Interview: Inflation, the Housing Market, Chip Shortages, and a Messed-Up New Vehicle Market

Going to be an interesting year. Wolf Richter with Jim Goddard on HoweStreet.com Radio

Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.




  45 comments for “Interview: Inflation, the Housing Market, Chip Shortages, and a Messed-Up New Vehicle Market

  1. Gen Z says:

    Will Weimar Boy Jerome Powell stop the money printer, or will he continue the inflation in the Roaring 20s? This is the question that Americans, and Canadians like myself are wondering.

    I do not trust the Canadian politicians and the Bank of Canada. Many Liberal and Conservative politicians own real estate and stocks.

    • SocalJim says:

      You have a 1970s view of the world. Now a days, inflation is determined globally and Powell can not stop inflation with policy. This is the downside of globalization. The disinflationary international trade fairytale we were sold in college is so over.

      • Gen Z says:

        Yes Powell can mitigate inflation by raising interest rates to reduce the money supply and encourage savings.

        Why do you think that my country of Canada refuses to hike interest rates when a condo goes for C$1M in Toronto these days?

      • This is reason one why the Fed is in no hurry to raise interest rates. The only effects will be deleterious. There is perhaps a retro Maoist move in China but that doesn’t mean we won’t buy goods from Vietnam, for instance, to highlight the difference between a monolithic Eurozone and a fragmented Asian market. Nations will deglobalize in order to opt out of climate change/carbon restrictions. The fairy tale is the huge trade deficits. Can the US bring back manufacturing, without an adequate labor force? The ref to ‘college’ sums it up. Overeducated workers are not a good fit at below paygrade jobs. Employers have known this for years, and currently the zeitgeist is anti-immigration.

        • GolferDave says:

          Can the US ” bring back” manufacturing that was never here in the first place? Can manufacturing be competitive in a domestic wage and price inflationary scenario?
          Can protectionist measures like tariffs “save” jobs that never existed or are they only short sighted measures to boost domestic prices at the expense of the consumer and exports?

        • NBay says:

          So pillows and bedding, or floor mats and cellphone holders probably won’t be enough?
          Maybe we need that Massive Green New Industry with millions of well trained tech jobs (and teachers of same) that pay well and are non-desk? Not to mention the engineering advances we will make. Or be dragged down by the oil and meat states?
          Or will we just supply arms to the world while all the rest “serve” our wealthier and sell insurance to each other?

          Seems like a no brainer to me.

  2. John says:

    Wolf,
    Thanks Wolf for your thoughts on the Fed and car markets. So I’m guessing higher prices will pay off the debt up to a certain point. The question I have will they really raise the rates high enough? Sounds like with no more purchases by the fed the bond rates will drift up. Also sounds like stagflation Is possible, in developing markets more so. Thanks again.

  3. Flea says:

    Wait for it 2-3 years in future another black swan event throws world into turmoil all rules ,out window this is getting old

  4. Cobalt Programmer says:

    It has been an year without my comments here. How y’all feeling?

    1. Top comment in the YouTube so far “This guy believes Chairman Powell.”
    2. Great short squeeze of 2022: case rates in swamp area
    3. Interest rates raise in 2022: no, late, low (less than 1%)
    4. Housing market in 2022: rates can go up. Still most cash buyers will come forward to buy the small dip. Second homes or even third.
    5. I have heard so many older podcasts. The howestreet is still stuck in the y2k era.
    6. Car markers in 2022: Buses on reduced service, gen Z is entering the driving age, all carmakers have EVs.
    7. Happy phosphorous new year everyone. May our shorts mature on time, there will be huge dip to buy and open houses and cheaper cars…

    • Anthony A. says:

      RE #7….I need three more cars and another house…..I’m re-balancing my portfolio for 2022. I’ll wait for the dip…..

    • Jake W says:

      regarding 4, i’ve heard this before, and i don’t agree. in my opinion, there isn’t a huge pool of cash buyers just looking to buy, independent of all other factors. a lot of the “cash” buyers are really corporate investors who are levered to the bejesus, and who will have a harder time raising capital in a rising rate environment, or they’re wealthy individuals who feel “rich” because their stocks are so high (the so called “wealth effect”), and thus feel no hesitation about using their cash savings to buy extra real estate. because after all, if they need more cash, they can always sell some stock! but this leaves out that if interest rates rise, stocks go down as well, possibly dramatically, and these people will not feel so emboldened to use their cash anymore.

  5. David Hall says:

    A chip fab construction project started in H2 2021 might not be completed until 2024. They want autonomous everything. People may become interested in omniverse gaming developments too. That also requires chips.

    One customer was told it would take 18 months before his new vehicle could be delivered.

    Unsold existing home inventory has been declining in my area. They are building single family and multifamily housing near me.

  6. George says:

    Elections have consequences.

    • Wolf Richter says:

      Yes, most of the fiscal and monetary stimulus that is fueling this was implemented under Trump, including the first $3.5 trillion in money printing and the first $4 trillion in government borrowing. Now Biden has to deal with the consequences, and he has failed so far to deal with them.

      • Petunia says:

        The $1.7T that Trump left in the TGA account was the only thing providing cover for Biden’s failures. The account is now down to a few billion, the historic average. Trump saved for a rainy day, Biden spent it all.

        • phoenix says:

          The TGA was ramped up specifically to pay for that expected pandemic relief. Please do some research before posting. They’re both equally complicit failures

        • Jake W says:

          phoenix, the gratuitous insult to petunia is inappropriate. that said, while they are both complicit, the $1.9 trillion vote buying scheme that passed in 2021 was entirely on him and his party, and there were numerous economists who were warning that it was unnecessary, poorly directed, and likely to overheat the economy.

          while some (note the operative word) of the failures of the cares act can be excused as it was done quickly in march 2020 during the start of covid, there was plenty of time in the ensuing year to learn what worked and what didn’t, and the march 2021 was even more of a failure than the december 2020 bill.

        • Wolf Richter says:

          Petunia,

          Nah. The spike in the TGA was a huge problem, even for the Mnuchin Treasury, and there was broad agreement that it would be drawn down. It distorted everything. Every dime in that TGA is borrowed money. If you have nearly $30 trillion in debt, every dime of cash sitting around is by definition borrowed money.

          The spike in the TGA happened because the Trump government increased the US national debt by $4.1 trillion from March 2020 through December 2020 – while the Fed was buying about $4 trillion in bonds – but then the Trump government didn’t spend all of that $4.1 trillion in a few months, on top of its regular receipts from tax revenues, and the rest was carried over.

          The TGA isn’t a “savings for a rainy day,” but a daily operating account. The government doesn’t have a savings account. When it needs cash beyond its tax revenues, it issues Treasury securities. It already owes nearly $30 trillion. To set aside a savings account that pays no interest when you already owe $30 trillion that you pay interest on would be silly.

          During its four years, the Trump government added $7.5 trillion to the US national debt.

          Over its first year, the Biden government has added about $2 trillion to the US national debt.

          The TGA was drawn down as per announcement in February 2021 by the Biden government reducing the issuance of new debt, and it therefore borrowed less by the amount of the drawdown than it would have borrowed otherwise.

          The whole thing that led to the pileup of cash in the TGA was a series of emergency spending and revenue-raising measures starting in the chaos of spring of 2020 when no one knew how much cash the government would shovel into the economy via all these stimulus programs. By late 2020, it was already clear that this had settled down, and it was time to bring the TGA balance back into the normal range. And it already began declining under Mnuchin.

        • Petunia says:

          phoenix,

          I’m a Trump supporter, past and present. I think we were on more solid footing under his leadership and I own my view without having to insult someone for not agreeing with me.

          Trump and Mnuchin built up the TGA balance for political reasons. They both thought the administration would continue into a new term and they knew a reasonable budget would not be forthcoming from a democrat house. That’s the real reason.

          In any case, that money covered for the many sins of the new administration, whether you agree or not. It probably kept the country from defaulting on the debt, while they failed to pass their new giveaway scheme.

          Jake, Thanks for your contribution to the discussion.

        • Wolf Richter says:

          Petunia,

          I removed the slur phoenix had added to the end of his comment. It was that slur that Jake complained about. I know you can fend for yourself very well, but I didn’t want a slur match to break out here. Thanks for everyone’s understanding.

        • Pea Sea says:

          And they accuse Trump’s opponents of derangement! Astonishing.

        • Petunia says:

          Wolf,

          I find you to be a very decent guy and I appreciate your concern. But you should leave the slurs against me out there for all to see. I am always willing to take on an opponent in honest debate, especially when it exposes them as the slime they really are.

          I was tempted to call phoenix an a$$hole but didn’t, because that would be rude and his comment exposes him as one anyway.

          Thank you for all you do to fight the good fight.

        • NBay says:

          You don’t “fix” government by hating it ALL in general, and sending a sociopathic moron in to blow it up. You remove it’s corruptors, specifically big money and corporate paid for lobbyists. Trust me. I grew up with a really powerful one (uncle) and his original preferred political party to manipulate was likely to the right of yours….but he and 2 friends were for sale to anyone in his later years when he quit corporate work.
          “I do favors for people and they do favors for me” was how he explained his “occupation”. He was part of “the swamp”, and were he still around I guarantee you he would have been down at Mar-El-Lago playing your man like a fiddle….easily….he played much smarter guys….many of whom I met.

  7. JR Hill says:

    Sigh. One of these days I’ll get the StarLink dish set up so I can see videos. But, sincerely Wolf, thanks for the followup transcript to the videos!

  8. Michael Engel says:

    1) Trump & JP saved us from 10,000 DOW with ppp loans and cash to
    shingle mums.
    2) SPX have 5-7 month to go running out of gas. It might glide at high altitude beyond Nov 2022.
    3) How far the markets will go, and how far it will fall, nobody knows.
    4) This inflation will not last forever. It will decay, at best, in a negative feedback loop.
    5) The first stopping action might come sooner than people think.
    6) SPX vertical rise might need two.
    7) The DOW daily : May 10 2021 fractal high to Aug 16 high. // parallel
    from June 18 low and few harmonies.
    8) Ten 11,000 Km/h zircon 3M22, while eating the best chocolate cake on zoom.

  9. Yort says:

    Wolf – CBO ” 2021 Long-Term Budget Outlook” has some WTF charts that visually show this entire monetary and fiscal three ring circus experiment really is “transitory”….as this can not last forever:

    https://www.cbo.gov/publication/57038

    Interest payments on Debt -> Why “They” can’t raise interest rates very high, or even “higher” for very long:

    2022 -5.7% of total spending
    2031 – 11.6% of total spending (ASSUMING interest rates stay low)

    So in order to “fight” inflationary purgatory, “They” will print more money and flood the system even further, which will feed the perpetual inflation beast into perpetuity:

    Federal Spending:

    2019 – $4.4 trillion
    2020 – $6.6 trillion
    2021 – $6.8 trillion
    2022 – $7.77 trillion???Feeling Lucky???

    Basically the Fed’s 2021 “Transitory” inflation blunder is like telling your HOA that recycling doesn’t matter because the Sun is going to turn into a Red Giant in 7.5 billion years and “Eat” the Earth, thus time is irrelevant so lets just ignore the garbage and stinky excess forever?

    At some point, time matters…

    • Anthony A. says:

      Take notice in those charts you linked the mention of an increase in taxes after 2025.

  10. georgist says:

    I’ll believe the Fed will hike when they hike, then we have house prices down and stocks down, and they hike again.

    Until I see this I don’t believe it. That’s rational as my entire 20 plus working life everything has been done to prop up financial assets.

    House prices rose 20% or more in a year. Why can’t they let them fall by that much, leaving us still at absurd levels, but flat over very recent history? I bet they will not let this happen.

    • Bobber says:

      What if Fed rate hikes aren’t the trigger? At these levels, markets could tank because a fly lands on a cow’s arse.

    • Truth says:

      .25 X 4 = 1%
      A total or say 1% Rate hike over the 2022 year is not going to be a rate increase that gets the job done with the way inflation is going and has done I don’t think .
      we have lost about 15 to 20% of savings if you have such inflation now . Now in the next 1.5 Years if this just continues rather than declines all added together that could be 50 % savings lost by 2024 ish .
      Do people really think that allowing the Fed to continue to make millions and millions of personal income is just going to stop ? Turn on a dime ? Do you really think some .25 rate increases are going to help ?
      I am not going to hold my breath on that one that’s for sure .

    • Pea Sea says:

      They won’t be allowed to let it happen imo. I have a hard time imagining a scenario where Powell somehow stands up to political pressure rather than caving like he did a few years ago when the POTUS threatened to beat him up and take his lunch money.

      (To be clear, just because they don’t let it happen doesn’t mean that it won’t happen anyway…)

  11. SocalJim says:

    Get ready for another big jump in housing prices. The FED is unable to put the brakes on this because if they raise rates, we will get an inflationary recession. International trade is screwing the US inflation picture. This problem is bigger than COVID.

    • Wolf Richter says:

      Get ready for higher interest rates. The Fed is able to [do whatever it wants].

      • Pieter says:

        If you take into account the state of US finances can the FED really do this. If so, how? Interest expenses will explode and will make up to 20% of the US Annual Budget if interest rates would rise to 5%. Isn’t inflation a way for the US gov to inflate itself out of its debt?

      • Petunia says:

        It would make sense for the fed to keep controlling the interest rates to inflate away the debt. But I smell a rat in the nest of vipers.

        After watching the Evergrande fiasco, I expect a sudden demolition is coming. Wouldn’t surprise me to see them raise rates to 20% for a quarter, everything will suddenly correct, then they can lower rates again to near zero a few months later.

        I think the mistake most are making is expecting things to change over time. I think this monster flips on a dime.

      • Itsabubble says:

        Wolf, do you really believe interest rates will rise? I’m in the most expensive place in the world and people are leveraged to the hilt….I just can’t see how the economy will continue if rates increase significantly. The reserve bank increased the OCR to .75 however inflation is through the roof. Rates aka property taxes in some areas are up by double figures. It’s like living in a parallel universe, housing is the only game in town. Property near me was sold for 800k odd a couple years ago, recently sold 1.4 million. I didn’t think they would sell at 800k! I think there might be some minor interest rate increases but nothing that will stem this madnesses

        • Wolf Richter says:

          Long-term interest rates — including mortgages — are already rising. And the Fed hasn’t really moved yet. They’re just now laying the ground work.

          Now that’s in the US. Other countries have their own dynamics.

    • sc7 says:

      SocalJim has been WolfStreet’s most accurate predictor for housing by far over the past several years, so we’ll see how this one plays out. I agree that for at least this Spring, there’s another (large) leg up coming. The (lack of) inventory situation in the Greater Boston area here at least, is utterly insane.

      Wolf, I certainly understand the fed can do whatever it wants, but many of us remain skeptical that Powell is going to keep to his word the minute equities and/or real estate begin to puke again. His banker buddies and other millionaire investment pals won’t like that very much, and that seems to be who he (a wealthy, invested multi-millionaire himself) cares about most.

      I had high hopes for him when he came in hawkish and started to put things on ‘autopilot’ as he called it, then his response to the 2018 taper-tantrum showed he has no spine. 2022 is going to be an interesting year to watch…

      • Jake W says:

        i’ve said it before, and i’ll say it again. there’s no such thing as “lack of inventory” in a vacuum. inventory is always going to be a function of supply and demand. if demand is artificially high, supply will be low and prices will be high.

        • sc7 says:

          Saying things doesn’t make them true. Demand for housing (shelter), be it as rental or purchase, has minimal elasticity (some may move with roommates or family if things get bad enough, reducing total unit demand). Demand is not “artificially high”, there’s a huge demographic wave of millennials that have reached their peak homebuying years, and a dearth of available houses for sale in the places they want to live. The White House has put out a good paper on this: https://www.whitehouse.gov/cea/written-materials/2021/09/01/alleviating-supply-constraints-in-the-housing-market/

          Some may call it “fake news” or “leftist propaganda” or whatever, but to me, it is a good technical analysis of how total housing stock in the US is in a very different place than it was 15 years ago. It’s even worse as people continue to cluster in already packed and built-out metro areas. So far, I’ve seen more migration from inner-cities to the nearby suburbs or exurbs in my circles. I haven’t really seen anyone really moving to a truly remote rural area, the statistics I am seeing show that to be more the exception, than the rule.

          Small-town rural life definitely has an appeal to a lot of people, but generally white-collar career focused professionals still want to be able to get to their office if called back in part-time, and also want access to quality schools and medical care, something that has been drained out of much of rural America.

        • Wolf Richter says:

          sc7,
          When houses and condos are used as an investment, where people own multiple homes that are vacant — rather than being rented out — then this represents “artificial” demand in the sense that this is not demand for shelter but demand for an international asset class that housing has turned into, just like stocks. You can never build enough housing to satisfy investment demand during boom times.

          But this housing stock suddenly becomes vacant inventory for sale during downturns. This is what we saw last time.

          The Census Bureau’s measures of vacant homes have been totally inaccurate forever, also as we saw last time.

        • Pea Sea says:

          I have to say, I’m pretty impressed by the millennials’ managing to be the first generation in all of recorded history to reach homebuying age. And they all did it at the same time! A real game-changing event.

  12. My Ford dealer is offering 2500 rebates and zero APR on 21 models.They probably have very limited inventory. Snider did a series of charts showing inventories running way too high. Perhaps when all the chips arrive and all the cars waiting on empty lots are fulfilled and all the Christmas toys arrive in time for Easter, and the looming end to mortgage forbearance, and student loan forgiveness and rent control schemes, and all of the band aids fall off. Then growth won’t look so rosy.

Comments are closed.