Get Used to Higher Inflation. My Thoughts on the Biggest Mess I’ve Seen in Decades (you can also download the WOLF STREET REPORT wherever you get your podcasts).
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Thank you very much Wolf for sharing your thoughts with us.
yeah, thanks a lot. So gold? Will gold pace inflation? Bear just lose less? That’s the old saying, right? Should we plan on that or is there money to be made?
Unless you’re first at the trough I think it’s pretty much a losing proposition all around for the peasants….conserve what you can and try to find other things to focus on…
The Fed IS NOT the only one PRINTING!!!!!!!!!!!!!!!!
Here is just one example of how the Medical Industrial Complex (another part of good old INNOVATIVE and EFFICIENT Capitalism forces Medicare and other “health” outfits, which then force government to spend/print money for rich and peasant alike, who of course get NOTHING but “hope”.
Kinda like the preacher scam, and I’m sure sometime in pre history they were one in the same person. (he got a bigger nicer hut and didn’t have to risk his ass on the hunt, in return for his “knowledge”)
Many here are likely sharing in the profits from the scam, so fuck you and your entire golf club and HOA for that. Blood money.
With shit like this going on, how can you even TALK about having an ECONOMY. This isn’t your two-bit swindler that goes to jail we are talking about, this is INSTITUTIONALIZED CRIME. As Trump said, “Just using the laws of the land…that’s smart”.
I’m REALLY sad to see Science so corrupted by MBAs, (we can corrupt it enough ourselves, hopefully just honest mistakes) that brought this on more than anything…..sorry.
Your culture is NOT what you are, you are a magnificent piece of chemical engineering, from 4 billion years of random bumping around, and I for one thoroughly enjoy it….usually, of course.
Well said. Hedge funds or PE get to use all that stimulus to churn all the markets. If there were no derivatives, I’d feel a little more confident picking good companies. But no one can fairly compete except other PE. We just get to buy and hope. So wait for a 30% correction and our odds will improve.
My theory/projection was that about 1996, during the famous “irrational exuberance”, fundamental tethers to valuations came unglued. The .com bubble inflated. I knew something bad would happen from that.
I thought the .com bubble would cause a big recession, especially coupled with 9/11. When the Fed, etc., produced a shallow recession, I knew that would be paid for later. 2008 showed up.
What people don’t realize is that the trends that were going badly accelerated after 2008. (Thanks Fed, and govt intervention- bad regulation). Especially the job market.
The job market was absolutely horrible after 2008. It just started to improve ~2015-2020. It’s still dysfunctional.
Changes are needed and have been obvious to me for over 20 years now.
We have socialism vs. crony capitalism (another form of socialism) killing competitive free enterprise.
Gold does nothing. Better to invest in something that generates cash, like rental properties.
Not true keeps u even with inflation in dollar terms
What cash does a rental property generate when the government seizes it, while still requiring you to pay all upkeep costs?
It takes a lot of work to seize people’s property as Governor Abbott is about to find out as he builds his wall.
Look at how gold has performed in past inflations through financial history. Demand skyrockets because gold is both tangible and liquid, and people will want to be protected and liquid. As a consequence gold can be expected to provide real gains after accounting for inflation if fiat terms.
Gold protects your purchasing power Always has, always will so I’d say it does something indeed
if inflation is real, and something like 6 percent a year, thats a big deal. this wasnt on anyones radar. last time it was that high interest rates for a house were 15 percent. high interest keeps inflation from spiraling up but kills speculative stocks like we have now in tech because they are based on performance a long time from now. so i would say borrow money like crazy now before interest and prices go up. dont sell real estate. dont hold cash. the big winners are those holding the most assets and the most debt. i feel bad for retirees and other fixed income. but in retrospect it makes sense: i mean we have a lot of old people and a lot of debt. am i wrong?
Yes, getting loans now would be a solution. But you have to pay the interest. What investments are going to do that? If stocks and everything lose money during that period, you’re paying the interest with your savings if you have it.
Yes. Thank you. The more I think about it the more likely that my speculation seems that (as they did in Japan through the BOJ) the banksters caused their privately owned, “Federal” Reserve to blow up these bubbles to create huge economic crashes. Read Princes of the Yen.
After our economy craters, the banksters (who secretly own at least $200 TRILLION in companies in Latin American countries, EU countries, Africa, mining stocks, diamond producers, various, corporate and national debts, diverse bonds bonds, etc.) could then buy most US companies at prices way below FMV because for months after a major crash, panicking Americans will sell even good companies’ shares at ultra low prices when the stock market tanks. Watch “Britain’s Second Empire: The Spider’s Web.”
“….who secretly own at least $200 trillion…”
So if it’s secret, how do YOU know about it ???
Those who serve the ultra rich keep their secrets from the public but not from each other. Who would know exactly how much each, ultra rich person or family owns?
I am only advocating that they lose their privileges and pay tax rates as high as ordinary Americans, for all past years that they evaded/avoided paying them plus legal interest. Complete asset forfeitures would discourage the ultra rich cheaters.
Corrupt judges and public officials (whom the ultra rich put in power) should, however, go to prisons
The Fed’s game plan is clear to me. It is attempting to inflate away debts by 30% over a period of say five years, while reporting only 12% inflation via its lowball inflation metrics. When pressed at the next conference, maybe Powell will blow his top and say “You can’t handle the truth!”
The problem is, the interest rate repression is causing more debts to be created. Lots of people are buying homes at these ridiculously inflated prices.
Agreed! Learned that in basic economics class
The Fed is making war on the People of the United States to fluff the markets for oligarchs and hedge funds.
The Fed has deprived the People to be able to SAVE…..and PUNISH those to attempt to SAVE with a now 5% hit.
This is not only a DIRECT VIOLATION of their mandate/agreement/instructions that allow the Fed to exist (Stable Prices), but it is UnAmerican!
Being able to SAVE and not be INTENTIONALLY PUNISHED is a fundamental of a free economy, society.
Where is the outrage?
Who is in control of the Fed? They are in constant violation of at least 2 of their 3 mandates. Who controls the Fed? I think I know…..starts with Black and ends with Rock….IMO.
I was happy to here a famous economist has called the deficit spending the government is doing a ponzi scheme robbing the young (his name is begins with K) When even a PhD economist can see reality you know we are in trouble, just like Larry Summers warning on inflation.
There is no Ponzi scheme. The deficit is not “robbing the young”, the government creates money when it spends it. There is no “borrowing from the future”.
And Larry Summers is about the worst authority on these matters one can turn to, his predictions have turned out to be consistently wrong.
There is borrowing from the future unless you believe in something for nothing. Collective living standards will be lower in the future from this debt and spending binge now. Same story since at least 2008. Only someone who believes in magic believes otherwise.
All money spending is not the same. Governments tend to spend money in a way that is not productive. In USA paying people not to work destroys wealth as they are consuming, but not producing.
Now debt is so large that real return on savings (investment) is zero. You slowly consume your capital base.
Eugenio, if you consider a stable economy and society to be a birthright of Americans, then yes, it is being stolen from them
You are totally fucking everyone saving and incentivesing risky behavior from the financial elite who are bound to recklessly spend us into hyperinflation. It has begun long ago. We are in the final innings. Get your popcorn
They’re essentially rendering the young into profits for greedy old scvmbags who don’t even need the money.
The Fed has read the book when “When Money Dies” . Asked why they did what they did in creating hyperinflation the finance ministers in Weimer Germany said: “We had no other choice” .
Without stimulus economy would have shut down bye bye 401 and pensions but this is too much
90% of stocks are owned by the top 1%, so cares about the stock prices. Should Average Joe keep dropping the soap in return for a $2k gain in his IRA?
More than 50% of Americans have ZERO exposure to the stock market. The stock market is completely decoupled from the economy, and is irrelevant except as it pertains to the very wealthy. A stock market crash would go unnoticed by most people.
Depth, yes. I’m so tired of hearing about 401Ks. The average 401K has a balance of $40k. So if Fed printing makes it go to $70k, but everything now costs 20% more, that person is worse off. Only the top who have most of the stocks benefit.
Is there any first world country in the world that can allow you save money in the bank with guaranteed interest? Also the SP500 has been giving me 20% return for the last 8 years and no bank in the past could even come close to those kinds of return.
I hate to say it but people need to put money into the stock market more then a bank account. If you didn’t gain 200k-400k in cash over just the last decade then the only way you would gain money is if the government took your money and saved it for you.
Only Bernie Madeoff could guarantee a rate of return.
Yeah, well what you’re describing is how a crack up boom occurs. If no one wants currency because they know it’s being debased, then you can’t find a seller for assets at ANY price.
The very definition of hyperinflation.
As always, most people don’t understand any of this. So the outrage gets diverted to ambiguous political ideaology. I still don’t know what the Trumpers want other than to complain. They are right to be outraged, but they ought to look for the root cause. Sadly Americans don’t have the brainpower.
Buckingham Palace is rotting from the bottom up.
“It will cost trillions to renovate.”
” For all her wealth, Queen Liz & her descendants do not have the capital means to save it.”
“The UK government does not have the resources to save it.”
“Let it stand till it fall’s over.”
London bridge is falling down, falling down, falling down.
London bridge is falling down, My Fair Lady.
But, but, but, .. we are the champions, we are the rightful ones, we demand what is ours, what is our divine birth right !!
And so the unholy war was unleased upon the world.
Your posts elicit waves of schaudenfreud in me.
What can a person like me do to protect my family?
Unless you have some sure-fire ways to significantly increase your income, you had better start curtailing your spending in a deliberate, meaningful way…especially your discretionary spending. Don’t be one of those people Wolf references who continue to spend with a blind eye towards price increases.
Inflation is a slow sneaky financial cancer. It slowly eats away at your income and savings.
Next thing you know, you have less money, more debt and your boss announces layoffs all at once.
That’s what inflation does.
I understand you 3DM, but the thing is that, for example, if you are going to buy a gallon of milk in the neighborhood, and you see the price increase in every store, what you can do? You can’t tell the manager it is not fair? in fact they do it in a synchronized way and increase the prices at the same time that the consumer has no other place to go for a cheaper option, there is no choice for us W2 slaves.
Groceries- I buy powdered milk for cooking and baking and just make what I need. During covid, we completely changed how we shop for groceries. We started shopping for 4-5 weeks at a time. The constant mini trips to the store were costing us time and money. Many trips actually created more food waste. We also have a garden so that helps.
Sure Janna, being self sufficient is a common practice at our home, such as making a healthier cake ,or cooking meals at home and taking it to work, etc.
However, there are other costs that you just can’t do much about it.
Bullshit I shop around get milk 1.69 a gallon flyover country
Consumers do have a lot of control. Unfortunately, many people will just accept the higher prices and move on. My point is that many things do have alternatives, we just have to be willing to put in the extra effort or even go without for a while.
Inflation means the cost of everything goes up, by a lot and fast. Stock up on 1 yr supplies of paper, soaps, canned goods, rice, pasta. Will you need shoes? Buy 2 pair now.
Pay off debt other than fixed-rate debt, like a car or house.
Learn to shop at thrift stores and dollar stores. Discount stores. Buy only what you NEED, forget about what you WANT. No going out to eat, no movies, no extras. Find inexpensive meals to fix and invite friends to dinner once a month or so.
I remember the inflation in the 70s very well. It was not an easy time.
Buy twice as many shoes and storable consumables. Demand. Prices rise, self fulfilling prophecy.
Don’t consume other stuff, deflationary.
When all the non discretionary stuff stops being bought and a whole wave of discretionary jobs disappear, and people stop panic buying the high demand stuff, the economy will shrink hard.
Where will inflation be when everyone is under-paid or under-employed?
So you advocate thrift, then without seeming to realize it, you predict the negative consequences described by the Paradox of Thrift?
Let’s not get carried away….stock up on years worth of shoes? Anyway, my advice, wait for the sales; buy that nice pair of shoes when they’re 50% discounted. Then you’re coming out ahead.
If you really believe that high inflation is here to stay then you should be taking on more debt – as much as you can because inflation will make is dissapear into thin air.
You never know for sure, but I think we are at the point of the cycle that you want no leverage other than on a long term residence which should be refinanced to lowest rate possible.
Leverage is a two way street. Can kill you in a recession. Getting wealthy can’t be as easy as leveraging up financial assets and riding it up forever.
Or you could short TLT.
But really the thing to do is to ignore all the worries about rising inflation, what we’re seeing is a spike from the low prices that naturally occurred because of the pandemic.
Eugenio, this is complete nonsense and you know it. If you would read the charts that Wolf painstakingly prepared and posted, you would see that costs are up substantially from 2019. Wolf went through a lot of effort to remove the “base case” effect, and you’re still posting this discredited crap.
That can work if you can hold it for the deration. But you have to watch out for volatility. If you had held gold in weimar, you would have ended up ahead, but if you had bought gold on leverage, you would have been wiped out several times.
I believe we are entering into a time of crazy volatility.
Inflation is projected to go down in 2022 barely above 2 per cent (although the WSJ believes this is “high inflation” for some reason). The above is just fear mongering, pay it no attention. The likelihood of double digit inflation like in the 70s is extremely low.
“Inflation is projected”
Because projections are always so accurate…
“The above is just fear mongering, pay it no attention.”
“Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited”
Is that you, Bernanke?
Jay Jay Powell says hello would like you on his team at the Fed.
The fraudulently figured inflation rate is projected???By whom?? None of these parties are credible.
I agree that we won’t see double digit inflation overall, but there are two entire generations that never experienced double digit inflation, and even a jump in interest rates from two percent to six percent (which certainly is possible if not likely) will cause massive pain. But even our current reported inflation numbers are a joke,because they always report “excluding food and energy” yet most daily purchases are for food and energy, which BTW have been soaring for years. That doesn’t even include the skyrocketing costs of health care and education, which are at or near double digit levels.
Inflation might go down and likely will, but the damage is done. Prices won’t decrease nor will sizes of products be restored.
Inflation lasts long after it has ended on some chart.
But the prices of some things haven’t gone up. Does that blow up your theory? After all, you said the prices of “everything” go up.
To me it seems unevenly distributed. In the May CPI data Oil was up 50% YOY, but many other items were barely changed and hard seltzer was down.
I still contend that price changes have more to do with supply problems than anything else, and supply problems are market-dependent, not Fed dependent.
I agree. I do not see massive price increases in most things. It seems to be related to where there have been specific supply crunches and industries facing labor shortages that have to raise wages significantly. Some inflation will wear off therefore if more people are forced to take jobs. Other inflation like in the housing market is the result of irrational exuberance. That will wear off as well as you can clearly see in the charts that housing starts continue to rocket upwards. There are businesses heavily cashing in on these fomo buyers right now. As long as they can keep selling them at these prices they will keep building them as fast as possible until the price comes down. What’s also apparent is that the home building industry took well over a decade to recover from the first housing bubble. If it hadn’t happened in the first place it wouldn’t take a second bubble to get them to come back.
I wonder how long it will take economists and politicians to stop being shortsighted and realize that running a stable economy is important. Low interest rates and qe are just enabling irresponsible behavior everywhere and it’s going to blow up on them.
What should people who’ve gotten Covid and recovered do if they are in the vulnerable group.
Should they get vaccinated after a period of time?
Or should they stick with the natural immunity and forget the vaccine?
Or should they wait for more data on the length of anti body immunities, and get tested down the road.
Need to advise a close family member who got a bad case of COVID that required hospitalization.
Craigslist is where we get 90% of the durable goods we might actually need, either for free, or very low cost, paid for by what we get selling on Craigslist stuff we once got for free, but no longer use.
Organic brown rice is .99 cents a pound at Costco. That and a small amount of chicken plus drippings, plus easy to grow garden veggies makes a meal for 4 people that costs less than ten bucks with leftovers.
Anyone with an internet connection has no excuse to not continually educate themself with Youtube videos on how to repair, to grow food, to can, to save money.
“I remember the inflation in the 70s very well. It was not an easy time.”
And Weimar Boy Powell is doing this to us on purpose. This guy should be strung up.
So true on 99C stores. When I was going through a divorce and struggling financially, I shopped exclusively at 99C Only stores (AZ). Over a 3 Mo period, excluding eating out once/week, my food bill was $20/week, and I work out every day and consume about 4K calories / day.
I have always been pleasantly surprised at the quality of their produce.
Yep. Swim close to shore….
Inflation will make a vast swath of this economy and consumer SHUT DOWN…..buy less.
Inflation is a TAX….and the Fed has NO RIGHT to implement a tax upon us.
First it is a violation of their mandate of “stable prices”.
But Constitutionally, only CONGRESS has the power to tax.
At least Congress must answer to voters every two years….but who has representation on the Federal Reserve? This is
TAXATION WITHOUT REPRESENTATION….pure and simple.
How would a Congressional vote go on taxing the holders of dollars 5% a year? or even the 2-2.5% that is the illegal goal of the Fed? Congressmen who vote for something like that would be out of office pronto.
Question the Fed! Question the game that is going on here…
30yr mortgages HALF of what they were in 1999 and 2006 (6%) when inflation was an issue at lower levels. And still the Fed buys MBSs!
On whose advice do they do such? And pumping $120 Billion a month into the Treasury markets? Why?
Congress has a lot of power, but when you give it away you got to have the votes to get it back. Fed is going to run as far as they can unless Congress reels them in.
All Congrease will do .. is promote the likes of in$ider trading, for them and their’$. They care not one wit for their constituents, exect to engage in fake virtue signaling ..
It’s like trying to get a cobra to give up producing venom!
Wolf Richter is the only credible person who talks about inflation in a manner that a non-MBA can comprehend.
That’s why discussions of such verboten topics as monetary inflation are prohibited on the ‘Gutter platforms’ like NextdoorStasi, which is going public. The running, as in scat, money to enrich their pump and dump basically coming from the Fed. That’s why discussion of inflation there is off topic, or banned as hate speech from Trumpistas.
We flushed Facebook years ago, maybe people talk about it there?
All great questions.
“……Taxation without representation….”
It’s Paul Revere !!!!
How would Congress vote on a motion to increase interest rates?
“Sure there’ll be a recession on my watch and I won’t be reelected but it’s for the long term good of the country so here goes…
What’s next, electing the Fed chair like you do with judges, sheriffs, prosecutors, etc.
The way to get a responsible Fed is to make it constitutionally independent, so the Fed isn’t sucking up to the Pres OR the public that always wants more goodies. See the German Bundesbank for example. Pre-covid Germany was running a budget surplus. Can you imagine the wailing if the US tried that?
Get. Out. Of. Debt.
Only for LOW sustained inflation.
For HIGH sustained inflation take on as much debt as possible.
This is one of the dumbest suggestions ever.
Why not ?
A plan of action for LOW inflation.
A plan of action for HIGH inflation.
Always have a plan !
Keep money in the stock market. Even with the pandemic i had 20% returns. It’s been 15-20% return under Trump and even Obama. I literally saved $3k a year for a decade and have $100k in my 401k. If you can manage more then $3k a year you can probably have far more money.
Also just pay off your debt (including credit card and your car). Repair your house if you have one and keep everything in good condition while you have the money. If you have that plus 6 months of savings you’ll be fine under any circumstance.
Hi Saver! How well did your stock market portfolio do in 1987? Just curious.
Make sure your family is fully employed or studying towards a career path.
My niece is in nursing school. She worked at McDonald’s during the summer. They promoted her to shift manager. She quit to return to school.
Everybody’s niece is a nurse or studying to become one.
This country only needs to produce two things:
1) Nurses to clean the cracks and crevices of old people slowly dying of diabetes.
2) GMO corn to make ethanol, cattle feed and high fructose corn syrup to feed the masses, slowly killing them and keeping all the nurses employed.
Welcome to paradise. You are a wage slave.
This was kind of gross to read while eating.
Buy as much physical gold and silver as you can afford
I’m still of the mindset that over time these market dysfunctions will get sorted out. There may be exceptions such as the OPEC+ debacle, but many of these distortions are a matter of the recovery from the pandemic.
Since oil is at the heart of most economies (eg, no energy, no transportation or production) the Fed has no control over energy – related inflation. High oil prices definitely change consumer behavior. If you want less fossil fuel use make it expensive. Every cloud has a silver lining.
Some things can be addressed by banks and governments but others are beyond our control. Another possibility is that droughts and wildfires in the west could cause food shortages and high food prices. This is something neither stimulus checks nor the Fed can fix.
In summary, I believe some of the price inflation we see is due to self-correcting circumstances but in some sectors such as food and energy the storm will have to be weathered as best as possible.
The largest item of inflation, by far, is home price inflation. The Fed has complete control over that. The only way to correct that runaway inflation is to raise interest rates, and the Fed refuses to do that.
“The largest item of inflation, by far, is home price inflation. The only way to correct that runaway inflation is to raise interest rates,”
Bobber, you might want to take a better look at history. Starting in 1971, the Fed raised the Fed Funds rate all the way to 20%, and Fannie and Freddie raised mortgage rates all to way to 16%. Yet, home prices still doubled over that decade. The stock market, on the other hand, tanked. This time around, over 35% of home buyers are cash buyers.
However, all the Fed would need to do to stop home price inflation would be to stop buying Mortgage Backed Securities and long-term bonds. In other words, turn off QE.
Don’t be silly. Look at a long-term chart of interest rates and home prices.
The Fed controls housing prices (and stock prices) via control of interest rate policy and QE. There is no doubt about it. The Fed publicly stated it pursues a wealth effect, so the Fed obviously believes this too.
Rate goes up home prices goes down
Just wait and watch when it happens
The home prices are not decided by all.the homes in the neighborhood
There is something called comps…
It takes few homes in neighborhood to bring the prices down
Median home price in the 70’s versus income was noticeably lower versus now. Property tax rates (with some exceptions) lower too.
Other key factor is credit standards which were stricter versus low ones which exist today.
Fed Chair Powell refuses to raise rates because he wants to be appointed to a second term by Biden. Thus, Powell is doing everything he is told to do……. keep the printing presses going….no end to the easy money. The damage has been done well into the future. Trillions upon trillions of debt.
Powell has already said they are going to do too much rather than too little. There is a danger in doing too much as you really start breaking the real economy. It’s clear they want higher prices for goods and wages and real interest rate repression.
Easiest way to raise taxes inflate homes simple really for all of you phds
If you already own a home you won’t be paying more if interest rates go up. You will pay a bit more in taxes and insurance. More in maint costs too.
Taxes based on value price of homes sold taxes way up
Especially maintenence costs, when the price of lumber, hardware, etc. are shooting into infinity and beyond .. rather than say, deflating .. like a virgin rocketed ..
A bit more? That’s optimistic thinking Maintenance and utility costs might very well skyrocket if the dollar loses reserve status
People who rent or own their own home free and clear are not affected as much by home price inflation. But when oil goes to over $100/barrel and gas is over $6/gallon you are going to hear a lot of whining dogs who bough gas guzzeling SUV’s and trucks complaining about having to pay $200 just to fill up their tank to get to work to earn a living. They will have no money left over for discretionary spending
Drives 18000 miles per year.
So 900 gallons per year.
Current $3/gal = $2700/yr
Hallucinated $6/gal = $5400/yr
More expensive but doable.
The sky is NOT falling .
$2,700/year is 10% of the post-tax income for a lot of people.
Methinks you need to check your privilege.
I thought YOU were the rich guy !
Sorry…I overestimated you !
Anyhoo…Note I wrote HALLUCINATED price of $6/gal.
By that I mean hasn’t happened and most likely won’t.
Also I find it a dubious assumption that this comments section is inhabited by folks for whom “…..$ 2700 is is ten percent of post tax income”.
I didn’t say $2,700 a year would be a hardship for ME, but it’s a hardship for a lot of people. You don’t really think the commenters here are representative of America, do you?
I agree with you that the commentators here are not typical financially speaking.
My comments are directed toward that sensibility.
I paid $5.19 a gallon for premium in SoCal a few days ago. $6 is inevitable. $7-8 won’t be a shocker.
On top of the $900/month Big Truck payment, the extra annual $2,700 in fuel cost has meaning.
Frankly I couldn’t give a rat’s a$s if gas goes to $7 or $8 / gallon. It won’t affect me one bit. I’m just making the point that this will create a hardship for many Americans who need to commute a long distance to their jobs to earn less than stellar incomes. IN my case I deduct all the gas cost from my taxes as a business expense so I don’t lose a dime. For personal driving I could get nearly anywhere from my home using public transportation.
As for VP candidate John Edwards once said
“There are 2 Americas, one for the rich and the connected few, and one for the rest of us” .
How true that sounds now.
I paid $5.19 a gallon for premium in SoCal a few days ago. $6 is inevitable. $7-8 won’t be a shocker. Won’t happen unless a higher gas tax was part of the $6. The cure for high energy prices is high prices, especially in a general inflationary environment.
“Current $3/gal = $2700/yr
Hallucinated $6/gal = $5400/yr
More expensive but doable.
The sky is NOT falling ”
More nonsense from somebody out of touch with the majority of people in the US. Most people don’t even have $500 for an emergency, yet we’re supposed to believe they have an extra $225 per month just for gasoline alone.
Didn’t realize you were a poor guy.
Didn’t realize you were a poor guy.
Wow. That’s about as dull, pompous and rude a response as I’ve ever seen on this blog. You obviously have absolutely nothing of value to add.
The housing market will correct itself. It is, after all, a market where prices are set by buyers and sellers.
If prices are high it will attract sellers and/ or builders and increase supply.
If builders are constrained by supply, suppliers will step up. If the material in question is constrained, others will offer substitute solutions.
It’s not all Fed all the time. There are still creative, energetic, and entrepreneurial people out there building better mousetraps.
Have you forgotten about capitalism due to the effect the Fed has had on stock and bond prices?
“It is, after all, a market where prices are set by buyers and sellers.”
Today an authentic free market as you describe is a rare bird. So dream on.
Fed and officialdom simply will not allow true price discovery in financial asset markets and overall economy.
These machiavellian con artists have manipulated and distorted markets with massive artificial intervention, especially QE and ZIRP.
No it won’t. They’ll just buy to keep things off market after the pool of buyers is empty. Heck what do you think they did with all the CDS and MBS after 08? The fed and by extension the .gov promote a lie. They fear price discovery because it would show them to be the frauds they are. If they’re willing to lie to you about that, what else wouldn’t they lie about?
“If prices are high it will attract sellers”
Yeah, look at all the sellers who have come out to take advantage of today’s sky high prices! You might have to use a microscope…
Hahahahahahaha!!!! Good one, Michael.
The way the Fed controls house inflation is by knocking a zero off the end.
20% price increase becomes 2% – it’s Magic!
Inflation is whatever unelected bureaucrats, like Powell, say it is and they say inflation is way too low. The bureaucrats tell the politicians to hand out much, much more money to give us all the inflation they think we desperately need.
This will not end well, my only wish is that Bernanke, Yellen and Powell do not escape the consequences of what they have done.
This all begs the question – who is buying long bonds and why? It seems like purchasers of long bonds are locking in a loss, given the runaway inflation.
My own bond portfolio has been in run off mode since early 2011 and I have not bought any bonds since then. Some of my earlier purchases still have a few years to run as they were zero coupon bonds that were either non-callable or had long call protection periods. Individual investors have been forced to take more risk with their investments or to accept near zero interest rates on traditional savings accounts and CDs.
There are some smart people that think the 40 year bull bond market isn’t over and they are buying for the capital gains. There have been periods of time that bonds have outperformed stocks by 7% annualized return over a ten year period mainly because stocks fell in price and bonds. Some buy 30 year with interest stripped off getting close to 50% return if rates fall enough. Zirp is causing a lot of speculation.
The old mantra in investing is that you stay with the trend until it confirms a break, which is what is happening. But I think that any investor using this concept with bonds right now is pretty myopic. Sure, rates could continue to drop by some magical efforts of the Fed. But the Fed has stated they dont want negative rates and other countries are now backing off the stimulus and allowing rates to rise.
You have to wonder how the market will react once long term trendlines that have pushed bond prices higher and higher are breeched. It seems to me that when that happens, the core logic of buying bonds for the capital gain on the price dies as an investing theme. And then the markets look for real price discovery based on yield versus inflation. That could end up spiralling into a really bad place for bonds. If this is happening at the same time that fiscal stimulus is being pulled back to fight inflationary trends, you have a formula for some real capital losses by bond investors who have gotten a bit greedy.
I wouldn’t do long bonds. My main strategy right now is to preserve capital to deploy another day. I made a little money by putting some in during Covid crash, but I kept it small as I don’t think that wash was out bottom.
Starting on April 30 this year, I made a series of posts on The Angry Trade. Instead of helplessly watching the Fed devalue the currency, I suggested buying long bonds using leverage to make money because I believe this to be the safest trade.
The reason for buying treasuries is that any yield is better than no yield. At a positive yield, treasuries will always be a superior alternative to cash, which yields nothing. You have no “right” to get an interest rate that is higher than any of various measures of inflation. Locking in a loss may be the best choice when the alternative is an even greater loss. But 2% is actually a juicy yield when some leverage is applied.
Now that the 30 year yield has fallen from 2.3% / 2.4% (I suggested buying a 30 year futures contract when the yield hit each of these levels) to under 2%, is it a good idea to take the $15k profit and walk away? At 1.75%, the 30 year would approach a trend line where it bounced 5 times out of 6 during the last 13 years. The only time it failed to bounce was in March 2020. The plan is to take profit only if the 30 year yield goes down to around 1.75%. Otherwise, keep buying more as the yield rises.
I don’t think there is any need to worry that the Fed will raise rates to contain inflation. As soon as there is any hint that the Fed will seriously tighten, stocks will tank and the 30 year yield will tank as well.
“I don’t think there is any need to worry that the Fed will raise rates to contain inflation.”
So we live in a world where the Federal Reserve is EXPECTED to IGNORE the mandates that allow their existence…
What kind of game is this? Where is the outrage?
Reminds me of a Walgreens in San Francisco ….no rules
I think a big part of the frustration many of us feel is that we’ve been systematically duped from the time we were young. I remember when I was in high school, I really wanted to understand why home prices were so high. I knew my parents had just bought an old dilapidated house at a price that was 15 or 20 times higher than it was valued 25 years earlier. I wanted to know how such a thing was even possible. I remember picking up my mom’s economics textbook and reading about inflation. Well you see, nobody really knows what causes inflation, the story went, but there’s the theory of “cost-push inflation” and then there’s “demand-pull inflation”. At no point would the textbook admit that anything remotely resembling money-printing (e.g. money supply inflation) was going on. In other words, the population is systematically indoctrinated to believe it’s all a fair, just system. We’re told to just go to work and do our part. In reality, it’s an arbitrary game with arbitrary rules. Just like gin rummy, golf, and monopoly. If you don’t like the rules of the game, who do you blame in any game? In this economic game we’re playing, we can choose not to take part, or we can become good at scamming other people and get rich. Now that Big Tech has come up with the means to control us like puppets, we can forget about creating a movement to change the game or create a better world. For example, the number of older people who have resisted buying a smartphone decreases over time as they are slowly getting older and dying out. Soon, everyone will buy a new smartphone each year and be happy.
why do you think they designed the monopoly game? they were trying to tell you something!
Magie prided herself not on the game play, but its message. “It is a practical demonstration of the present system of land-grabbing with all its usual outcomes and consequences,” she wrote in a magazine in 1902. “It might well have been called the ‘Game of Life,’ as it contains all the elements of success and failure in the real world.” It was also meant as not-so-thinly-veiled indictment of industrialists like John Rockefeller.
@OI – The old people don’t matter any longer. It is necessary for everyone to carry a remotely polled, personally identifiable tracking device. Videos, SMS and phone calls are just the circus.
Sleight of hand. They are the sellers and the buyers.
Better locking in a small loss than keeping it in stocks and incurring a big loss in a crash… some people are really scared.
Ah…LT bonds can crash 50% too, just like stocks. They dropped 20% last year.
LT bonds are a speculative asset class now. They are in no way a conservative investment with inflation running hot and interest rates artificially set.
I believe the government and foreign Central Banks are the major purchasers of long term bonds. Also some speculators like the “Michael Burry’s” seeing an economic collapse, deflation, in the works.
There is something to bonds in a deflation trade. The Fed is surprised (pleasantly) at the drop in yields, until YC inversion becomes an issue.
30-year mortgage rates are oscilating around 3% while the 10-year yield looks like it wants to go down further.
If the Fed talks about tapering at the next big meeting we could see the dollar rise, deflationary stock market sell-off and the bond yields continue to go down in a short squeeze before we get the real push to inflation.
Central banks are no longer net buyers of US Treasuries. BOJ was the biggest buyer and they have stopped purchases basically. China is selling slowly. We really have no support from central banks anymore.
Dorothy, we are not in Kansas any longer.
I really respect Burry. I will need to read more about why he sees deflation as the big issue. I also see an economic collapse, but think that collapsing debt markets will be one of the big problems. I know that in the past money has always run to Treasuries during financial crisis, but is this really going to happen this time? I think that maybe the COVID scenario, where ALL assets fall together is the more likely scenario.
If you don’t like stocks and are afraid of a deflationary collapse, the best bet is cash or ST bonds.
Some say buying LT bonds is better than cash because of the 2% yield, but that small “upside” is not worth the downside of a LT bond. It’s picking up pennies in front of the steamroller. For example, people who bought LT bonds last summer got their 2% interest, but they lost 20% in principle in one year. With rates this low, there could be a lot more of that coming up.
Consumer view: Price doesn’t matter anymore
FED view: Put the inflation issue on ignore (more like snooze)
Would like to believe the FED and all the brightest minds have game planned this out a trillion ways. And they are taking the steps where America as a nation comes out on top. Like the great leap forward or a 50 year blueprint
I too would like to believe what your comment says about the Fed ND;;
Trouble is, in my case, having been in the RE mkts since the early 1950s era, and the SMs from then until I got out in the 1980s,,, I simply do not believe anything either the Fed OR the guv mint says anymore/now.
So, what to do, based on having listened to every word our Wolf guy said in the above? And following closely hoping to do some good for my wonderful ”significant other.”
Wait for a while in CASH is my best guess at this point in time,,,
and guess tee mint / WAG / SWAG is all it could possibly bee at this point as mentioned by several of the commenters on here previously…
Keep your powder dry — a typical comment meaning to bee ready, very ready, with cash in hand,,, to buy in when the poop hits the paddle and all of the various and sundry ”assets” that the oligarchy allow WE the Peons to buy become more realistically priced…
To be clear,,, been through many crashes since 1956, when we lost 2 of 3 RE places, including the ”family farm”,,, in order to keep the one we were living in at the time…
going to be somewhat similar this time IMHO, but hoping those in SF Bay Area will continue to expand the movement to keep families in their homes without regard to mega corps trying to evict them…
Wolf-will wait (as usual) to read the print version (meaning i’m probably waay offbase here and understand an instant x-out), but a question based on a longstanding concern of mine: any similarities to the stagflation triggered by the huge South American loan defaults of the ’70’s and the banks simply using inflation then to get their tails out of the wringer at expense of the citizenry? thanks, as always, for continuing to shine that light into the gloom…
may we all find a better day.
Thanks, Wolf. The inflationary effects of the pandemic stimulus do seem to be ignored—even with Larry Summers’ grumbling (but he’s persona non grata for other reasons). I can’t imagine ALL of the Fed governors are oblivious to what happens if the inflationary genie gets out of the bottle. Is there any dissensus? And if they do start tightening the money, is there any outcome that doesn’t hurt and lead to widespread grumbling? We were relative oak trees when Volker tightened things in the 80s. I’m not sure the vast majority of our market players today have any idea how to get through a rough patch.
“We were relative oak trees when Volker tightened things in the 80s.
Even before Carter put Volcker in, the home mortgage rates had already climbed to 9.64%. If we had 9.64% mortgage rates today, real estate prices would tank, and the whole world would be buyers of MBS and long-term Treasuries. I know I would be.
I bought my first house in 1988 at the age of 27. Cost was $124,000 in Pasadena, CA. 20% down, 13.75% interest. Had to have two co-signers because what was left on the mortgage was more than 3x my annual earnings.
That house sold earlier this year for $975,000.
The issues is not just that prices have inflated, but that wages have not kept pace. There are very few 27 year old individuals in Southern California who are making the $300,000 a year, or who have $190,000 in cash for the 20% down, that would be comparable to what I experienced.
Interest rate on home in SF Bay, ” berkeley flats” area in late ’79 was 18%,,, even with 20% DP,,, Transaction price was $40K; price of same house most recently saw a couple years ago was $800K!!!
Crazy crazy bad for families and other folks just wanting a place to settle down and do their best to help grow the knowledge base for our species…
“Biggest Mess I’ve Seen in Decades”
Are you sure it’s not an understatement? Personal experience play a big part in such assessment.
Temporary? There are consumers out here that will pay anything for gas, lumber etc. Why? Because we need it and can get more money to buy.it. At my over 70 years on this planet I see greed everywhere. $10 a gallon for gas, we would pay it. Temporary inflation, really
Speaking of inflation:
“An unopened copy of Nintendo’s “Super Mario 64” has sold at auction for $1.56 million.”
Who say it’s only a game?
If you have to drive to work to earn the next week’s cost of gas – you pay the $10. gal.
Most have to work to pay the bills and keep a roof over their heads.
Gas in my expensive northeast state is $2.99/gallon, right where it was before covid hit. From 2011-2014 it w2as much higher than it is now. Where is gas $10/gallon? Are we just calling covid whiplash ‘”an inflation spiral,” and does it make sense to do that? Does it make sense to do YOY comparisons when last year, a meteor struck?
Ever hear of chicken little ?
Bicycle or electric bicycle walk electric car always options
You are correct.
I gave my car away seven years ago. I don’t miss it.
Cars are for lazy unimaginative people (ie people)
The Treasury and Federal Reserve plan is to use asset inflation. The think tank that Janet Yellen was a director of until her appointment as Treasury Secretary in late 2020, issued a report on how to solve the national debt. The only realistic solution is high inflation to grow the GDP. Excerpt from the report as follows:
“real GDP growth would need to be sustained at nearly 6 percent for a decade or inflation would need to be about 12 percent.”
The report concluded with: “In the worst case, if the Federal Reserve were to become a pure extension of fiscal policy, the central bank’s credibility to ensure stable prices could erode and – in concert with high and rising deficits – spur rapid inflation.”
Link to report:
Politics + Federal Reserve = Disaster
You touched on it…
Congress is our only recourse to a Fed that ignores its instructions/agreements/mandates that allows its existence.
Yet, Congress loves the free money arrangement enabling the funding of Socialistic programs and vote buying schemes. Congressmen are also likely FULLY INVESTED and making gobs of money. So for them to stand up to this rogue Fed is unlikely….
Pelosi stated “there is a floor under the stock market”. Who told her and when? Anyone tell you or I?
Nothing will change until more people leave the country that has betrayed them and all their hard work.
There is only one solution: stop tolerating it. The way out is to get out and take your wealth and skills with you to a more grateful country.
Leave the unemployed MMTers behind to fend for themselves.
Who is John Galt?
Don’t worry. The market will open big tomorrow. Guaranteed. Everyone has a ton of money it seems.
The fed has no choice. The debts have reached the point where the trend is pointing to bankruptcy……I know…..not possible……tell that to a person holding German marks issued in 1920.
If the level of asset wealth in the US is adjusted by factoring interest rates that would pay for the level of risk…..we only have approximately 60 trillion of national wealth. 30 trillion of that has been spent. At our current rate of spending we have less than 20 years until Hyper inflation breaks out. To extent the date they have to allow some air out of the bottle.
Our standard of living is being destroyed right before our eyes.
Our current balance of payments is in severe deficit and only getting worse. The government is no help with its open market madness and open borders lunacy.
So the transfer of wealth from the middle class to the upper level business class and the wealthy brought on by sub zero interest rates continues……all while the politicians debate taxes which will never occur. They are all bought.
The US is returning to 1920….just like the wealthy have always wanted.
The academically interesting thing is that the fed uses the argument that rates need to be low to keep the US employed……while the government pays huge unemployment benefits, keeps the border open, keeps our markets open to subsidized foreign goods and encourages women to join the workforce.
Its all a sham to strip the middle class and convert them back into desperate peasants willing to work for crumbs.
A responsible citizen will prepare for retirement in the following way.
1. Depend on Social security while they cut it by 25%.
2. Depend on a company pension which they have converted to 401K’s that are going to get destroyed in the markets due to the sub zero interest rates.
3. Private savings which they have transferred to the wealthy as a result oil sub zero interest rates.
Surprise….retirement no longer possible in the US. Once the general public understands this fact political stability will vanish…..and our experiment with Stalin level tactics begins.
It is over folks. We’re just deciding who gets wet first.
“ So the transfer of wealth from the middle class to the upper level business class and the wealthy brought on by sub zero interest rates continues……all while the politicians debate taxes which will never occur.”
Of course you know there is a part of this that is incorrect, what would the politicians do here… think about it. They have to do something….
Yep that’s right, they will tax the part of the middle class that still can be taxes. The suckers like us who has a W2. Cause according to uncle Joe, that’s fair, raise the top rate so that…. Well, I don’t need to repeat the slogan do I? All the while CEOs like Zuck and Sundar continue to take an annual salary of $1, and massive loans against their assets, read stock holdings and claim deductions on the interest paid out for a tax break. Ain’t it cool?
I don’t think Zuck and Sundar have debts. They get paid in stocks which they sell regularly through Rule 10b5-1.
Sure they do, they load up on it. Low interest loans, borrowed against their stock and other assets.
Ask yourself this, do you think Zuck needs a loan to buy a house. yet somehow he does. Google house loan for Zuck, and it’s amazing what you find.
On paper, Zuck and everyone like him have a W2 where they are earning poverty level wages. They borrow millions against their assets, and pay interest so they can write off as losses. And their loans are at ridiculous rates, like 1.05% 30 year. Let me know if your bank can do that for you.
Oh, they will sell stock, through whatever shell corporation or family office, or whatever set up they have. Then they write off the interest against those gains. It’s not a big deal. You and I can’t do it. Cause you aren’t worth enough money for a bank to led you tens of millions of dollars annually.
I mean unless you think Warren Buffet is begging for changes on the street corner in Omaha, he has got to live somehow right? He isn’t selling any BRK/A shares, that’s for sure.
Read somewhere that Larry Ellison (Oracle) had $2B in loans of some kind to fund his personal lifestyle. This was awhile back.
With the kind of money some of these people have, they can probably issue their own personal bonds to institutional buyers at very low spreads if they choose. Never heard of it but don’t see why they can’t do it.
@MCH, good points.
Business owners don’t pay taxes they have company jets credit cards and no income worst tax system in world need flat tax perfect recipe to create billionaires
“while the government pays huge unemployment benefits, keeps the border open, keeps our markets open to subsidized foreign goods and encourages women to join the workforce.”
Wow, you really are a neanderthal. What the hell are you ranting about?
“huge unemployment benefits”? False
“open borders” blah, blah, blah, more tucker carlson BS
“encourages women to join the workforce” WTF are you talking about?
Seriously man, if the USA is too rough and tumble for you, you may to consider other options. I know I have.
His handle is Fred Flintstone. ?
Oh sapient, Ouch! You sure know where to stick that flint shiv, don’t ya ..
i agree with Mr Flintstone, even and especially regarding feminism and how it made being a YOUNG mother or homemaker something to sneer at. as if careerism was how you became a full human being.
i grew up with that and my sister felt shame for not having some career in mind.
i now agree it’s part of why kids are so weird. or ALL of us are weird. / but it’s complicated, right? everything is.
Love this comment!
Men too don’t need to be defined by their career, or lack thereof due to unforeseen circumstances.
Love is simple and uncompromised. It’s even perfect! But love, combined with practical, complicated things (adulting with jobs, money planning, money schemes, side hustles) is…well, complicated. And exhausting. Unless you are a sort of driven superhuman like Wolf who loves the work he/she does. Side hustles were not a thing even 10 years ago.
Side hustles, and little gigs, really started following the aftermath of 2008. If I could edit my reply I’d change my number to 15 years.
This is in reply to noprep:
Don’t know where you get the idea ”side hustles” are a new thing???
Worked two part time jobs in the 1950-60s to pay bills in HS and while getting the GI Bill in college, then three jobs when that ran out…
Kept on working at least two jobs until getting my GC license, and that work was usually around 80 hours per week for years, WHEN there was work, and had to do other jobs when there was no work due to RE mkt crashes, in addition to the contracting.
Many friends did the same all through the sixties and some even since then, and continuing in ”retirement.”
Retirement may not be possible in the U.S. going forward.
Fortunately the planet is full of countries where you can take retirement.
If you like a European vibe…..Portugal has a MUCH lower cost of living.
Tropical……Panama is a great choice….MUCH MUCH lower cost of living.
All possible even for modestly paid wage earmers.
I can’t disagree with you. After the inflation sets in and rates go up, the house prices need to be adjusted.
I was born in early 80’s and my generation don’t know what to do. I am forming a family soon and I told my fiance that it is better to rent now, but I don’t know for how long, any idea?
Your realistic scenario is close to current situation and , it is pretty scary and unknown future. Should we stop contributing into 401K,? hand over our house down payment to a financial advisor to invest in better places? buy or not buy anything?
Since you have experienced the early 80’s double dips, can you tell me what my generation has to do?
Take good care of your career!! The idea is to out-earn inflation.
I got out of grad school during the double-dip — luck of the draw. No career, no job, no nothing. Ended up working as assistant manager (trainee) at a Taco Bueno to pay the bills for a while. So take care of your career, and a recession will be easier to deal with.
I understand what you say, thank you so much.
“Take good care of your career!! The idea is to out-earn inflation.”
This is the best advice on this post. This is something you can control.
No it isn’t. Career paths are as predictable as the weather.
Are you familiar with Wolf’s career path? IMHO that doesn’t sound like it was rigorously curated. More like water bouncing on a hot skillet like my own career, which had major changes based on rather random opportunities that I was able to recognize.
In the past 25 years there were two such opportunities that changed my work and financial conditions dramatically. One was in 1997 and the other 2003.
Luck is when opportunity meets the prepared mind.
We don’t really ever have control in life. We just, as modern humans, want to believe we do. Like playing the old game of Life (board game). Put two more sticks in the back (kids) as you move forward, a pink one and a blue one, with the partner – and you are making it, and doing what society expects. Seemed much more doable back in the “good old days” USA baby, 50s and 60s it was not so hard for so many.
But…then as now…careers can fall apart, just like marriages, health, anything else. Maybe even the great mystery of death calls, before you are ready for it. Best laid plans of mice and men gone all asunder. Maybe youth is good for a young family. Happy days. But the mid-life crisis might await, in that case. Or the dread diagnosis nobody wants. Life itself is, all in all, just a hard thing, in any world. Because the creature is born to die, and everyone has to go through that pain, to get outta here.
In Murika, inflated megafauna run You over cliff.
Career first is good advice; you’ll need a ton of savings for kids education and retirement–you aren’t compounding much given meagre ROA in any asset class.
Totally AGREE WR:
And one, if not the most important part of taking care of your career is education education education!
Remember very well to this day how tiring it was to contemplate continuing at $5 per hour when dropped out of college to work full time so that I could continue…
That was mighty motivating to get back to school and finish,,, and since then to get with all the new fangled computer thingys, which I did up until age 75, since which just enjoying WolfStreet.com wisdom, etc., and hoping thingy doesn’t die once again before me ,,,LOL
At this juncture, don’t hold on to cash. Because you’re losing it through inflation.
If you can buy a house to live in, do it. Yeah, you might lose house value if it crashes down 30% to 50%, but unless you know have a crystal ball, and know exactly when that’s happening, bite the bullet. There is no perfect timing.
We bought a townhouse in May of 2007. Think about that. We spent years sitting on an underwater loan, to be precise, about five years until the place was above purchase pricing.
If you’re born in the 80s, it means you’re in your late 30s, you have 20 plus years of earning power. Plenty of time to make up for your mistake. And as for your 401K, at the least contribute to whatever your company is matching. No brainer there, and obviously Roth IRAs.
As for inflation, remember, if prices are going up for your groceries, they are sure as hell going up on your house too, unless you’re renting, in which case, you’re getting it from both sides. The rates aren’t going to get lower, take advantage of it. And if it gets to 1%, (let me know if that happens), then refi.
Like Wolf said, take care of your career. If you get laid off, no big deal, you find something else. Yeah, it’s not easy, but hopefully you’re realistic enough not to expect handouts forever.
And BTW, most important thing since you mentioned fiance, get aligned with her on the money. Even if its the most uncomfortable subject ever, cause if you don’t do it early, it has potential to cause all sorts of problems later. Ha, to see the effect, you just have to read a couple of articles on the Moniest on Marketwatch, it’s all the same sob and whine story about a certain situation where XYZ is so damned unfair, what can I do….
Good luck, remember, the only one who can help you is not God… God helps those who help themselves.
You must always have some cash. It is air, without it you can’t live. Cash gives you optionality. Cash put to work in a recession gives you the best return.
Think about the rare person who put cash to work at bottom when SP500 hit 666 and now it’s 4300 and you got a dividend payment along the way.
Cash will soon disappear then total control watch g-20 meeting things are changing
Rainy day fund, yes. But one has to balance that against inflation eating value of such fund.
If one has a house down payment sitting there, every day the value of that down payment is going down thanks to the Fed.
Rates are not likely to go lower. If it does, hopefully refinance is an option. But let’s take the other side of the equation, rates go higher forces housing price to drop, but does it drop enough to save sufficient money to justify waiting. No one knows, or rather one could look at the data historically at a local market in the late 70s and see what happens and do a calculation. And try to make a reasonable estimate on potential costs. The only advantage is that in both cases, one owns that piece of land. And until the government takes that away from you, it’s security. If it does take the land away, then there are other larger problems to worry about.
Either way, aligning with the significant other financially is the most important thing. Otherwise… expect to be on the Moneist.
“don’t hold cash”
Well that is a rear view mirror approach.
The politics of this “promoting inflation” might just flip suddenly…
Two years ago, Fed Funds were 2%.
I think we could very well be in a box created by the Fed in which holding cash in no good, stocks slide, and housing slides. No where to hide…just look for a place to be less harmed.
Regarding “don’t hold cash”…. the sad reality is, the vast majority of people have no cash to hold even if they wanted to.
Right, that’s one thing that drives me crazy, when people who bought assets at reasonable prices say not to hold cash, or just to “buy stocks in quality companies.”
Yeah, that’s not so good for young people starting out who have to buy all assets at obscene prices.
It’s a very short-sighted and pig-headed answer, as the question is not whether to have held cash in 2016, but what to do with cash TODAY.
Do any of you here know the future? I doubt it.
The higher probability in the near term is massive inflation eating away at value. If you are in your 70s or 80s, May be it’s best to sit on cash and not be in the asset ride.
In 2007, bought a TH and watched the value crash the next year. But we were able to refi down eventually. In 2015, we rented for a year because we thought prices might be peaking and promptly watched as price increase made a house about $100k more expensive. We bought in 2016 and didn’t regret that for the last five years. Could it drop 50% from here? Yeah, it could, but we live in the place, so we don’t worry about it.
The point is, no one can know what’s coming and also each person’s situation is different, so may be my idea is the worst possible for this millennial, or may be it’s the best possible thing for him. No one knows, he has to make his own decision there using his best judgement. Alternatively, get a quarter and flip for it. The odds are about the same at that point.
Your advice is to get rid of cash, buy a house (no matter the inflated cost or looming threat of housing correction, and there is no perfect timing? Sorry, but timing is everything. Renting is perfectly reasonable, so too is exploring alternate living arrangements.
Most importantly, one must think global. Nothing is localized anymore.
A global tyranny is now being put in place.
We will be micro-governed by the ESG social credit system.
We will enjoy no human or civil rights.
We will own nothing, and be as happy as Chinese – or else…….
In my area, homes are 300% of 2012 prices, but rents have only increased 25% during that same time frame.
I’ve been thinking about why that is happening, because the ownership/rent equation should not get out of whack like that in a free functioning market. I came with a possible explanation, aside from the harmful effects of the Fed’s idiotic interest rate policy. Supply might be artificially low because many people would have to pay a significant tax on their housing gains. The home sale exemption is only $250k ($500k for a couple), so anybody who has been in their home for longer than 10 years in high demand areas is likely sitting on a gain that greatly exceeds the exemption. Add in broker fees, and the cost of selling a home is very high. I wouldn’t be selling at these high prices either.
As an example, my neighbor in Seattle bought his home 30 years ago for $300k. His home now has a market value of $2M. I think he’d pay $250k in federal tax if he sold his home.
So it looks to me like low housing supply is another side effect of Fed interest rate policy. The policy created huge gains that bring taxes into play, which inhibits transaction volume and locks the market.
Deflation is going to sneak up and bite you in the ass like Jaws.
The home next door to me is assessed at $675 yet it is renting for $2,500/month. What gives??? The owner who lives in Iowa could get much more rent than that. The tenant has a 2 year lease and does all the yardwork.
Confused. So, is the landlord renting at $675 or $2500? Don’t get what you mean by assessed at $675.
So, the landlord is either a very nice fella, I’d love to rent from him. Or he is making a good rate from his rental. Just don’t understand what’s meant by assessed at $675.
I think he means the property is “worth” $675k, and it’s being rented for $2,500. Meaning that with an all cash purchase, you’re talking a 4.4% return, and that’s assuming property taxes, insurance and maintenance are 0, which of course they’re not.
Oh, ok, I see. You know, it depends on what he bought it at, right? $675K assessment doesn’t mean jack if he bought it at $550K for example.
It also depends on the tenant, if this is a tenant that has been there for a while, and is doing his own yardwork, saving a bunch of maintenance fees. May be it’s a fantastic idea. Lots of unknowns here.
Reliable tenants beat chasing rent up a $100 to $200 higher.
I meant 675K. What is this dude doing renting it so low. The house is identical to mine and in the same condition. Built in 1951.
The rents in your area are drastically different than mine.
In Seattle, I know for sure that $1.5M houses are renting for $2500 to $3500 a month, depending on precise location and home quality. Bear in mind, a $1.5M home in Seattle is a three bedroom outdated odorous shack by Midwest standards.
This tells me the rent v. buy analysis is extremely lopsided in Seattle right now. You can rent a home for $3000/mo., or buy the same home with mortgage for $6000/mo. From a cash flow perspective, the choice is obvious. As buyer of a $1.5M home, you basically need $36,000 home price appreciation each year to just break even with a rental arrangement. Buyers have gotten that level of appreciation, and much more, for many years, but when the buyer gravy train stops, it could be a harsh scenario for buyers. Renters don’t have those worries.
Totally depend on when you bought. No one can reliably pick out tops or bottoms. No one knows how long this craziness is going to run. Imagine if you are in 2024, and housing rose another 20%, my guess is the cash pile hasn’t grown by that much. Now, you are truly SOL.
By the same token, buy now, and imagine how it feels to see it drop 30% by next year.
That’s why if you are living in it, you tune this stuff out. Remember if your neighbor rents his property out now at $3k, his returns are great, it pays his mortgage easily if he still had any left. The rest is noise.
Your neighbor is going to live out his left in that house
1. Do what Wolf said.
2. Rent for now. Keep your expenses low and save like hell. Don’t go for the luxury option when there is a cattle class option available.
3. Cut up your credit card or (and I begrudgingly say this) pay it off on time and get the points…(Grr).
4. Don’t plan an expensive wedding or honeymoon. This will not be the first time in recorded history where a young married couple are forced to live cheaply in a rental.
5. Holidays should be in the car going to the nearest National Park. I joke, but you know what I mean. Vegas is out.
6. Always turn off lights and unused equipment. But you knew that, cos that’s why your Dad went around the house turning everything off and swearing like a trooper.
7. Keep your car running, as it will make #1 and #5 a lot easier. Possibly invest in a cheaper used (Although the brand newie may well be cheaper these days. Heaven help us all.) hybrid as they are hyper cheap to run. I had a Camry Hybrid for a month and and only topped it up on the day I gave it back.
8. Be your own financial advisor and be conservative. Learn EVERYTHING. Every type of investment available to you. Consider whether it might not be wiser using what money you have to start an on-the-side business rather than just pouring it all into the overpriced housing or stock markets. Beware of anything that sounds too good to be true. Investigate it thoroughly. In a time where low returns are widespread, anything over 5% return (maybe less, even) needs to be investigated. Buyer beware. Due diligence. Research. These are important concepts for any kind of investing. I could probably go on at length about that, but just try not to run with the herd or lose your objectivity.
9. Many will disagree with me, but don’t focus on your retirement fund before you even get married! You have a long life ahead of you and more important goals in the near future. You’re lucky. In Oz, it is compulsory to take 9%, soon to be 15%, of your salary for superannuation. Oh, and you can’t touch it until you retire. (What a scam.) But I digress.
It cannot be foretold how long you will have to rent for. It depends on your means. It depends on unknown future variables like interest rate rises/falls, pay increases/decreases, unavoidable expenditure increases, etc. It depends on how your fiance takes this information. You have the benefit of time and health on your side, and you seem like a smart kid. Plus you have Wolf St. You’ll be fine. Good luck, bro.
I wish nobody bad luck in life and love. But if ever the marriage falls apart, because the times and job/career game get too hard or crazy, and you seem to be left with nothing but a broken heart – well, there are roads less travelled in life – via a transcendental experience. In such dire straits, most powerful 3 word phrase life has for the faithful, called “will to survive”.
Some of the most fascinating and soulful people in this world past and present (often, music people) know all about it too. Johnny Cash spent his whole life telling all the people how hard life really is. And tough old Johnny was as right as you could ever know. Oh yes, Knopfler too. Dear old Mark. There’s a tough man.
I’d add an item 10 to the list… learn how to do things for yourself. Buy good tools, learn how to use them, and keep them in good repair. Eventually, you end up with enough knowledge and the means to take on all but the most daunting tasks. People, at first, made fun of me for doing my own work. Now they’re envious as I don’t spend nearly as much money to improve/repair my house as they do and it’s nicer than theirs (because it’s mine and I care about it). I know what to look for and do the repairs/replacement before it causes more serious problems. Something as simple as maintaining the caulk along the countertop can end up in disaster (rot, termites, carpenter ants, mold, musty smells). Cost to fix? $5 and probably 15 minutes. Let it go? $1,000’s.
When buying a house (and I don’t subscribe to the “rent” concept as we thought we paid out the wazoo for our first home too), buy the worst house in the best neighborhood. Small is no problem. Then add the features you want to the house as time and funds permit.
Once you overcome the “house as an investment” nonsense, you’ll realize that it’s simply a place to live. You pick a good area… with decent schools… on a nice street…. and not worry about loan to equity, etc.. If the PITI is affordable, you’re relatively locked in for the rest of your life as long as you don’t want (or have) to move. Try that with renting (unless you find a benevolent landlord that isn’t a slumlord).
Some will say… Okay, Boomer…. but my 1980’s vintage son did the same thing a few years ago (2016). Now the property is allegedly worth double what he paid for it. He’s replaced siding, rewired it, replaced the windows, repaired the face brick, tore out the master bathroom and did it to the nines, and many other repairs and improvements. All done with permits. His first house (financially broke even) was his training house and he bought a foreclosure with an FHA loan. He tore that one down to the studs a bit at a time and learned to live with the dust and mess. His girlfriend, who became his fiance, who is now his wife, was fine with sleeping on a futon and helping him do things as she saw the vision. Now, they own a “luxury” home that was trashed by the last DIY bozo (who didn’t buy tools, bought cheap materials, and used a lot of caulk and bondo). Both were working full time jobs during the process – neither in the construction field. Both had learned from their fathers (and from Youtube).
My 1980’s vintage daughter doubled her money too (bought in 2010 and sold in 2016), but the muse of cashing out was too strong and now she’s back – renting – and her rent has gone up nearly 50% since she made that ill advised decision. She spent most of the profit.
The key is to not shop for the granite counter-topped trophy house out of the box. With a good structure and location, you can do it over time to your taste as time and money allow. You just need to want to spend the time on it. There is never a “right” time to purchase… it’s the “right time” for you. Otherwise, you’ll be paralyzed by the “what happens if” scenario for the rest of your life.
And, by all means, stop watching HGTV.
Good advice for all here. Thanks El.
In addition to the voluntary austerity program, why not advocate for increased taxes on wealthy, less outsourcing, elimination of tax scams, political lobbying, less money printing, less bailouts, and all those things that steal your hard-earned wealth?
You can be a proponent of business and an opponent of reckless business incentives at the same time, regardless of what the Chamber of Commerce says.
Thanks Fat Chewer, and everyone else commenting and giving your ideas, I will focus on the one thing that can keep the lights on ( my career)
and try to be patience until the opportunity to buy something come by.
I am also thinking to go and stat working for a handyman or a contractor on weekends, to get some skills on house renovations so I can renovate my place in the future.
Thumbs up for everyone.
Vegas is out? I thought you could stay for $50 with an all you can eat buffet. Just don’t touch the games. Or did that sort of thing end?
Anyway, you sounds like Dave Ramsey and I like that.
Be born rich.
Sting won’t let his kids be rich, from inheritance. He’s wise. Trust fund babies seldom grow up emotionally – given too much. Although Musk as one took what he had and actually applied drive and ambition to his circumstance.
I would add– have the blessed fortune to be born into a wealthy family in a peaceful and prosperous country, and have parents who are moral, intelligent, wise, and loving.
Best setup for a wonderful life, all things considered.
Yes, the very rich live a different life than the rest of us. More privileges, better schools, high society lifestyle, country club memberships, private estates, personal security, etc.
For sure. George Carlin’s club – the people he sneered at and sort of belonged to himself (he won his own life-money game). And if you played golf, he really hated you. The very rich also end up in the same place in the end that we all do – under a gravestone, or as ash in an urn. Which is a thought that helps a lot of struggling poor folk feel better.
If you can’t be born rich, be born good looking.
Costco raised the price of their branded columbian coffee to $10.99 from $9.99 (it was last month when I bought).
Costco is sneaky. A lot of their items have reduced in size over the past year, and they’ve done a lot of price increases on top of that. It’s to the point where I no longer think of Costco as a low cost retailer. I’m finding better deals elsewhere on many items.
Relax. A revolutionary cheap energy breakthrough is due to be unveiled in the next few months. $0.07 / KWH and we’re good to go for another 4 or 5 years.
petrol powered solar wind ;)
It’s amazing how ‘the next few months’ morphs into ‘ten years away’.
Bovine flatulence capture.
what is that?? Hope not Brilliant Light Power? :)
Powell has been working hard to achieve perpetual motion.
In a month you will hear a bad word used a lot. Stagflation.
Demand will go down and the deflationistas believe they are right and the spike in inflation we see is just transitory. Sadly will be proven wrong and by the end of the year Stagflation will enter the financial arena. This means Demand will go down but supply will go down more which in turn will raise prices. People will have less money and prices go up.
Oil will rise north of $100 by end of year
The fed says they act like Volcker but they won’t. They will watch inflation rise and they will sacrifice the dollar.
At some point in or after 2022 they will have to decide between allowing rates to rise or accept hyperinflation. I personally see politicians taking the easy way out and allowing hyperinflation.
It will be ugly.
But maybe we’ll learn our lesson and back our fiat with gold. I don’t see another viable solution.
Congrats on starting a new chapter in your life. It is great to have a partner to go through life with.
I too was born in the ’80s! I personally love renting. Lower utilities, no property taxes, no house insurance, no mower, etc. We owned two homes prior, but job moves made renting more realistic for us. We rent a house in a good area and it is cheaper than what we would pay for a comparable mortgage. Every area is different though. As someone else mentioned in a prior article, landlords could always sell the property so there are downsides to renting as well. As long as you like where you live and get along with your neighbors, you can make anyplace a home.
1) In 1957 there was Sputnik. Sputnik cause a “tronics” boom in
2) The euphoria was interrupted by 1962 mini crash that built the
1960’s/ 70’s DOW backbone.
3) The DOW reached 1,001 in Feb 1966, but the Suez canal “choked” by a bone in the neck in 1967.
4) The Suez canal closure caused inflation, beefed up by the ARAMCO “event” and Iran/ Iraq war.
5) The floating currencies, during a large budget deficit and higher
debt level, caused speculators fear a Weimar.
6) The Fed fought the herd by constricting money supply and promoting
a strong dollar. The strong dollar caused two recessions in the early 80’s.
7) In the late 70 US inflation was rising exponentially. In Mar 1980 the 3M reached 15.20%, peaking at 16.3% in May 1981.
8) Beyond peak, on the right, the global trading rooms stormed US
treasuries, buying US dollars.
9) The chartist infatuated with the dollar built a bubble that peaked in 1985, until the Plaza accord.
1) Option #1 : WTI fly out of space to $100 – $120, before $300.
2) Option #2 : WTI form a neckline with Oct 2018 high.
3) WTI will deflate to form RS1, RS2… around $42, testing the 2016 low
4) WTI is an inverse H&S. The head is Apr 2020 low.
5) The real inflation will start after WTI breach the neckline, many years from now, after exogenous event.
6) During the global bubble bust pandemic 1997/98, that started in HK stock exchange, Russia defaulted on their debt in 1998. Their “silk road” to Cuba, central America, Africa… went bust. Their navy rusted. Their oilfields became malinvestment.
7) In Dec 1998 WTI dropped to $10. After the 2000/02 recession WTI built
a speculative bubble peaking in July 2008 @ $147. At the same time USD developed an anti bubble that reached $70 in Mar 2008.
8) Zanet wants a strong dollar. High interest rates make a dollar strong.
9) Raising interest rates in 1930 for the gold standard sent the DOW
“Federal Reserve Bank of Richmond President Thomas Barkin isn’t ready to call for an end to the U.S. central bank’s $120 billion a month in bond-buying stimulus given where the labor market stands today.”
Can someone help me connect the dots on that reasoning?
Because they’re sociopaths. At this point, they know that the difference between 0% and 1.5% has zero to do with employment, but they’re setting an unattainable goal as the time to start tapering, so that they can justify never doing so, even though inflation is completely out of control.
As I drive around the Phoenix valley and notice how many self-storage facilities there are, and how many people park their cars in their driveway because their garages are filled with stuff, I get the impression there are more than ample ways for consumers to cut back their expenditures if they really want to fight the threat of inflation. In the end, it really is up to the consumer, short of the Fed inducing an ’81-’82 recession redux.
Do a search for Cathie Wood and deflation.
Then also read about debt deflation.
Both Wood’s mechanism and debt deflation are quite possible.
Then read The Fable of the Bees.
It’s not all inflation all the time. Just in most people’s memories since most people have never lived through deflation. Your parents or grandparents might have.
There is that scattereth, and yet increaseth; and there is that withholdeth more than is meet, but it tendeth to poverty.
— Proverbs 11:24
If you don’t spend money into the economy business suffers, employers lay off workers, and the economy contracts. I’m not saying blow it all on a trip to Vegas but aggressive austerity is not our way out.
I don’t worry much about the average individual American adjusting their lifestyle to implement “aggressive austerity.”
But I would agree that systemic aggressive austerity would hurt the general public, and probably exacerbate the obscene wealth gap in the United States.
If inflation sets in, the lower economic classes will have no choice but to live by aggressive austerity.
Why U no like Favela living .. while Larry Fink et al clink champagne glass?
A lot of the middle class implemented aggressive austerity in 2009.
Yes, of course that is true, but another way of looking at it is that the economy has not been doing many favors for PBEM, so he should feel under no obligation to do any favors for it. Look out for #1 first as they say. He and his fiance probably have student debt out the wazoo, high rent, high expenses, outrageous house prices, etc. It ain’t his fault, he’s just a young guy trying to do what society wants him to do. If society wants PBEM to do that, then they should lower the hurdles that ate now baked into the system. In other words, it’s time to have a deep rethink about the basis of macroeconomics itself.
Wolf – great summary.
As you point out, the core reason for the inflation was massive money-printing and gov’t spending resulting in a very large, sudden increase in the money supply at a time when goods production was down. Rate of increase of money supply vastly outran goods production (stuff to buy with the money).
The money printing of the past was offset by big deflationary forces (wage repression, etc.) and basic income support to families.
What’s different lately is:
a. the amount of money creation and
b. the shortfall of products available to buy with that money
So, the Fed’s options are:
a. Throttle back money creation, get things “back into balance”. That solution will cause all the disruptions Wolf noted plus others, and the Fed has moved heaven and earth over the past 30 years to prevent exactly those effects. What they’re facing is exactly what they didn’t want
b. Keep printing. Sacrifice the currency (big inflation) in order to keep the peace long as possible. This is fairly likely.
c. Hope that the rest of the economy does the long-term heavy lifting necessary to restore organic growth:
1. Re-allocate capital to activities which create wealth _in the middle class_
2. Use anti-trust to keep the big guys from hoovering up all the middle-class wealth-creation-and-capture entities (like they do now)
3. Teach the public how to create actual wealth again. We seem to have (generally) forgotten this
Option “c” is the least likely. If they could do this, they’d have done so already. The reason the Fed and the Gov’t do money creation is because they can’t do item “c”.
The Fed will temporize as long as possible, then they’ll have to apply downward pressure on money supply and hope to manage the erratic response the markets make. Remember, tho – when the money spigot turns off, the cage holding the deflation monster weakens proportionally.
There are plenty of deflationary forces waiting to exert themselves, as Wolf noted. If the housing market tanks, then housing construction follows, and housing is a big econ driver – that’s why the Fed et. al. tries so hard to support it.
The strongest impression I took away from Wolf’s excellent situational analysis is this: the next moves carry a lot of risk, and a lot of impact on all of us.
Sudden updrafts (more stims and resulting inflation) and downdrafts (asset-price drops from demand destruction if stims stop) are quite likely. Both can happen in rapid succession.
What to do? Make sure your income stream is solid. Cut expenses ruthlessly. Save money if you can to cover lost income, or if you’re fortunate, to buy assets when (not if) they take a big hit.
A major storm is approaching, and if you’re a sailor – like Wolf – you lash down everything the wind can get at, you beat feet for protected waters, and make sure your anchors are well-set once you get there.
A lot of pent-up forces are present, and might unwind in a disorderly fashion over the next two years. Not tomorrow, but a few years. You have time.
A few more things that would like to point out: the Fed does, indeed, know what it’s doing. They have been around a long time, and have way better info and access and support (team of big players who are the decision-makers) than anyone … repeat: _anyone_ else does.
I understand why people don’t like the Fed and its cabal. I get it. But it rarely pays to underestimate your “adversary”, if you happen to view them that way.
It also rarely pays to trivialize complex problems like running a massive economy across the enormous upheaval that has characterized the past few decades by saying things like “just raise the interest rate”, or “don’t print money”. The Fed is doing this stuff out of desperation and not because they especially want to.
Everyone had a hand in creating the problems we face, and to date, “everyone” isn’t all that interested in doing the work necessary to get us out of this mess. Blame-game is a losing move.
J. Powell endorses this comment.
And Mr. Heinz apparently has no rebuttal.
Shooting the messenger is tantamount to saying “I don’t like what you said, and I can’t rebut it. So I use snipe”.
TomP.-outta the park! Kudos!
may we all find a better day.
Tks, 91B20 1st Cav. Hope all’s well on your end.
Also, to Heinz: sorry for the over-cranky response.
You’re a good man, have a lot of good things to say, and I apologize.
Great comments. I tend to view the situation in a similar way, though there are plenty here who do not share this “neutral” view of the fed.
Tell me, if their motives were so good, why are they continuing to flood the economy with liquidity that is sending home prices sky high? The “wealth effect” has long been discredited. Even if there is a benefit, it all accrues to the very rich.
Good question. My short answer is that they are terrified of what’ll happen if they don’t print (create money and inject it into the economy).
High asset prices and low interest income to seniors is the price they decided is OK to pay in order to keep the bulk of the economy functioning. I think that’s their calculus.
I’m not constrained to “stick to the (current) facts” as much as Wolf is. He reports current events, and I tend to focus on the underlying “why” of the situation.
In my opinion, the main “why” is that a good bit of the U.S. economy would “not be there” if it wasn’t for some form of transfer payment. Wealth creation _capacity_ is too narrowly held in the hands of a relative few, and many of us are dependent upon some type of transfer payments (or “wealth-effect consumption) in order to keep it going.
Actual wealth creation isn’t broadly/evenly enough dispersed through the population to keep everyone fed. That’s the main problem, and it’s been around a long time, just getting a lot worse lately. Automation and globalization and oligopoly and all that.
Since the people that own all that wealth-creating capacity don’t want especially want to share it, the next best thing is for the Gov’t to print money and give it out. That’s what we have, and it’ll go on for a while longer till something big breaks.
This is a very tough problem.
Lastly, about those “good motives”. The Fed is an agent of the big banks, and the big banks are agents of the relative few that own all that “wealth generating capacity” I spoke of.
Those folks are going to take care of themselves first. That’s why you accumulate power, right? To make sure you’re gonna be OK first and foremost?
But they also realize that their own best interests are served by keeping the rest of the people happy, and the broader economy humming along, to the degree possible. It’s good business.
Thanks Tom, very good points given. I must say the Fed has it’s hands full trying to get the nation to “create wealth” after most of our manufacturing has been moved to other countries. And wealth creation comes from production of goods and selling to others.
Yup. And it’s not just that we shipped factories, know-how, etc. abroad. That stuff if replaceable, and can be replaced in a great big hurry if we decided to. Just a few decades.
What I find peculiar about all this is that there’s no “Fvck U, we’ll build our own factories, economy, culture” coming from the people that have been so completely given up upon.
From us Independent, Self-Reliant Cowboy Marlboro-smokin’ Bad Ass ‘Merkins.
“The Fed is doing this stuff out of desperation and not because they especially want to.”
The Fed has intentionally taken away the ability of People to save. They punish savers by promoting inflation and keeping rates at zero.
Much of the condition of today is the massive run up of the Money Supply. This is recent, just over a year…
Where was the foresight? The Fed does things they seem to never have an exit plan…NEVER. They paint themselves into corners…and ask for more paint.
In 2018 the Fed had things back to normal rate wise…Fed Funds 2% to meet the 2% inflation.. The overdone stock market reacted…but thats what markets do. Trump jawboned Powell and soon Powell became a different Fed Chair.
Excuse me. Is it OK if I blame the Fed for having no long-term game plan? After all, they have assumed control of our economy by managing interest rates and buying nearly all treasury issuance lately.
The Fed can’t complain that its complicated when it was the Fed that made it complicated by taking over the decision-making for $350 million consumers.
As a lifelong sailor since Optimist Club free lessons 70+ years ago, I think your summary is excellent tp.
Only thing you leave out is the final survival strategy if you get caught out in a major storm, including those that come up in the gulf in one hour when you are in a sailboat that goes slow while the storm is sucking all the force out of the wind in advance of it hitting:
If possible,,, run the damn boat onto the nearest land, and use the sheets and / or halyards to tie your self to the mangrove trunks. ( Or other ”native” large trunked trees. )
Or you deploy your sea anchor from the bow or serial drogue line(s) from the stern. You know, the tools you prepared before you went to sea. Often the safest place in a terrible storm is far from land. In a really bad storm tying to the mangroves usually results in a salvage and attempting an insurance claim.
The Fed lost control.
They are a criminal enterprise, the enemy of the citizens of the USA, that must be destroyed.
I hope most citizens understand the role of the Fed in their inflation lives.
The US is weak as they can not afford to retire the 120 billion pumping markets each month.
Just curious, but what will we (the Nation) do along the lines of monetary policy if the FED were to be destroyed?
The MMTers have ruined the free market economy. Debt is good. Up is down.
You fools g-20 passing global tax increase of 15% who will pay this consumers ostrich s get your head out of the sand we 350 million need to change our government term limits same benefits as us stop the madness with our votes
I was watching an old episode of Hawaii 5-0 from 1971. In it the Chinese were sneaking in perfect engraving plates to print undetectable $20 bills. The plan was to print up money and dump it in to the US economy thus causing inflation and a loss in confidence in the currency. The government officials were in a frenzy as they figured if such thing happened it would be total destruction of America. Life imitates art.
Except no Chinese is needed. Heck we don’t need Russians either. As they said: if you want a job done right, you’d better do it yourself.
ooooh, Monkey-coffee all over the laptop, again!
may we all find a better day.
So, you’re saying that the central planning of the US (and, therefore, the world) economy via the manipulation of the price of money using models based upon simplistic garbage economic theory into which is feed data manipulated for political reasons combined with decades of bailing out “too big to fail” private concerns and thereby eliminating the essential Darwinian component of capitalism which also extinguishes excessive debt – bankruptcy – eventually doesn’t lead to ideal consequences?
Mon, July 12, 2021, 5:00 AM·3 min read
There’s anecdotal evidence that cutting off the federal supplement has goosed the labor market. Daniel Mehan, president and CEO of the Missouri Chamber of Commerce and Industry, pointed to one local business serving the convenience store industry that had been struggling to find anyone willing to take jobs it had open. When the extra $300 ended, he said, “they had 120 applicants the next day.”
Scrubbing tile or stretching pizza dough at Kansas’ current minimum wage of $7.25 — the same as the federal rate, unbelievably the same since 2009 — pays a full-time employee a not-so-grand total of $15,080 a year. With no sick time, no parental leave and no vacation. In a city where rentcafe.com says average monthly rent for 896 square feet is $1,071. Does that show your business really values its employees’ toil, or should reasonably expect their productivity or motivation?
The pandemic “has altered a whole lot of people’s point of view about their careers,” said Cobb, who has heard of professionals deciding to trade shuffling PowerPoint decks for living out of their cars on the open road. And if a household can muddle through financially while a former low-wage worker pursues higher education or job training, it may well be willing to endure some lean months for the promise of decades of future prosperity.
“they had 120 applicants the next day.”
Sure they did. CoC CEO’s are always honest brokers of the truth…
You’ve heard of “shrinkflation.” I’ve found a new one: thinflation.
On my latest trip to the Walmart self-serve checkout kiosk I saw plastic bags which were either a defective lot or intentionally made much thinner. Items which were previously fine in a single bag required double-bagging as I unfortunately found out when unloading items from my cart into my vehicle.
Wm has always used thin miserly bags. Several years ago one ripped while carrying in my groceries—glass everywhere on my concrete. Compare those to Target’s bigger bags that don’t seem to rip.
I don’t know if the Wm misers even have check-out people anymore at my nearest store???!
When visiting “back home” in Connecticut, I had to pay $0.10 per plastic bag at Walmart when I checked out. Not only were the bags thin and flimsy, but I had to pay for them!
An incentive to bring your own bags….
New York too. That’s what happens when you put leftists in charge.
I think that was a state tax. The least of CT’s worries???? I won’t live in a leftist city or state I’ve decided.
I wonder what type of bag the eco-warriors use in their bathroom trash can? I use the shopping bags, thus negating plastic trash-can bags! LOL.
HEY, remember grocery stores used to ask “paper or plastic?”, oh yeah, remember baggers?!
Stecklan, years ago in CT and in high school, I was a bagger! And the old ladies used to tip me when I carried their bags to their car. It was all paper back then.
“Wm has always used thin miserly bags.”
Yes, I know, I’m no stranger to that chain. However, the latest batch at least at my local store even LOOK thinner and from my recent experience definitely behave that way.
The US and its nuclear umbrella (EU, Japan, UK, Canada, Australia) control 95% of global currency reserves. As long as the Fed, ECB, BoJ, et al print in sync, inflation goes to the 5% of the world that has 90% of its population as these are the regions that also depend on the US et al for their food imports.
Weimar Germany had 3% of global currency reserves in 1920 which dwindled to 1.3% in 1923. This was when hyperinflation occurred in Germany.
The FED has a monopoly on global currency reserves thanks to the US’ nuclear umbrella. The EU and Japan act in sync, as does the UK, Canada, and Australia. Co-ordinated central banking means that real inflation is passed along to the wage slaving 7 billion humans elsewhere whose elites still trade in USD/EUR/JPY/Pounds. This is why inflation is now exploding in many developing countries.
Thusly there is no reason for the Fed to stop QE, AMZN and AAPL both have market caps larger than Russia’s annual GDP, their transition to global behemoths means that all excess dollars are ultimately soaked up by US companies anyways, and nominal food pricing being much lower elsewhere than the US / EU / Japan means the vast majority of nominal inflation is also absorbed abroad.
The US and its nuclear weapons + allies has a monopoly on the issuance of currency, and very little proportional global population, anyone crying about analogies to Weimar Germany does not understand this and those crying deflation, inflation, et al will be missing out on continued major gains in tech, stocks, housing, etc.
BBR: this is a great contra-argument to my points above. But you seem to have omitted a few items:
a. China, Russia, Iran, and a good bit of the to-be-developed world are moving ahead smartly and factoring the U.S. out of their plans. Trade flows of yesteryear are not what the trade flows of nexter-year are going to look like
b. The U.S. isn’t going to use its nukes, and nobody but a madman will do it first. The consequences of reprisal are too great
c. The U.S. doesn’t have a monopoly on currency issuance, and it can’t make people buy or hold the dollar if they don’t want to. If the inflation Wolf is describing continues, and interest rates don’t go up, other countries’ currency will start looking a lot more attractive
d. Reserves can backfire if people decide they’re not wanted anymore. If I’m not mistaken, the British Pound was the major reserve currency right up until … the demise of the British Empire between 1914 and 1940. Everyone had it, then they didn’t.
What good do your reserves do when people don’t hold them anymore? They’re a boat-anchor; lot of supply of dollars gets dumped, dollar value falls, our imports cost a lot more, inflation rises more….tough times. Ask the Brits how much fun it was.
I would argue that Chinese and Russian oligarchs park money in USD and invest in US real estate because we have a global oligarchy that is concentrated in the US, but spans the entire globe. Iran is an exception to the oligarchy, all of their would-be oligarchs now live in the US after the diaspora. As a country, they control near 0% of global currency reserves and are irrelevant. China controls 2.5% of reserves but has 15%+ of global population.
I would also argue nukes are for use against domestic populations in event of a 1792 French Revolution, et al. They are not for foreign adversaries. Chinese nukes are most likely to be used against Chinese cities, the same is probable for the US. The ruling oligarchy than spans the US, China, and Russia, knows this.
This also shows why the US *does* have a monopoly on EFFECTIVE issuance of currency. It is the currency used by the global elite, if not EUR or JPY or GBP, which are under the same umbrella of protection.
While it is possible the US goes the way of the British Empire, I do not think this is likely, as it is in the best of interest of ALL global elites for US hegemony and the status quo to continue as-is.
Yes, but the elites are not stupid. They don’t want to hold dollars that will rapidly decline. They’d rather just buy U.S. assets.
BBR: That was an interesting post. While I agree with little of it, it’s a pot-stirrer.
Let me start with what I agree with:
a. Lot of foreign rich people park their money in dollar-denominated assets. Yes.
The part I’m pretty sure isn’t any longer correct:
“Iran’s oligarchs live in the U.S”. … maybe the ones that bailed @ fall of Shah – 1975 or thereabouts, but Iran has developed a great deal in the interim, and the political economy (who the big-wigs are) has changed a great deal since then, and the big wheels don’t seem to be bailing out any more. They are liking where they are, and the prospects for major growth once the U.S. tires of meddling with them.
“Iran is irrelevant”. Then why are are they declared to be such a big enemy? It’s because they broke free of U.S. control, and aren’t dead yet, and they’re actively evolving a new Asian economy that isn’t controllable by the U.S. oligarchs.
“Nukes are for domestic control”. I’m not seeing the logic of this one at all. Massive hammer, small walnut, enormous collateral damage, major adverse public reaction. Not seeing it.
“It is the currency used by the global elite”. That is nearly irrelevant, as the “global elite” don’t spend that much per year. What is relevant is that most commc’l txns are denominated in dollars, and that’ll continue for a while.
We do agree on that. But how long of a “while”?
But as I pointed out, most outside-US central bank reserves are used to support trade (keep exchange rates favorable), and as trade flows change (away from U.S. source/destination) it becomes less necessary to hold dollars, and more necessary to hold the currency of the prospective trading partner. This trend is likely to intensify. See Wolf’s recent posts on “who holds dollars”. It’s becoming more and more domestic entities and the Fed, and less external central banks.
Lastly…”it is in the interest of all global elites for the U.S. hegemony to continue as-is”. Hmmm. Have you been listening to the speeches of China’s leaders? They are not at all on-board with your assertion. China’s likely to be the (way) dominant economy of the 21st century. What they say and believe is worth paying attn to.
£100 in 1914 is equivalent in purchasing power to about £11,836.23 in 2021, an increase of £11,736.23 over 107 years. The pound had an average inflation rate of 4.56% per year between 1914 and 2021, producing a cumulative price increase of 11,736.23%.
This means that 2021 prices are 118.36 times higher than average prices since 1914, according to the Office for National Statistics composite price index. A pound in 2021only buys 0.84% of what it could buy back then.
The 1914 inflation rate was 0.00%. The year-over-year inflation rate (2020 to 2021) is now 0.70%1. If this number holds, £100 today will be equivalent in buying power to £100.70 next year.
The question, Wolf, is whether a Volcker shock is even possible now that the United States federal deficit is even possible today.
The US was 31% of the entire world’s debt in 2019 – is the percentage higher or lower after COVID stimuli?
In 2019: the US and Japan were nearly 50% of the entire world’s debt.
The good news is that the debt is pretty much all USD.
The bad news is that there *will* be negative consequences at some point – specifically including the dollar exit as reserve currency (i.e. the loss of the single largest US export commodity).
My Marmelaide that I buy every week just went up to $5.69 a jar. Last year it was $3.99. It is imported from France. Noticed a lot of items starting to go up as well. I’ve saved every receipt since the pandemic began. Two months ago I didn’t notice much inflation at the grocery store. There is a lot of competition here. Looks like prices are heading up now.
Start buying it by the case. You’ll save more.
Better yet – learn how to can your own goods. With the basic equipment and a few canning references, you can produce enough for your needs, plus extra to give to fam, friends, and those you trust .. often for much less than what one would pay buying retail.
It ain’t hard to do, if one follows proper sanitation and procedures. An added plus is that you will find relief the knowledge of NOT having to expend precious energy reading an entire tome of janky labled ingreedience, as would be the case on many manufactured pseudo-‘food’ items courtesy of your ‘grosscer’.
Double whammy. You are the vista of Euro and Dollar loss of purchasing power.
One of my most satisfying endeavors was learning to make marmalade in my kitchen. Cheaper, and I know exactly what’s in it. It gave me something to do with all those empty marmalade jars. Then I created tangerine marmalade.
Over the last few weeks, I have seen some shocking jumps in list prices on resale homes. I am talking about 20% jumps from sales earlier this year.
Listing price increases this large should slow the market down.
FYI … the 20% jumps are on entry level SoCal beach properties. I am not seeing price increases this large anywhere else I look.
Sellers are greedy and I believe they are starting to panic and get desperate that they won’t be able to cash out on their greed so they might as well increase the price significantly, because prices can only go up.
This is no longer “well, this is just what the market is being priced at and what buyers are willing to pay…” that might have been true for a short period of time but now I think we’re getting to a place of too many arms in the cookie jar.
Recent listing, 4Br,2Ba, 1450SF, in our hood, good schools, etc., in the saintly part of Tpa bay area started at $415K, already had two decreases; first to $399K, then to $375K.
Bought in Jan for $195; has nicely done interior rehab and new AC, but exterior very spotty.
Sold in 1995 for $39K!
Consumers must still have a lot of cash or retail stocks are out of sync
Just look at companies like Boots (BOOT), childrens palace PLCE, The Buckle (BLK), Dillards (DDS), any sporting good store, any auto part store, etc……
Stock are so much higher than pre-covid. 1x, 2x, …5x.
Then you have China where stocks (FXI etf), is at the same place it was 10 years ago. No Growth. LOL
China needs to let it’s companies buy back stocks
Remember, stock prices are determined on the margins. So if 96% of holders will never sell at any price, the 4% that will determine the price.
ru82, I believe a few of those stocks are going to continue to look relatively cheap this quarter based on current earnings, in spite of already having already ramped up significantly. Clothing and cosmetics brands are absolutely raking it in at the moment. Possibly time to start reducing such positions soon, then..?
Wolf, do you recommend TIPS (inflation protected securities) such as VAIPX?
THE FEDERAL RESERVE PROMOTED THE INFLATION.
and if you believe inflation a tax, then they are taxing the People.
Only Congress, who face elections, can tax in our system.
The Federal Reserve exists, partially, TO FIGHT INFLATION…stable prices mandate.
The outrage dial must be turned up on the Fed.
When they push this too far and the pitchforks finally come out, will you please tell our Fed Chair something soothing like “don’t worry, the actions of the mob will be transitory”.
LOL. Please, don’t take this seriously.
How is this a Covid inflation?
The current inflation fire didn’t start with the pandemic. It started back in 2018 with the previous Administration’s imposition of tariffs (aka a consumption tax) on a myriad of foreign-sourced products. Tariffs on their cheaper competitors’ appliances are what gave Whirlpool the green light to raise its prices. Tariffs on steel and aluminum are what caused the RV industry to try substituting inferior materials, thereby causing their products’ already poor quality to get even worse. Less for the same price…another form of inflation. Then came along the pandemic in early 2020, and the resulting supply dislocations, combined with the trillions printed for QE and stimmies, poured tankers full of gasoline on the inflation fire. But the fire was already started.
Good assessment of when inflation started, but it was not to save the job in the US as it was sold to us so no surprise if we have price inflation today, it could have been predicted two years ago, but it does not explain why there has been a hyperinflation of house prices which seems to continue if not a loss of confidence in the dollar by the population and of course this is what our helmsman JP denies
I wouldn’t bet against Michael Burry. Does he know something we don’t? Has anyone looked into the abnormal weather patterns in the American West and the ocean temperatures in the Pacific. They are 3 deg above normal. There is high pressure dome over the eastern Pacific which is creating a major drought over the entire West Coast. How long before we have another “Chinatown” where people are killing each other for water rights, and domestic food supplies are in jeopordy? With all the attention on Covid maybe we have missed something. I don;t hear many people talking about this, especially here on the East Coast. They are too busy talking about shoplifting in Walgreens in SF and closing drug stores.
We’re very good at ignoring any threat that isn’t right in our faces, SC. We should be declaring a global emergency due to the sort of issues you mention, and be dramatically changing our way of living, but we no longer have the spare energy and resources, or the flexibility, to change course or stop the runaway train.
Swamp-have been watching this for the last 20 years here on the NorCal coast. Winter water temps have been on a steady increase over this period. Summer dry seasons expanding to 6-8 months-(‘dry means NO rain). Meanwhile, summer fogs and kelp forests and their ecosystems collapsing, abalone as well as the warm-water predators move north. Salt has nailed it, the train has runaway, but the signs have been there for quite some time. (As ex-Navy, i reckon you know the service has been taking it serious for some time, as well…).
may we all find a better day.
may we all find a better day.
@91B20 – what is the current situation with starfish in your area? I haven’t heard anything them in quite some time. TIA
Just noticed Disney raised its price for ESPN by a dollar to $6.99/mo. That’s a 16.7% price increase. Should make Jerome Powell and his inflation dove pals very happy.
I hope Powell gets a tumor.
Great job telling it like it is, Wolf!
I hate this! I’ve seen it twice before.. I’ll probably be OK, but I hate to see the world around me reduced to such suffering.