative interest if there is enough believe that the bubble is so inflated that the probable capital loss may be magnitudes larger…
Wolf, don’t your regular “but who bought all this debt” articles routinely rule out foreign purchases (with the exception of tax haven based corporate holdings) and point to domestic investors as the main buyers?
Steppenwolf,
These articles don’t “rule out foreign purchases.” They tabulate them. The chart below is from my latest article on this topic. Foreign entities hold a record of about $7 trillion of US Treasuries (black line). But because the total debt has surged so much, the foreign share of the total has dropped (red line). And yes, domestic entities, including the Fed, banks, and many others have been buying most of the new issuance.
https://wolfstreet.com/2021/05/17/who-bought-the-4-7-trillion-of-treasury-securities-added-since-march-2020-to-the-incredibly-spiking-us-national-debt/
UST 30Y @ 2.017% sound even better,due to capital gains.
Notice that the 30Y and the 20Y @ 1.968% are about to flip.
The markets are either fragile or they’re not. If they are fragile it’s because the Fed put is dead, which I seriously doubt. Even if they raise interest rates the Fed has shown they are hell bent on inflating asset prices.
Yield curve control will take the edge off any potential rate hikes, and let’s get real – all the Fed mostly does is jaw-bone the markets. There may not be any interest rate increases at all.
Many are assuming that COVID is over and there will be no more Fed intervention. We’ll see in the fall if COVID is vanquished. This summer looks remarkably similar to last summer. We’re still in a bad news is good news market, so a resurgence of COVID would be rocket fuel for the markets.
This summer isn’t remotely like last summer. Most of the country was completely locked down last summer, there was minimal air travel, and no one was vaccinated. Now about 1/3 of the country has been exposed to COVID-19 and half have been vaccinated, with the exception of CA, the whole country is wide open, bars, airlines, restaurants, and COVID-19 rates are still very low. We are definitely on the way back to normal.
Fed Funds were 4% when the Dow made its high in 2007
Fed Funds were 2% in late 2018 and it cracked the market
Now, if Fed Funds went to 1% the world would end.
Fragility increasing the more the central bankers become involved…the more they work the game.
Since 1954, and until 2007, Fed Funds equaled or exceeded inflation.
That was the “Historical Norm”.
That would put Fed Funds north of 3% right now….and would help to snuff out this inflation…
But THIS FED SHIRKS THEIR DUTIES….and promotes just the opposite of their mandate of stable prices.
So we have 5% inflation…..now 2% looks good according to Bullard.
0% is your mandate.
Someone should be arrested IMO.
The equivalent of spraying WD40 on your rusty floorpan.
Central Bankers helped get us to this unpleasant state. Now they say they want inflation above 2% with the three main buckets for investors all terrible choices if you’re thinking about 10 year holding period.
1. Cash yields 0%
2. 10 year Treasury yields 1.5%
3. SP500 yields 1.4%
Yes, it is that fragile. Current asset prices are only justifiable if you assume a 0% discount rate FOREVER. So anything that makes it seem as though those rates WON’T be forever causes a tantrum.
Plus, of course, that a 1% increase to a 3% mortgage rate has a lot more effect than a 1% increase to a 10% mortgage rate.
Add in that the longer it goes on, the more people become normalised to it, and therefore start behaving as if it can never change. Human brains are wired that way.
I am starting to see cashing out in the home market, even for people that really were not looking to sell. The run up in prices is just too much.
Right. Especially when you consider that many people who wanted to sell have not because “prices are only going to go up more!” This also explains many investors buying properties to keep them empty. Once the dynamic changes, it changes very rapidly
1) In real terms, the best opportunity to buy a house was in 1995,
below the 60’s & the 70’s, thanks to Jim Wright and John McCain
S&L crisis between that lasted between : 1986 and 1995, when 1,000 out of 3,200 banks were gone.
2) The high inflation of the 70’s and the 80’s was receding in the 90’s.
3) In 1989 when the dollar plunged, the Nikk peaked @40,000 and Tokyo RE landed on the moon, US RE nominal prices reached a peak, above the bull run that started after John Glenn 1969 until Nixon 1973 high.
The fall of 1982 was the best time to have bought a house in Canada. Home prices depending on the city have risen as much as forty fold from 1982 to today. From 1987 home prices have averaged a 5 fold increase in the expensive parts of Canada. In some of the satellite towns in the golden horseshoe home prices have risen 100 percent in the last 15 months. The main driver has always been the Chinese.
Nanaimo on Van Isle BC has had a more violent upturn than Vancouver in past 3 years. My house that sold in 2014 for 370 rose to about 500-600 3 years ago would now be close to a million. There are very few Chinese here. My house sold to Albertans.
Mortimer’s Twitter site re: Van is full of props bought 3 years ago selling at a loss. It would be impossible to find such in Central Van Isle.
Personally I think the inflation numbers ( which I don’t believe generally ) are transitory.
Real inflation have been quite a lot for last 10 years or so if you look into cost of health care , education, housing rent, insurance etc etc but FED overlooked it deliberately.
I am interested to see the inflation when the stimmy checks run out, un-employment benefits run out, free bees run out, mortgage moratorium stops, rental eviction stops, supply chain disruption comes back to normal etc etc.
Jerome, is that you?
Where is that hilarity emoji?
When central bank economists speak, I always wonder what is jawboning, what is smoke and mirrors and what are really their understanding of the economy.
They say they use development in different price indexes to adjust interest rates and monetary policies that may, may not or to some degree couple to the variables they adjust. Next, the adjustments they do, how effective are they at reaching the goals that the mandate tell the central bank have?
There can be serious doubt when looking back at what was said, done and did happen.
“When central bank economists speak, I always wonder what is jawboning, what is smoke and mirrors and what are really their understanding of the economy.”
Jawboning – “I think it’s natural that we’ve tilted a little bit more hawkish here to contain inflationary pressures” – preparing the market – like telling the market not to overreach – even better start falling slowly, No more higher highs.
Smoke and mirrors – “He justified pulling the rate hike into 2022 by his inflation forecast.” – Nothing is written in stone. If the market behaves like does not tank this may apply. For the Fed everything is a moving goal post.
Their understanding of the economy – They have been too generous with printing and thus in a hole.
Believing it’s possible to micro manage a $20T+ economy composed of 330MM+ participants which isn’t even a closed system is the height of hubris and ignorance.
They actually have no clue what they are doing. Everyone knows that the individual participants if not part of the FRB wouldn’t, yet somehow collectively they have some “secret sauce” where they can collectively direct the future. It’s idiocy.
Two things create this illusion. One, the rapidly eroding wealth of this country which is being eroded if not incinerated through their mismanagement, that of of the politicians and the overconsuming public. Second, collective confidence by market participants, just like in the Wizard of Oz.
When collective confidence evaporates (whenever that is), nothing the FRB can do will keep this unprecedented mania from imploding.
My health insurance premiums went up 22% this year. No way health costs skyrocketed at third-world inflation rates. Complete money grab.
We are going to pay for the cost of covid. Did you think the insurance co was going to come out of pocket?
Not the vaccines but the hospital stays, long covid, medications …
Responsible taxpayers have to subsidize the people who won’t wear masks or get vaccinated so they can spend six months on a respirator and then cry Covid is a hoax with their dying breath. America truly is fantasy island.
Health Care spending went DOWN in 2020, everyone avoided elective care, this has nothing to do with the cost of COVID-19 treatment, those costs were substantially less in most areas than run of the mill elective spending.
My BC/BS out of pocket premiums went up nearly 10% this year. As a Federal retiree the government pays 2/3rds of the actual premium. If they didn’t do that I would heading for the poorhouse real quick.
That means taxpayers pay another 1/3 and the other 1/3 is added to government debt
I agree. So does Mish Shedlock.
Wolf, do you have any upcoming analysis on the shifts in trade balances between the US and other countries?
We spend a great deal talking about the fed and monetary policy here but seldom do we have conversation about how trade drives demand for dollars
Broad, quick take analysis on intl trade…
US has been doing horrifically for decades.
Post C19, US did somewhat worse in 2020.
Given the US’ horrible multi decade trade deficits, I don’t know that intl trade per se accounts for dollar “demand”.
It isn’t like foreigners are chasing US dollars to buy *our* exports (compare Chinese Yuan)…if they were, the US would not have these horrific trade deficits.
To save time, China, Mexico, and Canada are disproportionately the source of US imports…looking at just those three countries cuts down on the amount of necessary analysis (and China is really the vast majority of the story).
(Note – Europe (in aggregate) is a huge trade partner…but the number of countries make detailed trade analysis time consuming). Unified Euro usage simplifies things a bit, since interest rate policy/currency manipulation plays a big role in intl trade).
When we buy Chinese goods, we pay them in dollars. When they take those dollars, they have to convert those dollars into CNY. Because demand for CNY > USD due to this, the Chinese central bank prints CNY and takes those dollars to clear the demand for CNY.
The Chinese central bank then buys UST, which increases demands for those bonds…
So that is a big driver of demand for dollars and the reason why trade deficits drive demand for USD
Peanut Gallery,
I’m afraid that elegant theory has long been kaput. China can buy with those dollars whatever its wants, US LNG and wheat, Saudi crude oil, German factory equipment, Japanese chips, Australian iron ore and coal, Russian natural gas and petroleum, French luxury goods and fake Bordeaux…
What it is NOT buying are Treasury securities. China has REDUCED its Treasury holdings to currently about $1.1 trillion, down from $1.25 trillion in 2015:
PG,
“The Chinese central bank then buys UST, which increases demands for those bonds…
So that is a big driver of demand for dollars and the reason why trade deficits drive demand for USD”
Even leaving Wolf points aside, I’m not sure you are persuading me that huge trade deficits in China’s favor actually increases demand for *dollars* vs. US Treasuries (not really the same thing).
I mostly agree with your USD-For Chinese Imports-Converted To Yuan-China CBk buys UST- model but contrast that to an huge oil exporter that would demand pmt in its own currency (theoretical). The demand for *its* export goods (the oil) would drive up the value of its domestic currency (needed to buy the oil).
But, the US, being in a multi-decade trade *deficit* position, could/should drive up demand for the *exporters* currency.
To the extent that exporters prefer pmt in US dollars (blind nostalgia, misplaced faith in US, worse distrust of own gvt stewardship of own currency, etc) then the currency demand forces get unpredictable.
But…at the end of the day, I am betting on the country (and its currency) that has all the factories vs. The nation with bales of paper money, political class bullsh*t, and little else.
In the long run, producer nations’ currency will be much more in demand than consuming nations’ currency…in the long run currency must follow the goods (it is good for nothing else).
The US’ abundance of (aging) real capital, raw land (which even DC can’t destroy), and legacy role as half-assed global central bank, keeps the US dollar in demand (or at least tolerated).
But the clock is ticking…money demand must always follow the source of product supply in the long run.
I’ll believe it when I see it. The only tapering happening in this country is on mullets in Tennessee.
Ok, how do I get off this crazy train? The conductors clearly don’t know how to handle the throttle, and feels like we’re going off the rails.
In fact, I suggest Ozzy as next Fed Chair. He has the right experience with crazy trains, and his press conferences would be more fun to watch.
Buy Physical Gold in small steps, as it falls. Please google:-Gold and Basel III
I wonder if one of the reasons for suggesting future rate hikes is an attempt to suppress gold now that manipulation using paper gold will be more difficult following Basel III.
Hey wolf, would love to hear your take on this upcoming Basel Ill.
I want to believe it will allow gold to move more towards fair value, but 10 years of watching this sh!t show makes one sceptical.
Without paper shorts they loose their tool surely?
In a 1999 report by the IMF they concluded that interventions in financial markets would have the greatest impact only if such activity was not known by the public.
Possible tools:
Delay the release of information.
Bury trading activity in reports with other financial activities.
Don’t report the activity.
This only works if there’s huge trading activity in paper gold. So if Basel 3 survives they would have to scroll further down the list to more shady activities.
It turns out that the federal government has such a list of shady activities.
The Treasury could use the Exchange Stabilization Fund. This is a relic from the Great Depression. The law under which this was created authorizes the government to secretly manipulate the price of gold.
Get other central banks to liquidate some gold reserves. This would make more physical available t o private banks to augment their Tier-1 reserves to meet Basel 3.
Central banks could increase gold leasing and swaps. This would be very effective if they could avoid reporting the activity or just refuse to disclose it. (More on refusing to disclose below)
The BIS could also use its gold swaps to create the appearance of acceptable Tier-1 reserves in private banks.
And of course this could never happen: The government could simply engage in secret trading to fraudulently expand bank reserves.
This isn’t tin foil hat stuff. In September 2019 the Fed injected liquidity into the overnight bank loan sysrem to the tune of $6 trillion. Although under Dodd-Frank they have to inform Congress of the identity of which banks received the loans and what amounts, they have repeatedly refused.
What can you do when the Fed openly breaks the law without consequences? As we’ve been constantly reminded on the blog it openly ignores its mandates.
I agree with Jefferson: “banking establishments are more dangerous than standing armies; & that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale” .
Welcome to the Matrix.
Michael Gorback,
“In September 2019 the Fed injected liquidity into the overnight bank loan system to the tune of $6 trillion.”
That was popular fiction you picked up on some ridiculous brain-dead blog (I won’t name it here) and fell for. The WSJ too had a young reporter who kept saying the same garbage. Those were repos. Repos are in-and-out transactions. And these brain-dead morons just added up the “ins” and didn’t subtract the “outs,” and then produced these huge numbers in the headlines that people got all excited about. It was just brain-dead clickbait.
I finally got tired of this BS and shot it down, by explaining how repos worked, which ended this nonsense:
https://wolfstreet.com/2020/01/10/the-wall-street-journal-and-other-media-should-stop-lying-about-repos/
The amount that the Fed injected during the blowout peaked at $260 billion at the end of December 2019 and then declined until the March collapse came, when the Fed briefly injected cash via repos before the other methods took off. It then changed the terms of repos which made them unattractive, at which point they dropped to zero. Here is what those repos look like from the bailout starting in Sep 2019 till now.
Those who have been advocating gold have been wrong more than once this year. Last time it reached peak was around 2010. Now it cannot even stay above 1800!
Gold is just a trade just like oil and commodities. Options are the way to go with hedges. Buy & hold = BUY & HOPE!
I am from India, In Indian Rupee terms, Physical Gold and Silver have risen significantly from 2010 levels.
Due to covid-19 restrictions, purchasing these two from jewelers is less.
With Debt of Nations rising, Gold has to rise.
Paper Gold and Physical Gold are different. Ditto Silver. Holding tense two in Physical form has benefited me. And I never mentioned Buy and Hold!
A stunning tour de force of ignorance.
1. Gold didn’t PEAK in 2010. It crested in 2011 at $1,895.
2. It then dropped significantly by about 1/3 to a nadir in 2013, until it PEAKED about a year ago at $2,062.
3. It has since retraced to the $1800 or so level. Given all the hysteria in recent times gold, which is a barometer of fear, has been volatile.
4. Going back 20 years gold has outperformed the Dow and the S&P 500 by 600% vs 200%. Did you forget about those little air pockets called the dot-com bubble and the GFC?
5. Silver was up almost 800% between 2001 and 2011. Gold was up over 500%. The Dow and S&P were up about 14% and 1.5% respectively.
6. What happened? Draghi happened. In 2012 it really looked like the whole mess was coming to its logical conclusion. The fear was in the air as reflected by PM prices.. Then Mario Draghi gave his famous “Whatever it takes” speech and the Draghi put took over from the tired Bernanke put.
7. Gold and silver tanked. Draghi had spoken and we were saved. BEST. JAWBONING. EVER!
8. Now let’s look at just 10 years ago. Since Draghi gold has gone nowhere and silver is down a lot. Meanwhile the S&P is up 200% and the Dow about 150%.
9. Shorten it again to about 2017. Silver and the S&P are running neck and neck (about 60%), as are gold and the Dow (about 47%).
10. Going back one year silver is the winner at about 50%, the large caps are up in the upper 30s and gold is is hobbling along around 5%. Silver doesn’t always track gold since silver is also an industrial commodity.
11. You want to know what really kicks the living crap out of everything? Compound interest. Large caps with dividends automatically reinvested are off the scale.
Time IN the market beats timing the market.
Finally, what has happened to the ruble, yen, yuan, GBP, bolivar, Zimbabwe dollar, etc?
In the last two decades gold has gone from about 30,000 yen to over 200,000 yen. How about the Zimbabwe dollar? Trick question. The correct answer is which of the four Z$ are we talking about? Euro vs gold in the past 2 decades? Gold is up about 400%.
Now inflation is rearing its head so gold goes . . . . down. But that’s a subject better discussed elsewhere.
So you go play with your options and don’t bother the grown-ups.
From 1970 to 1980 gold outshined other investments. There were also times when gold was merely a heavy weight that brought down the performance of a balanced portfolio. Real estate, common stock, bonds, and commodities are alternatives. The current president built a big house as a hedge against inflation. It did not solve the problem of lack of affordable housing. The previous president developed expensive real estate projects not classified as affordable housing.
Become your own central banker.
“The Best Way To Steal From a Bank is to Own One” – that’s a book
Not just any book. It was written in 2005 by Bill Black, who put hundreds of bankers in jail after the S&L crisis as opposed to, well, nobody after 2008. It was also the title of his thesis in the 90s.
The original statement was by the Head of some California banking commission in 1987 in a somewhat variant form.
You can read his book but you’ll probably need Wolf to translate it.
Black is a true hero. He accused then-Speaker of the House Jim Wright and the Keating Five (including John Glenn and John McCain), of doing favors for the S&L’s in exchange for contributions and other favors. Jim Wright was a known scumball but back then Glenn and McCain were icons. They received a stern talking-to.
In 2009 Black appeared on Bill Moyers Journal. He flat out said that the crisis in 2008 was essentially a Ponzi scheme and that the “liar loans” were illegal frauds. He said the triple-A ratings given to the liar loans was a criminal cover-up.
Black also pointed out that after the S &L crisis a law was enacted that mandated putting failed banks into receivership (Prompt Corrective Action Law). Didn’t happen. Those banks were quickly sent to foster homes.
Black also predicted that sweeping it under the rug would prolong the problem and we’d end up like Japan.
He accused Timothy Geithner of conducting a cover-up.
I remember watching him on TV in 2009 and asking myself “Why don’t we make him King? Or at least call him back from his farm like Cincinnatus?”
Thank you, Michael Gorback. I was generally familiar with what you wrote but not with as much detail as you provided.
BTW my memory changes things, actual title is The Best Way to Rob a Bank is to Own One.
It often amazes how on so many occasions folks of different teams can agree on important issues. For example my Dad a life long red team’er, said to me regarding the S&L crisis “McCain probably should have gone to jail for that.”
MG,
I was at Bear Stearns during the S&L crisis, instead of fearing for their jobs, they made a ton of money off of the Resolution Trust Bonds. This was after 1000 banks in Texas went bust, and entire housing developments were razed because there were no buyers.
This is when the banksters lost their fear of regulation. After the deluge, they made even more money. I see the real estate mania and expect it to end the same way. Little guys lose houses and savings, banksters get bailed out again.
Petunia,
Yes, but at least some of the S&L guys went to jail, including Keating and Knapp who were among the top dogs of that fiasco.
They overshot maybe on purpose. Now they begin to reign it in. We are seeing a successful navigation of the financial nothing burger here. No mass riots, evictions, starving or other extremes that we see in the photo’s of the first US Depression. So wouldn’t they the .gov get to claim a huge victory lap if this was over tomorrow. They saved the day in their eyes
When this COVID started I thought we were heading back to 2008 type crash. That did not happen. Fed action saved our bacon
I think vaccines, the internet, and social distancing saved our economic bacon. And let’s be real, the pandemic should have been over in 3-4 weeks, if Americans had any sense at all.
All the Fed did was blow yet another asset bubble, this time with helicopter money superchargers.
But you’re right it might be intentional. The Fed’s apparent mandate is to keep fighting economic gravity, and perpetuate our fiat ponzi scheme indefinitely. I wish them luck. Future historians will not be kind.
Agree on the 3-4 weeks. If everyone had just hunkered down and socially distanced for 3 weeks, in addition to sealing the border, COVID would have been gone.
Over in 3-4 weeks? That’s a complete fantasy. There isn’t a free country on earth that did this. You are delusional.
Because drawing all forms of demand forward is creating a big air pocket below.
There are always some damage during a recession, but Fed policy of easy money to fix everything just trades less pain now for less economic growth in the future.
Carrying around debt burden of 4X GDP is going to ensure long term growth is just hovering around 1%. With 1% population growth that means per Capita income will not be growing.
Maybe redistribution will soften the reality a little, but it’s going to be a fight to keep your share of the pie from shrinking.
Or your share of the pie remains constant but the pie itself shrinks. If it’s your share that’s shrinking there’s some hope you can find a safe haven. When the pie is shrinking there are no safe havens. I think that’s what drives everybody nuts.
I’m currently 97.5% cash. I don’t think it’s a safe haven. I expect to be hurt. I just HOPE it’s less pain than the alternatives.
Basel III has kicked in. Hence Gold price has to be suppressed ,willy nilly .Otherwise the Banks will be in trouble.
Basel kicks in at the end of the month. Don’t hold your breath. The US government, Fed, IMF, Comex, LGBMA , central banks and private banks have a a lot at stake. They could always push back the date while they work to kill it.
LBMA. Not LGBMA With all the letters being added to the gender lobby I get lost.
Barrick Gold just paid a lofty 0.23$ per share (consiting of a 0.09$ quaterly dividend and 0.14$ extra from sales of assets). That’s a soothing 4.4% annual dividend.
Barrick is net free of debt, has a strong management.
They were planning the 2021 budget with a 1700$ average gold price, so at a 4.5m ounces an addition $150 fopr every ounce of gold should provide a potential around 750.000.000 US$ additional free cash flow. So the 4.4% dividend looks very safe.
With potential upside to fair value compared to S&P dividend levels the stock could double from where it sits. That’s a pretty good hideout in the current market. cheers.
Residential rental vacancies are being filled in San Diego at 10% higher than previously rented a year earlier, and that’s somewhat of a conservative estimate. Sure seems like we’re in double digit inflation already, not just rent, but everything. I’m not old enough to remember the 70’s but those who are keep telling me the same thing, that this is the 70’s again. It will be interesting to see what happens when all the govt money stops and folks have to go back to work just so they can feed themselves. All that disposable income will come to a screeching halt.
” … that this is the 70’s again.”
Uh, no.
Today’s inflationary regime may sort of resemble 1970’s economic problems, but it is by any measure far more menacing today.
In 70’s we were a more self-reliant, law-abiding populace, more united than divided like today, with our manufacturing base intact, and debts public and private were nothing like today, So really, not comparable eras.
This time around will be a humdinger.
Yep!…..sadly
The famously crime-free and non-contentious 1970s America.
I moved to Detroit in 1974 for a job, just after the late 1960’s riots. Yeah, it was a peaceful time. And once there, the economy started crashing.
In the 70s central bankers FOUGHT inflation.
Now, they promote inflation…
see the difference?
?❤?
And don’t forget, we really do have inflation today. It’s just that the measuring of inflation has be corrupted over the intervening decades.
So what you wrote could read:
In the 70s central bankers FOUGHT inflation.
Now, they promote inflation EVEN THOUGHT IT’S ALREADY HERE AND HAS BEEN FOR A LONG TIME…
see the difference?
I would alter that a bit, historicus, and rather say that in the 70s central bankers COULD still fight inflation, and today they can’t (at least not without imploding the financial system). Therefore they must very cautiously promote inflation in some delicate balancing act whilst they yet try to maintain some degree of confidence.
“law-abiding populace, more united than divided like today”
Hmmm, not sure which 1960s – 1970s USA that Heinz lived in.
The one I lived in included the murders of JFK, RFK, MLK, Black Panthers, Malcolm X. I also recall federal courthouse bombings, cities burning, Vietnam War protests, Patty Hearst kidnapping, planes hijacked to Cuba, American Indian Movement, NY City near bankruptcy, gas stations with no gas, etc. etc.
It’s downright scary how easy it is for the establishment media to airbrush history into a nice comfortable pastel shade of nostalgia and amnesia.
Nobody is whitewashing the problems that era– there were plenty if you care to look, as is the case in any historical period.
Of course to try to prove your point (which might be that today we are better off because we are so much more virtuous and wokeup than in those ‘dark ages’) you trotted out cherry-picked cliche events of that era.
Some people choose to remember only the negatives.
H
You may be right about US but UK 70’s was a lot like you’ve got now, complete with riots and rubbish in the streets. collapsed businesses, etc. The jury is still out on whether it’s temporary Covid or long term structural.
We had to go to the IMF for a bail out and they put strict conditions on economic management. UK recovered but as a fundamentally different country. You’ve got a reserve currency and you control the IMF so the electorate are the only people who can impose discipline on your politicians.
Outcomes are caused by Governments and people get the Governments they deserve in democracies.
Given that the BEA started collaborating with IBM to introduce hedonic quality-adjusted price indexes for computers and peripherals in the mid-1980s, comparing the inflation in today’s hedonic quality-adjusted price indexes to the inflation in the traditional matched model price indexes of the 1970s is not an apples-to-apples comparison. It could very well be that inflation has been somewhat higher than the 2% rate so often touted by the Fed if the matched model methods of the 70’s were used to calculate the price indexes in lieu of hedonic quality adjustments.
We had 3.6% inflation in May, Canada. But we also include fuel and food numbers with calculations.
A reply to Peanut, your biggest trading partner had a 75 cent dollar last year, and it is now 84 cents. This might help us a bit when food prices skyrocket due to prolonged drought this summer. In the winter fresh veggies and fruit are bought from the US. We may even buy more US goods, although there is a domestic incentive not to unless tariffs are eliminated.
Our trade relationship is about 2X what the US trades with China. Don’t hear about it much, it’s always China China China on both sides of the border.
Regards
One has to find a Scapegoat for their own failings. ( Ignorance, stupidity and pride.)
Paulo – we may not say it all that well, or often enough, but we U.S.’ns very much appreciate Canada. Thx for your business, and thx more for your friendship.
Paulo,
The US-Canada trade relationship is roughly in balance. That is how trade is supposed to be. Sure, there are squabbles, but Canada is the best trade partner the US has in terms of the balance and the magnitude. That’s why it’s a non-issue.
The US has a slight deficit in the goods trade with Canada, as the chart below shows, with US imports in red and US exports in black. The US also has a services surplus with Canada (not shown), and so the overall trade balance is about even, which is how it should be.
Now compare this to China, and you’ll see why China (Corporate America) is the problem:
Wolf of course beat me to it and said it far better than I ever could. No deficit with Canada.
Yuge deficit with China…
I always look at the country of origin of virtually every non-grocery store item I buy, for example hardware, auto parts, tools, etc. 90% it seems is made in China, including brands that are traditionally American. And if not China, then Mexico. On rare occasion somethings are made in the USA.
Seems like a self-inflicted wound.
America leads the world in self-inflicted wounds! Yeah baby! U.S.A.! We’re Number One!
Seriously, how many problems that the country currently faces is of its own making?
This chart doesn’t include weed smuggling in from Vancouver. The trade deficit is a lot worse. Samevfir our trade deficit with Mexico, Colombia, etc.
Pot growing is legal in WA and south from there. Wasn’t WA offering free dope as a vaccination incentive? :-)
To your point, we are sure seeing a lot of gang bangers shooting each other with illegal guns here. Well, by our standards anyway. Anyway, the guns come across the border, Covid or not.
For us the nightmare is Fentanyl from China. I think it comes in by mail and trade packages.
Re: Canadian pot, you are talking 10 years ago. See a bit I wrote on pot for WS in Oct. 2018. Oregon went huge into pot biz, gave out many outdoor licenses for big farms (illegal in Can). There are tractors on pot farms there. The state had planned to act as buyer/middleman, ended up with a million pounds in inventory. After a thousand licenses it abruptly stopped new ones but rest are legal.
As for Mex schwag, can you give that away down there? (Jees, spell check clears ‘schwag’!) Or do you mean cocaine? Well that is part of the invisible deficit I guess, but can also be filed under ‘self- inflicted’
Michael Gorback,
You mean US weed being exported to Vancouver? The US West is a huge producer of weed starting in Northern California and going north. Weed production is a booming business here. There is now a glut of weed. So why would anyone want to import it? Export is the ticket.
1) A strong dollar will cut US trade deficit with China by half.
2) A strong dollar suppress oil prices.
3) The car business is peaking, because prices are too high for consumers.
4) Canada will export less cars to US in the next few years.
5) Canadian oil co will accumulate more and more stronger dollars in the future.
5) They became almost invincible, after the slump.
6) Since US oil rig count is down, Alaska in the freezer and the XL pipeline project is dead, Canada Trans Mountain pipeline (TM) expansion will see action, in 2022.
7) TM pipeline is an option :
ship to US by railroad, or ship to China, for stronger dollars.
8) Canada will railroad US and WSC minus WTIC will flip > zero.
‘A strong US dollar will cut US trade deficit’
How silly all these years were all those people arguing about competitive currency devaluations. (The original mandate of the IMF, before it became a lender was preventing those devaluations.) All a mistake. You have discovered it’s currency appreciation, not depreciation, that makes a country’s exports cheaper and imports more expensive, thus improving its trade balance.
The Fed talking about rate hikes is like Lucy with the football.
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.”
— Tommy J
So Fed ‘dove’ Bullard is now flapping his gums a little about inflationary pressures mounting and possible need to taper.
Is there a Fed Watcher’s guide that will help us understand what these Fed creatures really mean when they speak publicly, or is it all really Kubiki performance with subtleties, hints, and nuances meant to intentionally befuddle or mislead outsiders?
For instance, his reference to their ‘inflation goals” as if they were sacrosanct and engraved in stone. I wish a prominent public figure would finally stridently call Fed out on their preposterous inflation targeting posture.
I doubt Fed members have a free rein to speak their minds in public– I suspect Powell draws a line in the sand for what his minions may say at any given time.
Bullard said he might favor a more rapid reduction in MBS purchases. “We don’t need to be in mortgage-backed securities with a booming housing market and even a threatening housing bubble here, according to some people,”
“according to some people.” Really Bullard, are you that afraid to admit it is a housing bubble.
Fed should stop discussing taper and just end MBS purchases outright, today. It serves no useful purpose and only fuels the flames of raging housing mania to a dangerous level.
I have learned in life that in the USA anyone can say nearly anything and it’s just hot air unless it’s in a legal contract. Believe these central bankers at your own expense.
“Fed should stop discussing taper and just end MBS purchases outright…” Exactly. Just Do It. They act like they’re all owned by Wall Street. (They are of course)
“They act like they’re all owned by Wall Street.”
Who is the Fed partnered up with again?
H
It’s like football, if the opposition know where you’re going to pass the ball they will block it and your move could fail. You have to ‘dummy’ and keep possession until you make your move.
Per Bullard, there “seems” to be a housing bubble?
A 1980’s home in my neighborhood with entirely original fixtures, cabinets, windows, etc., just sold for $400,000 over ask with 30 offers, nearly all of them without contingencies. And the asking price was high as a starting point.
Powell and Bullard, do you really think there might be a housing bubble? Gee, I wonder.
Hundred year old, 1 bathroom homes in LA going for $1,000,000.
Yes.
Imagine the capital gains tax on those sales! And the new property tax costs to the new owners!
When the everything bubble finally pops and decimates the US economy, I am curious how today’s FOMO buyers will be able to continue paying on those mortgages. With the economy in the gutter, many of them will likely become unemployed and those mortgages….seriously underwater. I suspect this would probably result in an awful lot of jingle mail as it did once before.
Contrary to what the narrative would have you believe, the large majority of mortgage defaults last time were PRIME loans, NOT subprime. And ability to pay had nothing to do with it. Willingness to pay was what was lacking. Once house prices crash and people are upside down – SEEYA. They don’t want the house anymore.
Depth, correct. And, yes, while most states are technically recourse, meaning that the banks can sue the borrowers who walked away for a deficiency judgment, the fact is that most won’t bother. The courts at that point would already be overloaded and the legal fees will make it not worthwhile. They might do so in a minority of cases where a well known person is clearly walking away from a mortgage he can easily afford, but that’s about it, in my view.
DC: read The Big Short. Whatever the actual or real validity of the US mortgages it is a fact that hundreds of billions rated prime were actually subprime. Way subprime. This is the driver of any short, finding something overvalued. But no one had ever found anything so overvalued by ‘reputable’ agencies that was this big. It was the prime rating that made it very cheap to do the short. At first the shorts only had a few million but got fantastic leverage.
Michael Burry (sp?) was first and Goldman was near last, but not quite. It was also on the wrong side of the short. When no more US suckers could be found, the question was: who would buy this sh#t? Answer: the Germans.
And they did. Very conservative German banks and states bought the mortgage backed bonds. Why did they do that? Because they were rated ‘Prime’.
M
was your post date wrong?
Should it have been 2008?
DC: on second thought I think you have a point. The subprime crash helped bring down the prime, and there was lots of prime.
An odd one comes to mind. That odd guy McAfee of anti- virus fame built an estate for 100 million, and in the crash it sold for 10 million. Probably the bank thought he was a prime credit.
If Hedge Funds continue to buy up real estate instead of Bonds or Stocks, then markets are going to wobble bigtime
Add in inflation fears and we are looking at a recession.
Let’s be honest, it’s way overdue.
Part of me wants to believe these large companies are going to ruin the RE for the normal people. Another part of me thinks back to what happened to Japan. If a company wants to buy up an entire master planned community and pay $1M+ for each unit then they will have to pay the property taxes, maintenance and cost for the loans. Eventually it all will work itself out just not in our time. Just breath. Pause. Think.
ND, companies paying tax?
In the 1970s, companies paid tax.
In 2021, companies are given huge tax refunds without paying any tax.
See the difference?
Broad, quick take analysis on intl trade…
US has been doing horrifically for decades.
Post C19, US did somewhat worse in 2020.
Given the US’ horrible multi decade trade deficits, I don’t know that intl trade per se accounts for dollar “demand”.
It isn’t like foreigners are chasing US dollars to buy *our* exports (compare Chinese Yuan)…if they were, the US would not have these horrific trade deficits.
To save time, China, Mexico, and Canada are disproportionately the source of US imports…looking at just those three countries cuts down on the amount of necessary analysis (and China is really the vast majority of the story).
(Note – Europe (in aggregate) is a huge trade partner…but the number of countries make detailed trade analysis time consuming). Unified Euro usage simplifies things a bit, since interest rate policy/currency manipulation plays a big role in intl trade).
Diversify to PR, Santo Domingo… Venezuela under Maduro.
So if inflation is still around 3 percent end of 22, and you believe in soft landings, what does the short term rate need to be to bring it down to 2 percent? Surely over 3 percent, and that’s the optimistic scenario! I guess some believe it will just go back under 2 percent by itself, ha ha, with that balance sheet?
nevnej,
Yes, this will be interesting.
The Fed’s current estimate for the long-run effective federal funds rate = 2.5%, per FOMC meeting documents released on Wednesday. A “tightening” cycle means short-term interest rates are higher than normal. Depending on how long it takes to get inflation under control, this could be quite a bit above 2.5%. Even a 3.5% federal funds rate, with CPI at 5.0%, would still provide “real” rates (adjusted for inflation) that would be negative, and therefor would still be stimulative, and would therefore still contribute to inflation,
But this time, the Fed has a tool it didn’t have before: the massive assets on its balance sheet. It could experiment with short-term interest rates that are less high than would normally be required, while at the same time selling some of its assets, which would push up long-term rates, and push down asset prices. This would probably calm things down in a hurry.
I think this inflation fight will be nothing like the last one (early 1980s). The book will be rewritten.
You had me going until you said “push down asset prices”. CPI is weighted to main street and if you tighten credit, make money more scarce, you are going to get main st inflation. Volcker was matching interest rates to inflation, which created equilibrium and both dropped to normal levels. The real rate of return on investment capital is still higher than inflation.
The DOW to Feb 24 high.
Bullard inflation : XLRE to Feb 25 high.
Back in New Zealand in the 70’s and 80’s you could open an NZ Post Office Savings account guaranteed by the government that paid 3% interest. Everyone had an account as they encouraged school children to open an account while at school. Imagine if savings accounts paid 3% today.
Sorry, I’m not buying the pretend super duper extra slow as molasses hawkish gradualism talk. The Fed has no credibility in my eyes. At the first Mr Market taper trantrum, QE will begin flowing again as if both polar ice melted all in a split second.
Timbers:
Have to agree with you on this one!
There is no political/economic/social courage left for a financial confrontation with the oligarchy.
All that went out the window in 08-09.
*******************
As far as the dollar being still “supreme” globally lots of politics, arm twisting, outright economic blackmail and the US military are involved. All well documented.
But, lots of others are getting better at parrying those forces and will eventually (aka history) overcome those powers and bring new currencies to be globally accepted.
Time is running out for the dollar and US policies that re-enforce it.
**********************
“Weed” vs exports: Maybe we have to resort to the British policy of forcing China to accept “weed” in trade??? AKA the “Opium Wars”???? The stronger militarily China becomes the more difficult it will be for the dollar to remain “supreme”…….The Commons certainly does not want a war with China but history tells us that there comes a time when the leading economic power is confronted with monetary destruction it will resort to war.
The only difference today is we have the weapons to totally destroy humanity. Do we have the ability to compromise????
Bullard is nothing more than a 1 day market mover so that Goldman Sachs and others can make a few hundred million on Monday/Tuesday. Janet Yellen does the same thing. David Tepper is really good at it too in certain markets. Nothing to get excited about. It is indeed a bit odd that he is the hawk this time, but same result, which is what is intended.
However, I am seeing a real job loss recession 18-24 months out. People will be shocked, but it will be a buying opportunity if you can stomach it, which most people can’t.
But isn’t it funny that ‘special’ people like Elon Musk may tweet something about BTC (depending perhaps on whether he was constipated or not on a particular day) and BTC market will jump or fall accordingly?
Put another way: if the Fed were actually serious about tightening, it wouldn’t be saying it will take years and years what previously has been done much more quickly, and it would stop thinking it must “forecast” it’s intentions to Walk Street and just do want needs to be done, go home and forget about it.
” So far so good” who the F thinks the present inflation is good ? You can tell that Bullard is talking about his benefactor’s , the Oligarch’s who don’t give a shit about the price of living . He sounds like Marie Antoinette who said let them eat brioche ( peasants coarse gruel ).
DR DOOM,
I read it more like a guy muttering to himself as he is in free-fall and just passed the 13th floor: “so far, so good.”
La Haine?
I’s not how you fall that matters. It’s how you land.
If the drop is long enough it doesn’t really matter much how you land, either…
To have a soft landing you must first descend.
Seriously, the Fed must accept that there is no alternative to inflicting pain. The overextended always suffer in a pull back. They used to know this and many would keep a rainy day fund. Now those are all invested, but no one will starve when it comes time.
But it will hurt more now that the medicine has been delayed and the infection of speculation has spread to unprecedented levels.
And a good future view of the current FED, congratulations on the easy to understand explanation, Thanks Wolf
“Sometimes fallin’ feels like flyin’, for a little while.”
from the movie Crazy Heart
“the Oligarch’s who don’t give a shit about the price of living .”
That’s right.
Inflation is damaging. It steals the value of past labors (savings) and steals the value of current earnings.
When it is promoted, and promoted by those who are charged with “stable prices”, it is repulsive and diabolical.
It is remarkable that the Fed, which is allowed to exist with certain directives and mandates, can announce they promote INFLATION when directed to “stable prices”.
Inflation promoted in such a fashion is a TAX and only Congress can lay a tax, not an unelected body upon which we the People have absolutely NO REPRESENTATION.
Thus we have Taxation without Representation…..ring a bell?
Bullard is the only Bull in the China shop. He is the bad cop to Powell’s good cop. We all know everyone likes the good cop better.
Anyway, the Fed will never tighten in any significant manner. We all know that ship has left a long time ago. They might do a 25bps here and there but we will only see 3 or 4% when they have to defend the currency and by then it’s too late.
” … but we will only see 3 or 4% when they have to defend the currency and by then it’s too late.”
We shall see, but I think it is already too late to defend our currency in a meaningful way.
I would venture to describe Fed’s current dilemma in an analogy of the Fed and . guv as risk-taking pilots trying to land an airliner (US economy) in dense fog on one sputtering engine (MMT, massive debt/credit bubbles, and mania markets in disarray) , and with plane’s instrumentation, hydraulics, and electronics on the fritz (repeated fiscal and monetary policy mistakes).
Captain Powell, together with co-pilot Yellen are over-confident and flying blind– push throttles and yoke forward (QE/financial repression) to aim for where the runway should be. It is at that point, some 1000 feet from ground, when a black swan flies into engine inlet and shuts it down and plane goes down. Whether it is a crash landing or funeral pyre remains to be seen.
That’s where I think Fed is taking us now. Please fasten your seat belts and brace for impact.
Powell was a bad cop at the press conference too. He said all kinds of things off the cuff that fell through the cracks in the media. I might fish them out this weekend and post them, just for fun.
Wear protective gear if you do so.
1) Powell wasn’t confirmed for the next 4 years, for a total of 8Y,
because he is part of the other side team, which lost.
2) JP will be the cause of the inflation bust, whether it started in June, or later on.
3) The too much thinking of “free media” will not be aloud to project, analyze, to tell it as it is.
4) Swimming against a strong current, the trend, with the sharks, is dangerous.
Investors are like a bunch of cattle being herded across the old west. Fed cowboys riding around us singing cowboy songs to keep us calm. Can’t let the stampede start.
boy they talked the price of gold down 150.00. It’s either their jawboning or the market sees a slowing economy 6 months down the road. I think the latter. No rate increases just talk. More QE by Christmas.
J did say a while ago that they weren’t even talking about talking about an increase. So now he has. In a choreographed dance that would make Michael Jackson jealous he has done exactly what he said he would do. The other thing he promised is that he would spend us out of this mess using infinity. He did that too. Why all the hate for a guy who does what he says he is going to do?
Give the man a break. Honestly he is doing magic with the cards he was dealt and so far I wouldn’t call it Blackjack but he is beating the odds
Gold has had a HUGE run since Sep 2018 (+60%). All of it unrelated to the economy. Do you think this huge run has to keep going forever? I don’t think so. Huge runs are followed by sell-offs.
This is unrelated to the economy. There is a lot of speculative fever out there. People are chasing the latest craze. I wouldn’t try to find a rational explanation for this things.
Very right Wolf, gold is pure speculation like bitcoin, everything is pure speculation on the markets, and real estate does not escape it, whose price rises or falls according to the interest on the dollar. The only difference with real estate is that of having a roof over your head and for the government it is a safe source of taxes knowing that you cannot do without it, the good citizen always pays taxes.
Not a craze. Fear. You say inflation, people think of gold. You talk about economic collapse, people think of gold.
Dogecoin is a craze.
what I meant to say with — “There is a lot of speculative fever out there. People are chasing the latest craze” — is that people will sell one thing to make big bucks in another thing. We’re looking at paper gold here. There is nothing magical about these gold-based investment products. They’re just another make-money product that people buy and sell with the click of a mouse. People sell them after a 50% run-up and they buy cryptos or meme stocks or whatever to get that 5,000% run-up. That’s the motivation.
I was not talking about people buying physical gold and sitting on it forever. If you do that, you shouldn’t even look at the price of gold because it’s irrelevant for your purposes.
If you’re scared and you think the world is going to collapse, the last thing you’re going to buy is paper gold.
Gold definitely has different characteristics than stocks, bonds and real estate. Could make the long term case for having some just on the basis that it wiggles around in a different fashion than any other asset class and over very long term tends to go up. Short term it’s above my pay grade.
This is just my theory. Gold is ultimately tied to commodities like oil, etc. The economy transitioned from commodity based money a while ago thinking that oil will never run out. We are however in a stage where CHEAP oil have run out. That could mean that we will again transition to gold based money.
What about renewables? I follow some other blogs, and they all made a convincing argument that there’s not enough cheap oil lying around to make the transition to renewables. It’s the same old “in order to dig for oil, you need to use oil” argument.
The stage is now set. The others on the Board of governors has spoken, it will soon be time for the J team to find another J and for Powell to be thrown under the bus.
After all, Powell’s term is done next year, the rest of the J team has a scapegoat and it will need to save the member of the J team who has to get voter approval.
On the plus side, it’s another opportunity to blame the Orange. Cause JP was his man. His fault that everything is going down in flames.
Waiting now for the word from the Big Guy about loss of confidence in JP.
” … it will soon be time for the J team to find another J and for Powell to be thrown under the bus.”
Powell’s Fed Chair term is up for renewal in Feb 2022 and it is premature to guess what his fate will be. A lot can happen between now and then– a black swan may fly out of left field, for example.
If the ‘recovery’ is clearly in fail mode next year Powell may paradoxically be considered the only choice– as in aphorisms: ‘don’t change horses midstream’ and ‘dance with the one that brung’ ya’.
Consider, on the other hand, that if Biden decides to replace Powell after all, then his replacement may be even more risk-taking and reckless than Powell (if that is possible).
The setup is there, you’re right, this isn’t preordained just yet.
After all, if Jerome goes, the elected J would have to find another J to keep the name J team, might be hard for him to come up with a good acronym otherwise. Then, it just doesn’t sound good.
Or he might have to break some barriers here like Barack did, like finding a first LGBTQ chair or something like that.
Oh it’s possible. Kashkari for example. He’d be a perfect fit for the $6 trillion “infrastructure” crew. MMT by any other name.
Bead,
Kashkari is a Republican. He ran for governor of California as Republican candidate against Jerry Brown. I doubt he is in line for the Chair at the Fed at this point. Maybe Bostic or Brainard might have a better shot at it.
First name doesn’t start with J, that’s a problem. Let’s face it, it would be a problem if we somehow ended up using the last name, think about it, the K team. Three of them.
Just a bit different from Jerome, Joe, Janet. Too much bad karma. ?
More like kash n karry
“By the time you get to the end of 2022, you’d already have two years of 2.5% to 3% inflation, _ Bullard
Does he care to predict inflation at the end of 3rd and 4tf Qtr od ’21?
More likely 4% or more. Inflation (+expectation) gallop fas upwards, once the investor’s sentiment changes!
I was here in the early 70s, Then Fed Chairman Mr. Burns claimed just like now, that it is going to be transient but he was dead wrong! Mean while Yield on 30Y bond DOWN below 2% and slight rise in the shorter end > Flattening the curve! This is typically recession warning!? Both cannot be right. So I trust Bond in the long run. So deflation eventually. But hicupps of inflation along the way!
Just saw a number of gas stations here in the Swamp selling premium gas for $4.50/gallon. For someone with a large gas guzzling SUV that could mean a bill of over $200 just to fill up. What if gas goes to $6.00/gallon. That would make it $300 to fill up. This will be deflationary, as all the money shelled out for gas will not be available to buy other goods and services.
The active drilling rig count has been rising in the US and Canada. An Arab oil embargo in 1973 caused a recession. People had to wait in line for gasoline as it was rationed. With all the talk about electric vehicles; we are yet dependent on oil and natural gas. Global coal consumption has increased over the past 20 years due to strong Asian demand.
But the international drilling rig count is way down. In 2012 there were about 3,500 rigs drilling and today the count is 1,262. The delivery of oil in future years will be down.
He’d be “a little bit concerned about feeding into the housing froth that seems to be developing.”
LOL!
It is frothing already more than a couple of months!?
Seriously! Is the Fed only analyzing data from last December?
Fed would do everything to keep the asset bubbles inflated
Inflation is the way to reduce debt by decimating the currency and that is what they are doing
Nothing surprising here
Whatever it is worth, I an monitoring consumption based economy by monitoring a few key ETFs (like CRUZ, EATZ, BEDZ, Hail, Jets, PEJ etc. Again these are NOT recommendations. Do your own due deligence) These are my market markers of my own.
These cover air travel, hospitality industry including cruise lines,hotels/resorts, restaurants and mass entertainment. Except for PEJ, everything else is going down, in this ‘strong recovering’ economy. I pay little attention to the pundits or the Wall ST propaganda.
‘So far so good, but we have to be nimble here, these are big numbers,” he said.
The definition of nimble includes ‘quick’
A “Housing Bubble” is when housing goes up while most other items do not.
That is not what we have. Instead, we have widespread inflation because everything is going up. Everything, including housing, is going up.
The housing market just keeps getting stronger and stronger and stronger. The FED MBS purchases are not the cause of this. If they taper MBS purchases, home prices will continue to rise. Watch.
Do you actually believe the nonsense you post or are you a professional troll?
He’s high on his own supply.
I mean to watch someone say that the Fed’s MBS printing (I refuse to use their language of calling them “purchases,” because you don’t “purchase” something with money you print out of thin air) is not the cause of the housing market going up is just mind-boggling.
RightNYer, the main reason the FED was purchasing mtg pools was to make sure the OAS spread between mtg pools and the swap curve did not blow out like it did in 2008.
So, when they quit purchasing, the OAS spread will widen a little, and that will cause mtg rates rise a handful of bps, but that is all there is to the story.
It is possible the FED did not need to purchase mtg pools this time around ….
To my dismay, SocalJim can no longer be written off as a troll or parody account. He’s been right on the money when it comes to predicting housing prices. We’re the fools and chicken littles until proven otherwise.
Problem with real estate is it is correlated to business cycle like stocks. Yes they don’t behave exactly the same, but if asset bubble burst stocks and real estate will both go down. Will need cash or possibly treasuries depending on inflation/deflation outcome.
In an inflationary bust, the majority of real estate and some stock sub-sectors will hold up.
You are assuming a deflationary bust …
I agree actually. Him and Lawrence Yun have been proven right. The rest have been proven wrong.
During the previous housing bubble there was someone named SocalJim who said there was no bubble. Maybe it was a different person, or maybe not. I can certainly understand the business reasons for someone associated with the real estate sector to deny that bubble or the current bubble. For this reason, I cannot understand why anyone would listen to them.
Not me.
I believe SocalJim is hitting the nail on its head. The only thing that matters is relative pricing. Housing is not in a bubble. Housing is now a cash substitute. You only want to hold cash for short periods of time. If you need to park it, you buy something that appreciates 6% per year. Over many decades, everything has appreciated roughly 6% per year as shown in the Global Wealth Report by Credit Suisse. If you look at the ratios, housing is very cheap compared to the S&P 500 at the moment.
I think the Fed should have sold all their MBS last year as soon as it became obvious that home prices are about to rocket higher. The Fed’s job is to go against the trend. It’s too late now.
Regarding interest rates, I think they are and have been stuck at zero since 2008. The reason for this is shown in John Hussman’s “liquidity preference curve” chart where he compares the monetary base per dollar of nominal GDP to the 3 month treasury yield over-and-above interest on excess reserves. It shows that after 2008, interest rates were never raised in the same manner as prior to 2008. In other words, the safest bet you can make is that long-term interest rates will eventually flatline near zero in the future, just as they already have in Europe and Japan. It’s a big part of the reason why housing is effectively a cash alternative.
During the inflation bust Wolf’s blog will be busted too.
Thank you, Micheal Engel, for the encouragement :-]
When you need cash to pay your immediate expenses there is no substitute for cash. Otherwise you you have got to find someone to do a transaction with you to raise cash and when things go haywire that is difficult.
There have been several times if you bought at the top on stocks you had to wait 15 or 20 years to claw your way back to outperform t-bills so cash can be multi-year holding. It’s like air, when things lock up you can’t live long without it.
Pricing relative to income? That doesn’t matter? There’s an entire generation that’s being left out and it’s going to be politically explosive at some point.
Not everything ==> USD is down.
A lot of people may be worried about inflation, and its mark on the FED’s daily perceived antics, but on the other side of the equation, the current COLA for 2022 of SS and government pensions comes out to the tune of 4%. Will this, as other inflation induced adjustments, be a concern to the treasury’s and Fed’s plans down the road?
I looked at the Federal government s spending graphs last night. It’s pretty easy to see that they need to suppress interest rates as even at low rates the interest expense is large. But inflation running high doesn’t solve much of government’s problems as a lot of programs will grow with inflation.
Probably social security and medicare promises will be more means tested to try to control cost. It is a lot like a ponzi in that the government made promises that are not sustainable.
Right. As inflation runs high, it also damages confidence, which leads to less business activity (and thus, less tax receipts), lower employment and lower wages, all of which necessitate higher spending on government programs.
The idea that inflation is a solution to the debt is a joke.
These guys are IDIOTS. Even the shoeshine boy knows there’s been a raging everything bubble and roaring inflation, and just now the FED Is starting to get concerned? What kind of dark comedy is this, anyway? And who listens to these clowns? The FED is like a kid playing with matches in a dry field, who refuses to call the fire dept. until that once half acre brush fire has burned down half the town.
If a CFO increased everybody’s salary by 8% he would be hailed as a great leader by the company but despised by the Board of Directors. Almost every single property owner has benefited from these frothy times. They have made a lot of regular people wealthier than two years ago. Sure there will be a correction at some time. But right now people are able to leverage up and get the best rates on a mortgage since inception
Have you thought about that? Future tripping about what could happen doesn’t work in 2021+
You sound like Weimar Boy.
Why the drunk people in the BurgerbrauKing party were
complaining about losing TOLA, the new Weimer constitution, the expired art critics from Berlin, Mussel march in 1922…because they were too drunk.
There was a change of character in 1921, sealed by Kellog Briand
pact in 1928.
In 1999 and 2006 we had inflation near, actually less, than right now.
30yr mortgages were 6%.
The Fed buys MBSs and the 30yr is now 3%, 2% below inflation.
Never happened before.
The image of the Fed holding a beach ball under water comes to mind.
But why would they go to such efforts, so historically unusual, so economical unjustifiable? Lending money below the inflation rate for 30yrs….I guess someone will pay for this idiocy.
Yeah, and what good does that do for the 25 year old kid who has just gotten married, has an entry level job, and is trying to buy a house for his future family?
I don’t see a wealth transfer from the young and asset poor to people with assets as a particularly laudable goal.
Asset prices will have to be sustainable by long term income to stay elevated. Existing homeowners are winners if they sell high and are able to buy back at lower prices.
Same with refinancing. Refinancing at a lower rate is an opportunity, but it comes at expense of lower long term rates on your savings and eventually on stock market returns.
Fed basically rearranging how things look, but not doing anything for real economy. Just making decisions for market participants more complicated.
“Almost every single property owner has benefited from these frothy times. They have made a lot of regular people wealthier than two years ago. Sure there will be a correction at some time. But right now people are able to leverage up and get the best rates on a mortgage since inception.”
In other words, it is sheer speculative frenzy.
I agree.
Depth Charge
Maybe they are not as idiots as you think but they only do the dirty job of destroying the dollar in order to create the world currency after DST that is the cryptocurrency of the IMF which will not be based on gold but on the trust of the world central bank located in Basel . The dollar will be only slightly devalued like all other currencies maybe 50% to bring back the more realistic accounting, so that the rich will be less rich and the poor will be poorer for which there will not be much difference if you are already poor. This is the real program that no one will want to say verbally, the official word that with the globalization of the single world currency everyone will be happier with more prosperity, more trade and more work for everyone. More or less what was promised to the citizens of Europe 20 years ago and we have seen the results now in Europe where everyone has become poorer apart from the bourgeoisie (1%).
Running up debt and asset prices and running down interest rates is a one trick pony. What will they try next?
Reading that since covid r* or neutral rate is negative. No more nominal reward for saving in fiat.
Finally got my EIP stimulus check for $1,400 today in snail mail. Its about time. It will be spend on Tues for an implant crown which has an out of pocket cost of $1,475 after ins reimbursement. Ms Swamp got her’s about 3 months ago as she was on SSA and the funds were transmitted electronically. She said my payment was held up because I was seen at one of T’s rallies.
Swamp Creature,
I have to admit: You’ve got great dental insurance. My dental insurance only paid half of the crown that went with the implant. The implant itself was out of pocket. I coulda bought a pretty good used for that little thing.
Mrs Wolf Street says your stimmie was held up because you got caught reading this site :-]
The IRS still has not processed my 2020 tax return. I’m owed over $800. I usually wait until my Fed tax return is processed so that I can use it for my Maryland return.
My batting average has improved however. Two months ago I was 0 for 3. No vaccine, no EIP stimulus, no Fed tax refund. That’s called a strikeout. Now I’m 2 for 3. Not bad. Making progress.
I have a friend really needing the money and her tax return being delayed is frustrating. I always work it out where I owe the IRS just enough not to have a penalty.
Old School
That’s what I try to do but they never sent me my Dec $1,200 EIP, so I had to add the credit on line 30 of my Fed return to get the credit. Still haven’t got the 2020 return processed nor the credit.
You show up a lot on 321gold, and Bob Moriarty is pretty outspoken
It is almost funny. The prospect of a couple of 0.25% interest rises a few years into the future will end the world. This house of cards that they have built is so incredibly fragile.
I guess the guru on zerohedge had a pretty basic calculation that said the US economy could only stand a 1% short term rate before covid and if I remember correctly it’s close to zero after covid.
Makes sense the Fed and Congress throwing all they have to jump start economy. Doesn’t appear Fed will have any interest rate juice left when next recession hits.
The volatility was much appreciated. Smells like a rinse job to me. Or a head fake. The big techies will resume their march toward earnings; after that, who knows?
Yeah,
Please call me when my savings account keeps up with inflation. I’d be pleased with a 5% return.
I don’t think the Fed is the right institution to control prices. I think Congressional spending and taxing are far more efficient. Problem appears to me that we forgot the taxing part. All we want is tax cuts, and spending raises. You get bubbles this way because it’s all pro cyclical. Recall that the top income tax rate in the 1950s was in the 90 percentile. The last thing the wealthy wanted was to declare income. So they invested instead.
With lumber price dropping, is it possible that the flatiron could be temporary, no matter is 6m or 2y? Given fed past history, leaving moral hazard aside, Fed can act slow to protect the inflated asset price until it’s over, as long as it doesn’t trigger hyper-inflation which is very rare.
Why should the Fed protect inflated asset prices? Their mandate is to provide monetary stability. They should prevent asset bubbles from forming in the first place because these bubbles always pop and the damage they cause is always much greater than they economic “growth” that they generate before they pop. This is all well documented.
Because their unbridled hubris makes them believe that they can maintain the bubbles forever. So in their sick minds, the pop and damage you describe won’t happen.
On a related note, “Feds pour gasoline on housing market already on fire” with the subtitle “Despite surging home prices that are rising at the fastest pace on record, the Federal Reserve continues to prop up the housing market” is the front page article on CNN’s website this morning. I’ve never seen such mainstream acknowledgment of what the Fed is doing before.
That is an excellent title and surprising to see that coming from CNN!
Eventually, there will be a limit to how long they can keep the bubble inflated and the longer it takes before it pops, the bigger the damage will be.
But I agree with the hubris. The amount of group think is staggering in these circles. When reality hits, “nobody saw it coming”. Which is true in a way, because the fuse that lights the powder keg is likely something that few anticipated. However, the powder key itself was always in full view.
Good old CNN. There isn’t a curious bone in their entire corporate body.
More likely they are helping team FED lay some groundwork for future expectations.
Brings back memories of the official Soviet news agency TASS reporting in the 80’s
Bobby, as much as I dislike CNN, I don’t think that’s it in this case. I think the “elites” (of which the media is part of) realize they have finally overplayed their hand, and are trying to contain the damage before we get real civil unrest.
I could see it play out this way. Wages rise at 5%, but inflation rises 8% and then Fed will have to deal with it by tightening late this year causing asset bubble to pop. The Fed is crafty though and may figure out a way to keep it all going.
I think Fed raising rates is usually the pin to prick bubble.
yxd0018,
Don’t get too excited about lumber. Lumber hasn’t entered into the consumer price inflation data because lumber is not anything consumers spend a lot of money on at the store. Home builders are not consumers, and what they pay doesn’t go into CPI but into PPI. And the costs of buying a house (new or existing) is totally ignored in the CPI data. So the spike in lumber prices hasn’t shown up in the CPI data, and the drop won’t either.
Used cars is a different matter, and used car prices did show up in CPI. Obviously, they cannot keep spiking like that, and this spike will eventually unwind.
But now a lot of service prices are jumping, and services is the biggie, they’re two-thirds of CPI.
Not to mention that the speculative frenzy we saw in lumber isn’t the persistent inflation we’re talking about. Obviously, a 400% increase in price was not going to last. But the 5-15% increases in groceries, insurance premiums, personal services, and such ARE going to last. THAT’s the problem, and it’s silly for people to posit that “Because the absurd run up in lumber didn’t last, the much smaller, but still notable, increases won’t either.”
Interesting that The chief global strategist at JPMorgan Funds said “The Fed’s support is “making inequality worse,” You end up subsidizing the rich at the expense of the poor.”
Maybe they’re setting up a RE crash for their buddies. They DO own a lot of mortgages, or derivatives of them- not sure I understand it, but they could at some point transfer titles through foreclosures is my guess.
MG
Yep, it worked all right after everyone lost their life savings, pensions and started from zero. That’s one hell of way to restore a country to a sound financial footing. The Germans then were a very law abiding society. Try that here and you’ll have every major city burnt to the ground.
Swamp Creature. The Germans were law abiding, but they didn’t have unicorns. We do. Best country on earth.
When Yellen started talking about rate hikes when she was Fed Chairmoron, I predicted they would never get beyond 2% before having to reverse course. I was wrong, but not terribly so. I predict the Fed won’t get beyond 1% in this coming cycle before having to undo all of it.
The Fed doesn’t have to undo rate hikes. Remember Volcker? The current “board” just poops their pants whenever the stock market falls 5%. I guess such slides violate Bernanke’s “wealth effect” which has abolished the business cycle (if you’re one of those PhD’s).
After Ronaldo rotten banana Portugal 2 : 4 Germany.
first half on u tube
Fed, Fed, Fed, what if their bosses (politicians) have drunk the Red Bull and their brains have started to work, and they’ve realised that the Fed has screwed up big time for 12yrs, so this time could they have decided to leave them ‘on the bench’ and let the Treasury do all the running?
The Treasury can issue debt at any coupon, for any duration and the only variable is the discount they have to sell it at on the day. Say, for example, they did a 12 year at 4%. How big a premium would it go to and how much cash would they pull in? Sure it would rock the World and screw the ECB but that’s the power they’ve got if they want to use it. I’m coming round to the view that the whole QE charade was more to do with getting junk off the financial sector’s balance sheets than it was about ‘boosting’ the economy. Why on earth, otherwise, would a central bank be buying something like MBS. I bet they are buying these MBS at full face value when, if they went to market, there would be so many non-payers in them that they might be worth only a fraction of face value. They could even be weeding out all the individual junk mortgages and re-configuring them as higher grade MBS, anything is possible. Bring us your dead! We’ll give you good stuff in exchange, courtesy of the tax-payer.
What I said above was how the world used to work before QE was ‘invented’ supposedly to deal with an ’emergency’ in the economy.
Central Bankers = Central Gangsters
Central Banking = Central Planning
Central Planning = Money Control (not Money Freedom)
Money Control = No Free Market
No Free Market = Mutant Capitalism
Mutant Capitalism = Loss of Control of Economy in which the Fed does not directly control (think housing prices, food prices, etc)
The Fed thinking it can “CON-TROLLL” the monetary and fiscal hurricane it has brewed via words and delayed future policy threats… on a $23 TRILLION dollar economy that takes 12-18 months to fully respond to previous historic Fed policy inputs = Fed is a monetary Joker
Thus I deduce:
Psycho-Fed = Monetary Joker
Google “Joker burning money”
In that money burning scene where the Joker is burning hundreds of millions in cash, the Joker states:
“It’s not about the money…it’s about sending a message”. —>Monetary Joker?!?!?!?
Noticed a lot of empty Condos being sold in the Swamp. I figure with the lockdowns ending people are trading up to townhouses and dumping their condos onto 1st time home buyers. Nearly 100% of the appraisals for Condos have been empty properties. Good news for us since we don’t have to worry about getting Covid going into the toxic properties. These properties are still moving pretty well based on the sale prices which show an orderly market. No big price increases nor big drops in prices in the condo market.
Check and see how many people are actually living in them a month after they are sold.
Looks like the Bullard effect has been cancelled ;)
We all knew this was going to happen.