Quantitative Tightening coming sooner, faster, and bigger, according to the Fed’s minutes today.
By Wolf Richter for WOLF STREET.
Markets were blissfully asleep late last year, and particularly in December, when the Fed became hawkish and made clear that it would move much faster than previously expected, and that there would be more rate hikes sooner, and that the balance sheet runoff – Quantitative Tightening – was already being discussed. And Powell came out after the FOMC meeting on December 15 and said that inflation was now a “big threat.”
And I came out and said at the time that this most reckless Fed ever – still repressing interest rates to near 0% and still printing money hand over fist, though at a slower rate – was “starting to get serious” about inflation. Upon which the markets laughed.
And today, we got the minutes from that meeting, and suddenly it sank in for the markets that the Fed, after brushing off inflation for a year, is getting serious about inflation.
The terms “elevated levels of inflation,” “elevated inflation,” and “elevated inflation pressures” were mentioned five times in the minutes.
Liftoff in March? Then quantitative tightening.
Raising the federal funds rate could come “relatively soon” – so liftoff maybe at the March meeting – and then the balance sheet reduction could come “relatively soon after beginning to raise the federal funds rate,” the minutes said, and it may raise the federal funds rate “sooner or at a faster pace than participants had earlier anticipated.”
Quantitative Tightening: sooner, faster, and more.
The word balance sheet “runoff” occurred 10 times in the minutes. This is the Fed’s term for “Quantitative Tightening,” or QT, which is the opposite of QE and means that the Fed’s balance sheet would shrink by allowing securities to mature without replacement.
“It could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate.”
And there was lots of hawkish lingo about the speed and magnitude of the reduction of the balance sheet, repeated several times to make sure everyone got it. Note the importance of the Standing Repo Facilities [SRF] that were announced last July:
- “The appropriate timing of balance sheet runoff would likely be closer to that of policy rate liftoff.”
- “The appropriate pace of balance sheet runoff would likely be faster than” previously (back then, the cap was $50 billion a month)
- “The SRF would help ensure interest rate control as the size of the balance sheet approached its longer-run level
- The SRF could facilitate a faster runoff of the balance sheet than might otherwise be the case
- The SRF could reduce the demand for reserves in the longer run, suggesting that the longer-run balance sheet could be smaller than otherwise.”
Ironically, this – that the SRFs would be a tool to reduce the balance sheet further without blowing stuff up – was what I suspected when the Fed announced the SRFs. So I wrote last July:
“But this looks to me like an effort to get back to a situation where not every run-of-the mill crisis triggers more knee-jerk QE, one bout bigger than the previous one. And it looks to me like some form of preparation to make “balance sheet normalization” work out better next time than last time, which ended in the repo market blowout.”
Fewer hikes of short-term rates; faster bigger QT for higher long-term rates.
The minutes pointed out that the Fed’s strategy might shift to “relying” more on QT and raise short-term rates more moderately. QT would bring up long-term interest rates, thereby ensuring a steeper yield curve.
Long-term interest rates have a much bigger impact on the economy and markets, than short-term interest rates, and this includes the housing market that would face higher mortgage rates.
Good lordy, markets made a mess of things when this came out.
The S&P 500 plunged 1.9%. The Nasdaq plunged 3.3%:
- Apple [AAPL] -2.7%
- Meta [FB] -3.7%
- Alphabet [GOOG] -4.7%
- Amazon [AMZN] -1.9%
- Microsoft [MSFT] -3.8%
- Tesla [TSLA] -5.3%.
Among the small fry: Two ETFs that track some of the craziest stocks out there got crushed today, after having already been crushed and re-crushed since February:
- ARK Innovation ETF [ARKK] plunged 7.1% today, is down 46% from its peak last February, and is 33% in the hole for the 12-month period.
- Renaissance IPO ETF [IPO], which tracks stocks that went public over the past two years, plunged 5.2% today, is down 32% from its peak in February last year, and is 17.8% in the hole for the 12-month period.
The old meme stocks got taken out the back and beaten up:
- GameStop [GME] plunged 13.1% today, to a still ridiculous $129.37, which is down 22.6% for the past month, and down 73% from its peak last year.
- AMC plunged 10.7% today, to a still ridiculous $22.75 a share, is down 21% for the past month, and is down 69% from its peak last June.
Rivian [RIVN] plunged 11.2% today, not only because of the hawkish Fed, but also because Fiat Chrysler announced today that Amazon – which ordered 200,000 e-vans from Rivian – ordered a “significant number” of e-vans from Fiat Chrysler. The stock is down 50% from its high.
Wayfare [W], the internet furniture retailer, plunged 8.6% and is down 30% for the 12-month period and 53% from its intraday high. At $170.26 today, shares are back where they’d first been in March 2019.
It was really ugly for a lot of the stocks that had already been roughed up over the past few months, and there are lot of them out there.
The 10-year yield rose to 1.71% today, having jumped 19 basis points over the three trading days so far this year. Seems, the bond market woke up a little sooner than the stock market.
Cryptos, the new inflation hedge, failed to hedge against anything.
At first, years ago, cryptos were supposed to be this new currency that would leave the hated “fiat” currencies in the dust. And then, when that didn’t pan out, they were supposed to be assets whose prices would endlessly boom. And when that didn’t work out in 2021, they were supposed to be a hedge against inflation.
Well, OK, it started out with Bitcoin, and now there are nearly 9,000 of these cryptos, and it turns out they’re just gambling tokens. For example, the largest hedge against inflation, Bitcoin, has plunged by 36% in the two months since November 7, to hedge again 7% inflation over a 12-month period or whatever. So that didn’t work out either. Well, OK, the jury is still out, I can already hear it, it’s going to a gazillion by March.
But if the Fed – at the core of the hated fiat dollar – is tightening, and if cryptos are supposed to be the force that is independent and outside of the hated fiat, why did cryptos plunge today when QT is showing up on the near horizon? People running for the exists suddenly? Another crypto narrative gone down the drain. In the end, they’re just gambling tokens with which people are trying to get rich quick. And it works for those that can get out in time.
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Something is slowly coming…
But for all the doom and gloom, the DOW is still a hair’s breadth away from record highs.
Maybe this tiny micro baby step will prick the truly silly stocks/cryptocurrencies bubble but leave just the plain goofy stocks alone…for now.
Time will tell, especially with 10%+ true inflation.
The crypto booster team said when institutions started investing this summer it would be another moon shot. I disagreed. I thought it meant short sellers would come in and make it a more balanced market. So far my guess looks better.
Right now crypto is acting like another ordinary “risk on / risk off” market, same as any other speculative lotto stock.
Digital “currencies” get exposed whenever Tether finally receives its margin call. Just like the Fed, Tether has been printing like mad. When it implodes, brings down all others with it. When that day arrives the demand for US$ will be, shall we say, brisk.
In 3 months BC has gone from about 65K to 45K during the most violent blow- off top ever for risk spec stocks. Its future when the tide goes out looks like a reversion to intrinsic value.
This is just rich =hedge funds taking profits when it gets to 15-20 percent range ,tons of free cash another leg up easy peasy
Right, right. Take a look what happened to Chinese “tech”. Tencent was like 2/3 of a Trillion dollars, so was Alibaba. The name of the ETF is KWEB. Down like 70% in under a year. Trillions vanished, dollars not yuans.
That’s just the beginning.
The result of Chinese government reining in Chinese tech monopolies, something that the US gov won’t do.
A lot of what central banks do today were initiated by John Law. Central bankers get creative when the governments are over indebted and the economy is not functioning well.
The number one mistake John Law made was back stopping the government with stock certificates and then inflating the stock price so that a stock mania caught fire. He tried to ease off on the bubble, but a panic took place that caused the house of cards to fall.
Will be interesting if Fed can ease off the gas without causing a panic. Once there is a panic you have to say you will do whatever it takes and hope market doesn’t call your bluff.
You don’t have to do anything, you let the market run its course. It’s called “price discovery,” and it’s what is needed.
It’s also called deflation.
A moderate amount of which is also needed.
Who has EVER seen deflation?
A reduction of inflation is not deflation.
A small retracement of inflation is NOT deflation.
Deflation has happened in short spikes (Q4 2008-Q1 2009, March 2020). Each time, this precipitated a Fed panic and sudden refreshment of the punchbowl. My question this time is, is the patient so far gone that, maybe another flood of steroids and booze doesn’t avert a hard deflationary leg down? I.e., the patient stubbornly remains in a state of cardiac and pulmonary arrest? That is more like a 1933 scenario, but I don’t think we are there.
Nevertheless there is a lot of dead wood, zombie trash to take out.
Agreed on price discovery. Let’s get the Fed to the sidelines to see if these money losing tech cos and the non-productive cryptos can navigate 2% “real” rates
It is also called Capitalism. But one can make more money by lobbying and bribing and doing deals with all concerned goverment and non government authorities. That is called Crony Capitalism.
We all know that if the stock market or housing seriously dips, the Powell FED will fold like a house of cards, as it did a couple of Decembers ago.
There seems to be no consequences to irresponsible financial actions by our rulers.
Can some one just give an idea when this circus of an economy will stabilize so the average person can buy a house within reason?
Never. Nobody has ever been able to afford to buy a house.
Read the old newspapers. The further you go back the more you realize nothing changes.
Never. “Stabilize” means “Dead”. Volatility is the sole “Value” and Purpose provided by “Markets”.
The Kidz these days understand this perfectly and they invest through options, and even crazier, stuff because buying Delta is the only point of investing today!
Some Boring Old Farts are huffing and puffing about regulating options to “protect” retail investors from themselves, but, I think it is just moral panic because The Kidz are rather having fun and they are exposing the game for what it is and not what it is being sold as.
Anyways, instability is probably sustainable also.
In quantum mechanics there is a thing called a Time Crystal, a system that is crystallised in time instead of space. Which means that the system will repeat the same oscillatory behavior forever, and never stop, with no energy input required to drive the oscillations, because the system is already sitting at the lowest possible energy state.
a notion cAME UPON me
ones lover is the only honest mirror
hope is the only lie i believe in
We can accept that one’s lover is the only honest mirror
Once we realize that one’s only honest lover is in the mirror.
I like your notion. For cynics like me, it reflects reality!
I suspect that most American’s righteous anger has been slowly building and as inflation renders their puny income more and more inadequate to support and educate their families, and makes a joke of their dreams, which just became financially impossible, drastic change is coming. See “The Top 10 Percent Own 70 Percent of U.S. Wealth” in statistica’s website, which actually understates the true wealth of the ultra-rich for the reasons explained in “The Spider’s Web: Britain’s Second Empire.”
That documentary estimated that 55 trillions in UK pounds were hidden just in British tax shelters. Actually, the total trillions hidden are at least five to ten times. Just consider not just wealth in the US, EU, Japan, and other relatively transparent companies. Who owns the factories in so many countries, mines in Africa, Asia and South America, gigantic “farms” which surround whole, huge towns, etc., etc.
It is not the pension funds the trillionaire banksters’ “Federal” Reserve banking cartel has been successfully looting through the reckless money printing that rendered their modest investments worthless by creating inflation to avoid US federal budget short falls that would resul in laws taxing the trillionaires. The total hidden wealth of US and EU trillionaires is gigantic and has been mostly untaxed– for DECADES.
In other words, the true trillionaire families and their billionaire cronies (including their mere multimillionaire servants) have TRILLIONS of HIDDEN, dynastic wealth in tax shelters all over the world and have avoided paying taxes by hiding their many trillions for DECADES. Read about the Panama Papers or other disclosures: e.g., “25 corruption scandals that shook the world” in transparency dot org. Enough is enough. If things continue as they are, the US will be more openly a feudal nation with more princes able to commit any crimes like those who have been sexually abusing so many children and young actresses.
Certainly, the corrupt courts in Los Angeles presage the future of all American courts, which are hopefully not yet all utterly corrupt: if you have a case there against the powerful, good luck. You will need it. They are the reason that a certain powerful media pervert was able to do whatever he wanted to young actresses for decades.
If you ever want to know the truth, and you are not their lawyer or accountant or manager, etc., befriend one of the trillionaires or their hidden, agents (who often pretend to be billionaires or millionaires), so they might in a moment of rage or intoxication, reveal the documents that show some of the true, hidden extent of the fantastic wealth of the trillionaire families who rule America and the EU.
there are two prices
the real value
and the market price
Something is slowly coming…
Cryptocurrency is a massive fraud. Its true value is zero
And despite the coming rise in rates and expected fall in stocks, Wolf has not made one of his famous “I’m shorting the markets” calls.
I suspect he suspects the Fed will flip flop when the chips are down.
He that sells what isn’t hisn’ must buy it back or go to prisn’
-Reminiscences of a Stock Operator
No need to sell, buy puts.
Retailers buy options. Professionals write options and manipulate the underlying fundamental to ensure the option expires worthless. A cash cow for broker-dealers.
I hope he doesn’t either. I follow this site because it tends to be more balanced and analytical then anywhere else. Wolf seems to be much more interested in understanding what is going on than pushing a particular ideological narrative. It’s hard to find that among all the shouty shouty voices on the inter webs.
But when he took his short positions, it definitely made me second guess his objectivity and I personally found the whole thing a big distraction.
“…the whole thing a big distraction.”
It still is a distraction. Over the years that I’ve had this site, I published only these trades: short at the end of 2019, covered in March 2020; long in March 2020; short in June 2020. I’ve made a lot of trades over those years — some worked, some didn’t — but those were the ones I published. And publishing trades was not a good idea for a whole bunch of reasons.
Hello, calling the plunge protection team….
What’s the plan???
Personally, I’m tired of being a saver and being short changed. We’ll see before long who in DC has a backbone to allow a healthy correction to play out. It’s a new administration so anything could happen….
The rich having their assets slashed 75% would go a long way to improving wealth inequality. Bernie Sanders /AOC policies would be a moot point with a cost attached to borrowing money.
Good point. An asset price decline would reduce harmful extremes at both ends. It reduces excessive stock and RE prices, while also reducing excess debt leverage. Reducing artificial support for asset prices is a no-brainer.
I bet we’ll still find money for the military industrial complex and the health insurance industry.
That is part of the plan with fiat money. Always allows government to get the money to pay for their preservation even if a loaf of bread is a week’s wages.
If the Fed plans to rely more on QT than rate policy, it’s taking a risk. The Fed’s theory is that buying bonds raises bond prices and depresses yields, but in practice the relationship is far from dependable. QE has been more correlated with rising stock prices than rising bond prices; markets take QE more as a risk on signal and tend to sell safe assets. If markets believe QT will lower inflation they could well push back in the direction of lower yields in response. I suspect bonds will initially sell off, but that effect could be “transitory”.
Which force will prevail – the direct effect of QT or the opposing indirect market response – is hard to know in advance. Regardless short term interest rates several percent below zero is an economic emergency and the Fed will need to address the problem decisively on both fronts.
That was supposed to be “real” short term rates several points below zero. Also oops on the duplicate; don’t know what went wrong. Wolf if you can add an edit/delete button I know at last one commenter that could use it;-)…
Stocks and bonds went up in unison over many years, and both are in a bubble state. A bubble pops only one way. The air gushes out, not in.
This is a thoughtful and substantive response. Well done.
Is the Fed likely to hit the brake soon should the inflation reading come in lower than expected?
I don’t think one month would matter much. The problem is that there is no longer any indication inflation will moderate. We have a lot of indicators that suggest continuing cost push inflation in the US, with substantial room to run until consumer spending slows.
There is indication inflation will moderate… did you see the zerohedge story about a change in the way they quantify inflation?
The numbers will start to come down just enough for them to pause, I believe.
That’s a BS ZH story. It’s a routine adjustment done every two years in January to adjust the purchase basket to what people are actually buying (switching from vacuum tube TVs to flat panel TVs, for example, was a big one back in the day). It needs to be done because products and services change, and buying behavior and preferences change, and CPI needs to keep up with modern times.
Typo on the AMC stock reference almost made me spit out my moderately-priced wine. Yet $2,275 wouldn’t be out of the realm of today’s craziness because nothing is.
Fed has a dead man switch in each hand. Bloated stock evaluations sitting on a margin call stimulus charge with a housing cascade liquidity trigger in one hand. In the other hand is the dollar sitting on a inflation charge packed in a bond canister. The Gov’t Calvary is coming to save the day but is charging in the wrong direction. The Administration has discovered the Big Four Meat Packers are the key to inflation. General JB Corn Pop can still save the day by doing nothing. Let Powell resume what he started on day one on his first term. I am in cash and in my bunker with my Keiser Helmet on and a tennis ball on the spike so I won’t hurt myself. I am not a sophisticated investor and do not have a room full of trading tool monitors to decipher the Delphi Oracle’s secret information surely contained in all those red and green bars.
” I am in cash and in my bunker with my Keiser Helmet on and a tennis ball on the spike so I won’t hurt myself. ”
Cavalry are mounted troops, on horseback or tanks. Calvary is the mountain where Christians believe Jesus died. Maybe modern day Pontius Pilate soldiers will save the day? Will he wash his hands afterwards or use a hand sanitizer?
Probably a Freudian slip. I have a list of people who need to be sacrificed on a hill, so the rest of us can have some sort of chance at a decent long term future.
I think also the ADP Employment report came in with 807,000 new jobs in december rather than the as expected 400,000 so the output gap is shrinking much faster than was expected.
Bit worrying that on some measurements of the economy the Fed doesn’t even know a month ahead.
Wolf, this is the time to go short. The only place left to make money.
You mentioned “ The minutes pointed out that the Fed’s strategy might shift to “relying” more on QT and raise short-term rates more moderately.”
Can inflation be contained via this method? Don’t the short term rates also need to be at higher level (below long term rates) to fight inflation?
Probably the Fed’s strategy is to raise long term rate via QT while raising short term rate and thus avoid yield inversion
The main thing is long-term interest rates. The assumption has always been that if you raise short-term rates, long-term rates will push higher on their own. But these days, that assumption might not work because central banks hold so much long-term debt, and that might prevent long-term yields from rising enough.
I’ve said for a long time, that the Fed should, and likely would, unload its balance sheet big time to raise long-term rates, or otherwise the yield curve might invert, if it just raises short-term rates.
That said, I don’t know that a moderate uptick in long-term rates will bring this inflation under control. The Fed waited way too long. This is going to get worse before it gets better. If they keep dilly-dallying around, like they are, getting this inflation under control make take a long time and require something drastic.
They should have ended QE a long time ago, and started raising rates a year ago, along with a big unwind of the balance sheet. That might have brought nascent inflation under control in a couple of years. But now?
Last time, it took a decade.
“If they keep dilly-dallying around, like they are, ”
I think this dilly-dallying, their intervention if market drops 2% and going all-in at the start of what appears to be a crisis are all scars of 2008. I think what could have happened in 2008 gives them the jeebies and that the intervention worked has made them complacent and led to a situation where they throw the kitchen sink at even a small whiff of markets doing their job.
I may be entirely wrong.
Thanks for making my day – this is perhaps one of the best lines in financial/market analysis yet… especially if you read it in context:
“The old meme stocks got taken out the back and beaten up…”
Very funny (well, for me anyway)… thanks Wolf! You made someone on the other side of the planet smile ;-)
Once again, your train of thought is from the 1970s and 1980s … before globalization.
Studies have shown that, today. inflation is much less responsive to FED policy action because of globalization. Global trade has turned from disinflationary to inflationary.
What you will find is the FED can reduce inflation some, but not cure it. A hawkish FED will leave the US with inflationary slow economic growth.
Wolf – I know that it was only for a couple of days, but did you see the UST yields? Did you notice how only the 10Y had a big jump?
Nothing is going to happen till the March meeting. So 3-months and shorter are untouched because they mature by then.
But so far in January:
1-yr +6 bps (from 0.39% to 0.45%) — a 15% increase in the yield
2-yr +15 bps
30-yr +19 bps
I wonder who the suckers are that own 30 year bonds just to get a few nickels of interest over short term rates. I hope we don’t have to listen to their whining and complaining when they start losing 20% or more of their principle. Same goes for all the lemmings that are long in the stock market which even the former Treasury secretary said today was way overvalued and headed for a major correction.
Surely the main problem is that the Fed has promoted fake wealth for some time. This has come in two main forms:
1. elevated stock prices that bear no relation to future value creation
2. elevated home prices that bear no relation to income (itself tied to future value creation)
So you have:
1. a lot of numbers on computer screens that say everyone is rich
2. a drop in productive capacity meaning there is less actual stuff, which is what real wealth is
This divergence between the narrative and reality has reached breaking point, and will snap back to *reality*.
The Fed have two choices. They can inflate and destroy savings or they can deflate and destroy the fake asset prices. Inflating has two consequences:
1. it destroys boomers
2. it destroys the incentive to do real work, which destroys the future
Deflating will lead to a recession, but it will also restore the benefits of real wealth creation.
What will happen: there will be losers, because the “wealth” in computers right now doesn’t exist in reality. Nothing can change this, it already happened.
You forget the wage price spiral is in full swing, so much of the wealth is reality.
Good one g,, in spite of you not understanding that ”statistics” are really not anything MORE than ”anecdotal information” aggregated…
Please keep on here with this kind of in depth analyses and subsequent opinions,,,
Instead of the one liners…
Thank you,,, appreciate the enthusiasm!
Georgist wrote: Surely the main problem is that the Fed has promoted fake wealth for some time. ”
I thought this was an interesting insight on the Federal Reserve and Central Banking in general. You can’t have Billionaires with out Wage Slaves.
“Psychopaths want power over others and compete with other psychopaths for that power. So there’s a constant competition for ever more power, and in the US power is expressed as money. Thus, psychopaths compete to accumulate ever more money and ideally–from their viewpoint–to become billionaires.
That means that if money is created by credit–and in the US it is–and if the other side of credit is debt—-and it is–and if the already-rich are always trying to accumulate more money–and they are–then ever more debt must be created, and a whole set of somebodies, the larger mass of the population, must be on the other side of that debt. “
The competition for power, money, may explain why some rich people in the USA is more interested in enlarging their share of the wealth rather than make the country wealthier.
Real wealth lies in ‘free and clear’ ownership of assets that are useful for production of ‘stuff’ people need or want.
Inflation/Deflation moves the price around but doesn’t change actual value that much in the basic useful sense.
“Nothing can change this, it already happened”. Brilliant.
Exactly correct; all the ingredients for the crash/reset are all in place and ready for the blender.
I love the naïveté of the commenters. I will tell you a secret, Old School and georgist, John Law takes bribes. As Simon Johnson pointed out in his “The Quiet Coup” our government was captured long ago through bribes and pre-bribery and the “Federal” Reserve was created and still exists due to that corruption and Americans’ naïveté.
Do not be so shocked. For example, search for “The Spider’s Web: Britain’s Second Empire” and “25 corruption scandals that shook the world” in transparency dot org. If things continue as they are, the US will be more openly a feudal nation with more princes able to commit any crimes like those who have been sexually abusing so many children and young actresses.
Not to mention all the fiscal stimulus which could be rolled back. The Fed has monetized spending that is never going to happen. That should keep a lid on inflation, big time. Then after the recovery collapses they are staring a budget surplus, the GOP will start crowing about how they balanced the budget which will lead to more deflationary policy. We’re going to need a lot of popcorn.
I remember you mentioning that over 90% of the fed mbs was long term. That’s when I knew they weren’t serious about unwinding their position.
The long term tranches of mbs are the crap the banks have to keep on the books because nobody wants them. These are the tranches that get prepaid way in advance with statistical certainty. The fed buys them to provide liquidity to the banks, otherwise the banks have to sit on this paper for up to 10 years.
There isn’t a big market for the long term mbs even if it is heavily discounted. The fed would have to discount it to a very high interest rate to get rid of it. Or force the banks to buy it back. Neither of these sound like a good idea. The first option would reveal the real long term interest rate and the second would hurt the profitability of the banks.
Yes, but as you know, MBS are different from regular bonds — the passthrough principal payments that the Fed gets…
These passthrough principal payments are massive. They come from mortgage payoffs (refis, home sales) and from the principal portion of the mortgage payments. Last year, that ran at about $60 billion a month, sometimes over. The Fed bought about $50-$70 billion a month in MBS just to replace those passthrough principal payments; and then it bought another $40 billion a month to add to the pile.
So if the pass-through principal payments continue at this pace, the Fed can let the MBS roll off at a rate of about $50 billion a month, without any of them maturing. That’s $600 billion a year.
In addition, these are MBS from the GSEs. The GSEs can call their MBS periodically when the principal gets too small (this happens after something like 6 or 7 years) and they repackage that remaining principal into new MBS. I don’t know the dollars per year, but it’s substantial. So this too will contribute to the runoff if the Fed lets it.
The Fed is going to put a cap on the runoff, like they did last time. If this cap is $40 billion a month for MBS, I think MBS (via passthrough principal payments etc.) can get pretty close to hitting the cap in most months.
Your previous statement that the fed’s mbs position was mostly long term and your roll off description cannot both be true. I know you can slice a pool a billion ways, but long term tranches may not get paid off for years. If they are rolling off tranches monthly, they bought the short term tranches that mature fast, and they get their money fast, and buy more.
I admit I don’t follow any of this anymore, but I did do this for a living at one point, and I know how a pool can be sliced up. The pool creator can direct the income stream to or away from tranches at will using duration. Usually long term tranches are the bag holders for losses.
Both statements are true. They’re long maturity MBS, and they generate this huge amount of pass-through principal payments.
I think there is a slight misunderstanding here, if I read your comment correctly. It’s not the tranches that are rolling off. It’s every time an underlying mortgage is paid off, or paid down, that principal payment is passed through to holders of the MBS (in this case, the Fed), and the principal amount of the MBS on the Fed’s books is thereby reduced.
But these are GSE-issued and government-guaranteed MBS, so the government takes the credit risk, and there is no purpose in having tranches since there is no credit risk for the holder.
These MBS are constantly shrinking as those principal payments are passed through to the Fed.
The average mortgage in the US gets paid off in about 11 years, I think, and those principal payments are passed through to holders, and after 6 or 7 years, that MBS has shrunk substantially as the underlying mortgages have gotten paid off. This is a real issue during the current refinance boom.
The page I linked below shows the scheduled purchases in 14-day increments. So you add two periods together for one month. Those purchases are now coming down (tapering), as you can see, but until November they were about $100-$110 billion a month, with about $60-$70 billion to replace the passthrough principal payments just to keep the balance flat. So you can see how huge those passthrough principal payments were.
What the Fed proposes….so late and behind the events…..is too little too late.
The “transitory” BS put the Fed into a WAY too late position.
We STILL, and will for quite a while, have a spread between Fed Funds and Inflation that has never been so wide (6%+)…..this destroys everyones wealth, especially in a declining stock and real estate market (if it happens).
The Dystopia created by the Fed is … in cash, lose. In stocks, lose. In Cryptos, lose.
The magic wealth creation was just that. The bunny really wasnt in the top hat, the spoon was always bent.
Central bankers interfered with the free markets….and now the answer likely will be, more interference somewhere down the line.
Long term rates means real estate, and that’s where the bulk of all money gets created.
The FED is talking and the market is falling. I love it. The shorting season is officially opened. SPY is near the top. But don’t forget that ARKK topped out in February. That was almost a year ago. The FED is late as usual. Zombies have to fall now. Inflation is here to stay nevertheless.
I have been running a conservative portfolio and underperforming the market for at least 6 years. I am ready for the leveraged speculators to lose it all, but probably will not happen.
I have a warm place to live and plenty of food, most other material stuff isn’t really that important.
You are right probably won’t happen, but maybe a 20% correction would let some of us ( cash holders) to re/enter the stock market on better terms, or maybe yelds increases lower housing prices for some….
That’s funny to think that even a 20% reduction wouldn’t even cover the SPY gains in 2021…!
Yes, that is funny, but a lot of overpriced stocks and funds will sustain more damage than that.
Just keep feeding the rich exactly what they want ,every last cent of your money thread carefully
I like boring, too. I’m thinking big banks could be worth owning when interest rates start climbing.
But not European banks, no ,no,no, no,no..
Every talking head on tv is pushing banks beware
A low fee S&P 500 index fund will keep up with the market, whether it rises or falls.
At the beginning of the month I bought more U.S. inflation adjusted savings bonds currently yielding 7%. They readjust the interest every six months. TreasuryDirect allows up to $10,000 of ibond purchases per year. They may be sold before they mature.
Buy IBonds near the end of the month, you’ll get credit for the full month’s interest.
That’s $10 K per person per calendar year. If you are married, your wife can buy $10 K on an account for her. If they are held less than 5 years, a 3 month interest penalty is imposed on withdrawal.
You can also set up a living trust, and add $10,000 from the living trust. I don’t know why they allow that, but I got a book on how to DIY a living trust. I might have other uses for the living trust too.
(add $10,000 from the trust fund to make yearly limit $20,000, or $40,000 per year if you have an American citizen wife)
Getting the full principle and interest back at 5 years is about right for me. I have about a ten year horizon. After that, no need to seek alpha. I’ll start buying robots to take care of me.
The FED will do only what is necessary to protect the banks and keep as much of their machinations secret as possible. I still can’t find how much the NY Fed loaned to their individual owners in REPOs last year. Total amount yes, but who got what? Also can’t seem to find detailed reporting on Fed officials trading, which one would think would be illegal
The Fed still buying billions in treasuries and MBS through March, it’s absolute dereliction of duty. It’s madness, what are they thinking?
They aren’t tapering anything, they ares still stimulating.
Stock market will go back up, expect dow to hit 40k this year, the amount of money out there is insane, and there is no way to tame this other than by utter collapse.
Much as I hate it,,, have to agree with your last sentence EB.
As opposed to some on here who testify they have been in the SM since the ’80s,,, I have been OUT of the SM since then, and only investing/working to build in the RE mkt since then, with very good results now ”enabling” me to sit here on my ‘puter commenting, to my clear and continuing amazement.
KUDOs to Wolf and the commentariat on here…
Don’t think I am going back into the SM for now, in spite of my continuing education on Wolfstreet.com ,,, etc…
Thank you all!
They need some time to get out of their own trading accounts slowly without setting off any red flags. Give them a break!
The FED speak about QT & interest rate hikes is all bluster and no substance. The most powerful cartel in the world’s destiny is to be the buyer and lender of last resort. To own it all. Anyone expecting anything other than token moves of less debt creation and (meaningfully) higher interest rates is delusional.
The FED has printed more money over the course of the last 2 years than any time in history to prop up a dead economy. We live in a world that is entirely supported and fueled by increasingly higher levels of debt. The debt creation can never stop or it will plunder the world into a cataclysmic depression much worse than the Great Depression. Eventually, the too-many-dollars chasing too-few-goods phenomenon will wear off and a liquidity crisis will ensue, putting an even bigger vise on an economy already in terminal collapse.
Regarding crypto’s being gambling tokens, sorry Wolf but that isn’t entirely true. Yes most of them are definitely crap, but there are a few that will rise to the top when the Dollar and all fiat currencies collapse to worthless. And when the mainstream wakes up to the fact that Bitcoin is a true shitcoin. Monero (XMR) and Pirate Chain (ARRR) are these few. The difference maker with these crypto’s is their sophisticated level of development for privacy, security & fungibility protocol. They provide the ability for anyone to transact freely anywhere in the world without government being able to “surveil” you like they can with Bitcoin or any government-sponsored digital currency. You store your money in a safe, secure digitally encrypted wallet. Only you know what’s in your wallet.
Most people don’t understand that BTC is a surveillance coin. Every transaction made with BTC is logged on to a transparent blockchain ledger for all the world to see. That means anyone including governments and criminals alike can see everything about you – your identity – to whom you transact with – how much etc…
The future of those who want to live as free as possible outside of the tyrannical reach of government will value and depend on true privacy, because maintaining privacy will be essential for maintaining survival.
“Yes most of them are definitely crap, but there are a few that will rise to the top when the Dollar and all fiat currencies collapse to worthless. And when the mainstream wakes up to the fact that Bitcoin is a true shitcoin. Monero (XMR) and Pirate Chain (ARRR) are these few.”
Posts like this always crack me up. If you think the governments of the world are going to allow such a thing, I’ve got a bridge to Mars to sell you. The moment they feel threatened, they will just make them illegal with the stroke of a pen, and you are a criminal if you engage in it. And then they’ll come after you.
I worked as a software engineer for over a decade, yet I don’t have the motivation to understand cryptos too deeply. The way I see it, one of the primary weaknesses of cryptos is the complexity itself. Something that’s difficult to understand is unlikely to be good. And instead of promoting equality, you promote more inequality. Even bitcoin-friendly articles often concede that 0.01% of bitcoin holders control one third of all bitcoins. In the rest of the investment world, it’s 1% that controls one third of the wealth. Yet these crypto advocates are counting on the masses to “trust” those who are more savvy than they are. Wolf correctly describes cryptos as gambling coins. I think cryptos are very similar to a game of poker, which is bad for ignorant investors because a skilled crypto trader is statistically guaranteed to take your money over time. You’re not just losing money to the house like you do when you play slot machines or roulette.
It seems to me that hackers have been able to get away with bitcoin theft simply by using tumblers and mixers. So apparently you can get away with crime pretty easily. The governments aren’t doing much and I’m not sure how much they can do. I think the biggest risk to bitcoin is not the government trying to fight criminals, but the unsophisticated investors demanding that bitcoin be made illegal. It was the public that pressured governments in the 1960’s to make pyramid schemes illegal because so many people lost money on them. Gambling is considered a vice because the average person recognizes that it’s different from investment in that unless you’re a pro, you’ll lose in the long run. I don’t see a likely scenario where cryptos fail to be seen in the same light 10 or 20 years from now.
“The moment they feel threatened, they will just make them illegal with the stroke of a pen, and you are a criminal if you engage in it. And then they’ll come after you.”
What is specific persons within said governments are the criminals who created it in the first place using NSA cryptography?
agree. First of all 1/4 pts do nothing…..Four raises would still leave Fed Fund at HISTORICALLY extreme levels below inflation.
Powell is trying to regain the narrative, be the big Hawk but has no wings…
A good bet would be whether QE ever goes to zero…..
I’m guessing no.
The FED is full of manure. Little old me – a non-IVY-League-educated armchair economist – saw massive inflation coming, but they didn’t. Jerome Powell should have been fired, relieved of his duties. He is an abject failure. There are innumerable soundbites of his over the course of the past year+ which are just flat out wrong. He couldn’t read the tea leaves at all. He was asleep at the switch. Or maybe he was just day trading, like his crooked buddies.
Going back to the early days of the pandemic shutdowns, rather than take a methodical, well-reasoned approach to the situation, Powell crapped his pants and fired up the printing press like a rookie with a machine gun spraying bullets everywhere with reckless abandon, endangering everybody. In this case it was dollars. He talked big and basically said “we’ll print everything away, nothing to worry about.” The deleterious effects of this grotesque endeavor are now seen everywhere.
And CONgress, too. These vile creatures, none of whom could probably even balance their own checkbooks, went on some spending orgy like money is just free, and made it rain dollars across the land, picking and choosing winners and losers like it was their money. But it’s not, it’s the futures of the young – their labor – they were pledging, with zero thought or foresight. We went from an already bifurcated society to feudalism in the blink of an eye.
And now here we are, the FED talking big but still to this point doing nothing to actually fight inflation. They are still creating it, adding to their balance sheet through March, for reasons unknown. This whole situation reeks. It’s just gross.
“Or maybe he was just day trading, like his crooked buddies.”
Maybe ? maybe? Powell is up to around $80 million in his personal “piggy bank”.
He started the job with only $50 million …..
You think he cares about the little people? Hahahhahahahahahahhaha
Powell was not Biden’s first choice for Fed Chair. B wanted Brainard. But she would have faced a tough conformation fight. So Powell was chosen as sloppy seconds. JP’s ego has taken a big hit. Now it’s time for to get even. He’s gonna tighten much more than anyone is predicting and send his boss a message. Get ready.
He will fold ,trump perfect example or have a sudden heart attack his choice
They are blowing through the only thing fiat has which is confidence the government will not abuse it.
I get this feeling that the Fed is afraid of the Fiscal cliff, so they’re reloading their magazines by talking hawkishly. When the market starts to wobble because government spending is on the decline, the plan is to simply do another Powell pivot. That way, Powell’s portfolio can be rising in value forever and ever. They’ve learned their lesson now. Go easy on government spending. That ensures consumer inflation remains low, while asset inflation continues. I have the feeling that the whole game stops when the average person decides to work even less, forcing the Fed to tighten policy not because of inflation, but because they need to motivate people to go back to work because they can’t rely on investment income anymore. Despite the popularity of r/antiwork on Reddit, I’m not sure we’ve arrived at that point, yet.
Jim Cramer loves him = saved stock markets ass
Wolf, care to update us on your short? I think you said you’re in cash now, so you got stopped out presumably a while ago?
Still have it. Still getting nagged about it every time the market is up :-]
I sit on lots of cash though, waiting for something. I got some other stuff. I don’t have any cryptos obviously.
Cool, I thought for a minute I might be the last bear on the planet :)
I always admired Wolf’s decision to publicly announce his short. Ivanislav’s comment is different from the typical reader’s comment. Most readers have negative things to say about it. Even in this comment section, on a day when the market looks like it’s getting shaky, there’s little in terms of moral support offered.
I would rather buy Puts than short the market. Right now is a good time to do just that. I would buy one in Robinhood if I had some cash to burn.
“Two ETFs that track some of the craziest stocks”. Well said. Unfortunately, the manager of ARKK is full of hubris and is yet to realise that her portfolio is fully of crazy stocks.
The wax that held the feathers in her wings together melted when she flew so high that she got too close to the sun, and she crashed.
But to be fair, I think any one of us would have done the same thing if we were presented opportunities in like manner as Cathie Woods. If people all of a sudden started calling me a genius and did whatever I told them, of course I would get up on the soap box and start blabbering. And I would try to profit off of it as much as possible too – just like Woods
There are a lot of things happening that are out of her control. Otherwise she is one of the smartest guys in the room.
They are asset gatherers. Their incentive is to get attention and grow funds coming in even by not looking out for long term interest. She should have made enough by now that the fund can go to zero and she live in large house and drive nice cars.
That’s why you will always be a peanut, unless you man up and do what’s right.
PERHAPS NOT PG:
Had to stop or at least slow down some of the breathing and ”concentration exercises” that a teacher told me to do, when folks started following me too closely in the WM and other public venues where my shopping was needed, weekly, for our ”homestead” in fly over, where we were prepared to feed all the neighbors within a half mile or so, similar to the ”Old Order Amish” similarly prepared for their family and neighbors in our county…
Recently told my better half that we will have NO worries at all because we are less than 5 miles from MacDill AFB, one of, if not the first targets of the vast and getting vaster every day,,, you know..
Thank you VintageVNvet for that stream of consciousness comment lol
What did VVN say? What’s with MacDill AFB? Walmart? Preparing to feed the neighbors???
We need more clarity!
She clearly states that her portfolio of stocks are 5-6 year investments don’t buy until at least 70% drop then buy in increments
So true nifty fifty
If the Fed backs down now because it’s worried about some sort of market “tantrum”, it will be a travesty. We need a healthy market correction across all asset classes.
Bloomberg put out a interesting article today, and confirms rumors I heard, – these hedge funds see further out than retail investors, and this is just a glimpse of things to come. – I don’t believe “cash is trash”, but sure believe “crypto casino coins is trash”, and I believe crypto leverage could accelerate a downturn like we never seen before.
These boys are jumping off this hyped up Titanic, and screwball Cathy’s ARKK will be like the old Janus 20 of the dot com fiasco.
“The hammering in technology stocks that began to spread into the broader market Wednesday is being fueled by one of the most intense bouts of selling by professional speculators since the financial crisis.
Hedge funds, which spent December unloading high-growth, high-valuation stocks, began the new year by jettisoning software and chipmakers at a furious pace. During the four sessions through Tuesday, these sales reached the highest level in dollar terms in more than 10 years, data compiled by Goldman Sachs Group Inc.’s prime broker show.
The tech carnage worsened after minutes of the Federal Reserve’s last policy meeting pointed to earlier and faster rate hikes, uncovering “a more hawkish Fed than some may have expected,” said Mike Loewengart, managing director of investment strategy at E*Trade Financial.”
Ah, the benefits of inside information.
The only good information is inside information.
What “hedge funds see further out than retail” means is that further “out” means further “in”.
You simply must learn modern double speak: out means in.
Goldman is merely doing “God’s work”.
@Dio – I’m well aware of how these hedge funds operate with their good ole boy networks, this was a FYI to others who aren’t aware, and importantly confirmed the rumors I heard as stated in early Dec.
Yes “they see further out” because they are hiding their dumping that effects the markets because they have 45 days after the end of the quarter to report, and know the market is correcting.
I don’t need to learn any “double speak”the Fed gives plenty of it out almost daily – ya follow?
Gotcha M,,, and EXACTLY why I stay out of the SM, for now, and after staying out since the 1980s, when I realized clearly, that I had only made serious money in that mkt with what is now called insider trading…
Roger that, – VintageVNvet – These markets are so rigged by hedge funds, and are overbought, hyped up on crack cable-talking heads, rookie daytraders, WallStreetApes, margin galore, and leveraged margin up to 5x with Bit-trash coins, and the most irresponsible Fed policies I have ever seen, to keep this BS floating to the surface.
Geeez Vegas gives better odds without the rules changing everyday!
I do speculate these 9,000 type Bit-trash coins somehow, someway will be the catalyst that causes a crash, because they can be hacked, ransacked, jammed up by malicious groups and individuals by anyone, even with a $100 dollar PC.
ps- thanks for you VN service
This is why musk,natyalla sold stock
And they sold a lot at once. I wonder if the two of them, and others like them, are “program selling” right now? Kind of like what Ken Lay did at Enron when the sky was falling.
Were hedge funds the only people selling? Surely not.
“The hammering in stocks….”
This is just silly. Everything is still near its all time highs when you look at the indices. This is what’s so nauseating about the media – when everything goes parabolic for years straight, it’s all rainbows and unicorns, but a down day or two and it’s the end of the world. “Hammering” my asz.
Complain to Bloomberg since you are better informed.
Whoever bought Dog coin at 74 cents with payday loans must be in a bad state today.
I wonder if there are grudges against the Dog coin millionaire.
1) Fed gross assets minus RRP = Fed net.
2) RRP window dressing is over. RRP is down $400B from $1.9T to $1.5T.
3) The Fed is dovish, TY is down.
4) When China’s RE virus expand globally RRP will exceed $3T. JP might win an Olympic RRP.
5) XLF, the financial sector, was down yesterday. Anomaly : higher rates,
rising yield curve, lower banks stocks. BRK/B large selling tail a day after AAPL $3T. The 90Y WB cannot take it anymore.
6) US10Y minus German 10Y is rising sharply.
7) The market job is to fool software. Perfect AI produced blanks.
Pichai was down 4.6%. $3T lost 2.7%. Jeff & Sanchez Blue Origin landed in Saint Barts. Metha down 3.7%. Satya Nadella curved 10% since his sandwich money. Tesla 1M entered the cloud.
You have the most severe case of ADHD I have ever seen.
Red, I LOLed at this comment
When do we realize that everything is going according to the FED’s plan?
The FED pumps up everything and makes sure its buddies are well provided with cash (1.9 trillion RRP’s come to mind), ready to buy everything at the next planned ‘crash’. Which will miraculously restore because of all the buying in combination with the next ‘really needed’ rescue plan with even more new liquidity and ‘saving the world’ from what ever is on the agenda.
Sorry if i sound sarcastic. But this is how i see things happening.
And I agree with you. Boom bust whatever happens, you can make bank if you know what is coming. There are people who know, but it is not you and I.
Window dressing :
Tehran panic when an Iranian ballistic missile exploded in the heart
of Tehran, during Vienna nuke talk.
Ya could add, Kazakhstan closes da internet.
China ghetto experiment incomplete. Successful outcome needed to ensure internal control during upcoming external war…
Kahzakastan is rich in oil and mining ,Russia just got involved watch out ,China won’t like this
Since this market reaction is probably not the beginning of the big sell off leading to a decade long bear market for US stocks, it will be interesting to see what interventions are then performed by the FED when the big bear market sell off does actually begin.
Avi Gilburt jokes about this by illustrating on his charts the potential levels where the Fed might begin buying ETF’s, then individual stocks, and then eventually capitulating.
At any rate as Wolf’s previous articles have shown, we’re well overdue for QT and rate hikes. The fact the FED is mopping up 2 Trillion each night is reason enough all by itself.
I have just googled Wolfstreet and a Wolfstreetnft website comes up near the top of list – whaaat!
Somebody yanking Wolf’s chain?
I didn’t get that on the first page of Google. There are some streets out there, called Wolf St., and so you have some businesses, such as Wolf St. Pizza, etc. come up, but I didn’t see an nft on the first page of Google.
Yeah, thought it was a bit weird. I accessed Google through Quant. Came up as the second listed webpage.
Can’t explain that one then, but thought I should raise it.
My favorite is Wolf Tooth.
A few mechanical engineers in Burnsville, Minnesota have a company that makes components, accessories and tools for the bicycling world.
Being Minnesotans and having a Finland connection, they named their bicycle manufacturing branch, ‘OTSO.’
“Otso is the spirit of the bear in Finnish mythology, the most important, revered, and respected animal of them all. Otso is the noble king of the forest and a symbol of strength and courage.”
My OTSO carbon-fibre gravel race bike is now only waiting on the arrival of a left-side shifter from Shimano to be ready to bring home & ride. Oh well, since it’s -22C outside right now, back on the Kreitlers I go again.
P.S. Composer Jean Sibelius wrote some of his music with the mythology, and Finnish nationalism in mind.
Did a Duck Duck Go search…
First 2 entries are for your site and then number 3 is for wolfstreetnft.
Cryptos were “easy” to own in a zero interest rate environment.
Cryptos have never seen significant interest rates…
and it can not be overstated that a train wreck in Cryptos could reverb throughout equities…
BTC has been recognized as a margin covering asset….
Words are one thing, action another, especially when you have the Fed backbone of an under-cooked soufflé.
They will cave, it’s just when
Red, those are the facts :
1) QQQ osc around it’s BB.
2) RRP is down $400B ==> the Fed is dovish.
3) China’s RE debt is exploding. Evergrande is a symptom. The cause : RE debt virus.
4) Anomaly : TY is down and XLF is down too. When the banking system need $2T window dressing US banks are not safe.
4) Al Kuds sector in Tehran was rocked by a ballistic missile explosion, on the way from it’s underground factory to a secret missile base, commemorating 2Y of general Suleimany assassination. Tehran put a threat on US : either a “contract on Trump & Pompeo, or pay, compensate his family, according to Iranian law.
Tehran needs to pay for u.s. military deaths
I don’t have enough time to read all the commentary right now, which is the real fun read of wolfstreet (apologies to Wolf!). Anyway, rolling off public debt is fine, but the most important metric will eventually be how much ‘free money’ is wisely invested to improve the nation’s productive capacity–instead of simply throwing the cash out the window. Functional finance, the obsession over creating ‘balanced’ federal budgets, is not at all functional as it turns out. Anyway, raise % rates to silence the whiners, continue to reduce irrelevant public debt (just about all of it is a subsidy to the wealthy class) and directly spend new money (equity?) into the private economy. Create ‘fiscal space’ to accommodate this spending by raising taxes on the wealth class. Simple really. But the Democrats don’t have the balls. And Republicans are just grifters riding on the skirts of the donor class.
Bitcoin – how to invest in virtually nothing.
Or virtually veritable and literally little..?
The Fed and Congress are out of control.
They both have lost their way.
It will take a new Fed and a new Congress to really address the monetary and fiscal disaster they have created and fostered.
If and when?
As the Shadow said: “Who knows what evil lurks in the hearts of men?”
Jawboning + Politics (corruption) >> deeds
O/N RRPs unrecognized subtractions from the broad money stock:
Apr ,,,,, 0069
May ,,,,, 0290
Jun ,,,,, 0673
Jul ,,,,, 0848
Aug ,,,,, 1053
Sep ,,,,, 1211
Oct ,,,,, 1425
Nov ,,,,, 1445
Dec ,,,,, 1600
Wow! A long time you say? Inflation, fed too late!? Holy moly. Still holding, BP and reinvesting! Nothing like it out there otherwise as far as value. If the pound could ever get out of its own way!
As someone said it’s all drama no action. Fed will not let any long lasting major crash. Keep in mind that Dow is near all time high. There are few casualties but that’s always there. Overall economy and market are buzzing. Wolfs articles are mostly wishful thinking. He has been saying for eternity that TSLA is worth nothing and now it is a trillion dollar enterprise. Modern world operates differently that he doesn’t understand. Not his fault, even Warren Buffet is wrong now. I guess couple of generation gap or too old to learn and adapt.
Govt has realized all around the world that they can simply print money and stimulate innovation, create jobs, advance human civilization. No need to raise taxes or apply any draconian measures. Money printing keeps everyone happy and economy buzzing, well except a few cash holders who are a burden on society anyway because their holdings could otherwise be invested for greater progress of the society. Cash holders are not good for the world and now they will be punished. Everyone in the world should keep moving ahead and deploy their earnings, earning more in the process. Holders dampen the pace of progress.
I knew that the New Year symbolically is a baby wearing diapers, but never imagined American investors turning into the same uninitiated, pants wetting newbies that they are once again proving to be! Any elementary school kid could look at both the charts of the S&P 500 (stands for Scared & Panicked) and the 10-year Treasury Note price charts and come to the conclusion that things don’t look peachy in River City.
A fool and his or her money are soon parted. To imagine that the academics and swinging door bankers that populate the Federal Reserve would not eventually Panic in trying to get the Inflation Genie, now laughing his head off at them, is to have not studied the history of this less than illustrious body of Wizards. Manipulated markets just do not do well in the long-term. And the Newbies in the crowd, when they stop sniveling and crying, will now become very long-term stock and bond investors.
Buy and Hold, a very dangerous strategy that can become a wealth evaporator.
Wolf, try buying some physical gold. Best performing asset since the New Millennium began. Silver a little wilder, but will eventually out-perform the Yellow Metal. Why not buy a pink diamond for the wife so she will put that rolling pin down regarding your equity short positions?? The shorts are once again today just strutting their collective stuff.
Evergrande suspended onshore payments until July. They failed to make 82M in offshore payments, (which could involve that payment to CITI which was never confirmed) This is the story, not the Fed minutes. If this starts a global credit backup, (corporate high yield crashed yesterday) then no markets are safe, not gold, not bitcoin, and enter the dragon, all those markets are down again today. Sus-pect the Fed papered over US bank losses last month. Chinese officials are ‘tearing down’ unfinished projects? Their government can’t stop the bleeding and the Fed can’t stop lying. Tough days ahead.
Who in there right mind lends money too a communist. Country,greed never wins
Re: crypto. Who pays money in a large transaction (except drugs etc. where you better know the other party) without a third- party record of same?
‘It’s anonymous, no one can view the transaction’
Exactly, which is why it’s useless as a medium of exchange.
Re: gold. If anyone wants to understand gold it wouldn’t hurt to read: ‘Chasing Gold’ which is largely about how Germany, which had gone almost broke
by 1938, financed the first two years of WWII with gold from ‘acquisitions’ Austria, Czech and then conquests.
Gold is the ultimate form of cash money. Sweden had no interest in Reichmarks but gladly (at first) sold iron ore for gold.
The US once sent a destroyer to pick up Brit gold.
One of the largest treasure salvages of (non-Spanish galleon) gold seen on TV was of a Brit ship carrying Russian gold as payment to Allies. It was kind of funny watching the Russians, salvors and others? very carefully logging each bar as it came up to make sure of their share.
Lumping gold and BC together? Oil and water.
Winter Olympics followed by RRP Olympics.
Ambrose, gold and silver almost always get hit when financial markets start to hit the inevitable air pocket due to valuations, Fed policy reversals, loss of confidence, and herd behavior. The leverage in gold and silver contracts on the Comex is like 30 to 1, and while the futures continue to wag the physical prices (and this will not last as shortages in physical stock for immediate delivery to customers across the spectrum continue to build, just look at premiums over spot for physical bullion, stay tuned), the prospect of sudden loss with sinking financial markets causes precious metals traders to raise cash quickly avoid total loss of principal in a position and to cover possibly leveraged positions in other markets.
But this short-term phenomena is not a true indication of inflation or collapse or default risk coverage by gold and silver in the long-term or even intermediate term. When this waterfall of risk-aversion due to either major credit defaults, Fed tightening, or a bevy of somewhat unexpected occurrences really gets going, money seeks the most liquid, globally accepted assets available, and that is the precious metals. It is increasingly not U.S. Treasuries since they have unlimited supply, one way or the other.
History has shown this Safe Haven Status of gold and silver time and time again, and the collapse coming to a venue near you and me is going to be one for the record books. Evergrande is just one more indication of the sheer magnitude of the Dollars that are going to disappear into thin air. This collapse will dwarf 1929, 2000, and 2008 by multitudes of magnitude due to the explosion of printed money since 2009.
Wow, $82 million with an M! In a world where debt is counted in trillions.
Evergrande only has $12 billion in dollar debt. The rest are liabilities owed to Chinese entities and Chinese retail investors. There are companies out there in the US that have $100 billion plus in dollar debts (bonds). If several of those topple, I could see a problem that impacts the US. But not Evergrande.
Evergrande is going to get dismembered, just like HNA and other fallen giants, by Chinese authorities, in a more or less orderly manner.
The bigger problem is the economy in China. The entire construction sector is hugely important. And now it’s in trouble. There is no telling how many millions of apartments were bought as pure investment without any intention of ever putting a live soul into it. Maybe no one needs more apartments in China. And then, what’s China’s economy going to do without major residential construction for years?
Now the narrative moves to include Shimao. The issue is how dollar debt is being treated. Worse yet if the Fed did need to plug the gap for CITI. They may soon make an announcement about that (special facilities). If these foreign companies default on dollar debt we can reach in their reserves to cover the difference but would they? Nothing else explains the volatility in high yield credit.
Jim Cramer was on CNBC this morning. He was salivating over the tech wreck. Said it was a good thing. Then he issued his usual BS. Time to Buy,
Someone else mentioned it in a throwaway comment and I’m not sure about the timing relative to Wolf’s article, but Kazakhstan has significant civil unrest and shut down a great deal of Internet access in the last 24 hours and a fair bit of mining activity shifted to some fairly politically unstable places after China started cracking down.
I think that the other shoe drops when companies, especially in retail, start reporting and a lot of companies tell us they got coal in their stockings for 2021. I made my investment position way less aggressive in October-November, in no small part because of Wolf’s reporting, I should send Wolf another donation…
It will settle down soon with fraternal allies on way ( Warsaw Pact 2.0) The Russian special forces are not yr Capital Police or National Guard. See fate of Grozny when Chechens got out of line. It’s all the work of foreign agents. The supposed grievance, the doubling of nat gas prices is just a red herring/ distraction. Go to RT for info.
I actually read about Kazakhstan’s effect on crypto prices in RT. I don’t doubt your analysis though.
Taper tantrum coming in 3…2…..1………
Weimar Powell is going to fold like a cheap lawn chair real quick…and as I quote someone I absolutely despise…”Change my mind” I would love to wrong here but market takes another 10% haircut, that tune will change real quick.
About Rivian, I was reading today that Amazon is not obligated to follow through on the purchase the 100,000 vans. The agreement “does not contain a minimum order quantity or minimum purchase requirements,” and that purchase orders “are subject to modification or cancellation upon notice.”
During the hyping phase of that stock, I didn’t see this mentioned by the “experts”.
Like Hertz and the 100 K Teslas, which also turned out to be non-contractual.
What is it about 100K? In real world wouldn’t you start with a smaller purchase to see how it goes? Guess you have to over- hype in a sea of hype if you want to be news.
Regarding cryto universe not acting as a safe haven….
I wonder if all the new trading vehicles like the etfs have enabled leveraged speculators to become a significant part of the trading action. When those guys panic it usually makes waves.
I don’t see a “panic” in crypto at all. Shitcoin is still $43k and change today. It’s been trading in that range for months or something. It seems like there’s a lot of hysteria over nothing right now.
The fed will never sacrifice the stonk market. It’s been one big con game since 2008. Expect hot air and opportunistic articles to continue, nothing has changed, except ever increasing debt.
Nah, the Fed really means it this time. Market has to dip at least 10% for the Fed to pull on the magic money tree.
Like they say, “talk is cheap.” Anybody can bullshit about anything, and that’s pretty much all the FED is doing right now, bullshitting. They have done zero to try to get a handle on inflation, and in fact are still printing.
Their so-called “hawkish” turn (a laughable term for such profligate money-printers) is nothing more than jawboning. Aside from money-printing that’s their only other tool. And they are trying to talk inflation down with it. But you can’t “jawbone” inflation down, so it’s just more egg on Powell’s face.
The Fed doesn’t want to do anything that will adversely affect their private trading accounts. That’s’ why they have been going slow on tightening. They want a soft landing so they can get out of their vulnerable positions. They couldn’t give a s$it about the American people or the affect the inflation that they caused is affecting everyone except the very wealthy.
Does anyone have any good resources or literature on the happenings around Sept. 2019 with the repo rate explosion after two years of QT by the Fed?
I am doing a little research on what happened a couple of years ago, and it appears that the common Fed perspective is that “too much QT” drained “too much” in bank reserves, thus causing repo rates to spike. But other perspectives say that there were plenty in reserves and that QT was not to blame.
Curious what others think here regarding those events in 2019, and obviously, how it relates to how we think this round of QT will go in the coming months/years (weeks? lol).
“…it appears that the common Fed perspective is that “too much QT” drained “too much” in bank reserves, thus causing repo rates to spike.”
Yes, that was one of the early explanations offered by the Fed. And that is why they instituted the SRFs (Standing Repo Facilities) last July. So now everyone knows that the Fed is ready to calm the repo market when it blows up; and therefore it can let the reserves run lower, and pursue QT for longer, and run down the balance sheet more than last time. It said that in the minutes, and I mentioned it in the article.
” other perspectives say that there were plenty in reserves and that QT was not to blame.”
Yes, and I’m in that camp. But I’m also in the camp that the Fed should have let the repo market sort this out on its own, and if a few overleveraged mortgage REITS (I think those were the drivers behind the blowout) go belly-up, well, OK, let them. That’s what capitalism is all about.
Completely agree with you 100% Wolf. Fed is being the annoying helicopter parent. Thank you for the response.
The total system can have excess reserves, but the distribution of those reserves are what matters. JPM was out there lending those reserves during the repo blow up a few years back, but eventually they ran into capacity issues. This is where the standing repo facility will step in. Also, the SRF is giving China’s central bank access to the Fed, which they did not have before the SRF was created.
The Fed has dollar swap lines with a few major central banks, but the PBOC was left out of this facility. The SRF allows the PBOC to repo their custodial Treasury holdings at the FED and swap them for dollars without the need to sell those Treasuries to raise dollars.
The SRF will police the upper bound while the RRP policed the lower bound rate. The biggest question for this new facility is: what happens if the SRF breaches the aggregate limit of 500b? The Fed kept raising the RRP facilities limit, but I do not believe they can do the same with SRF. Technically they can raise the limit beyond 500b easily, but if the financial system breaches the 500b limit, margin calls and deleveraging will have already started.
Turns out Vice Chair Richard Clarida was also actively trading his portfolio in 2020:
Why isn’t there a blind trust ethics standard?
He should be in prison.
More on Clarida:
“But in a correction to his 2020 financial disclosure, Clarida said he had sold between $1 million and $5 million in the same stock fund three days prior to buying it, indicating that he was actively trading. In the Dec. 16 note submitted to the Office of Government Ethics, he referred to the exclusion of this information as an “inadvertent error.”
The new disclosure, reported Thursday by the New York Times, casts doubt on the explanation previously provided by the Fed, that Clarida’s sale of the fund represented a pre-planned “rebalancing.” That’s a term investors use to describe portfolio adjustments designed to maintain a certain proportion of stocks and bonds as market conditions change. The Fed did not release a public statement at the time revealing Clarida’s latest move.”
Clarida needs to be investigate, probably arrested, and Jerome Powell needs to be removed from his position IMMEDIATELY.
Visited my Dentist today to finish off my Implant Crown installation. He told me that wealth inequality is finding its way into dental care. A couple of his patients went to Turkey to get some root canal work done, to save money. The Lira is now worth 1/3 of what it was a year ago and prices of dental care has yet to catch up to the devauation so the price looks real cheap. They came back and the work was done so poorly that they wound up losing their teeth and now faced the cost of an Implant. Mrs Swamp’s hair dresser is over there in Turkey right now getting this done. I wish her luck.
Yikes. Stepping over dollars to pick up pennies…
Ok, my attempt at being highbrow and impressing all of youse:
“By the pricking of my thumbs,
Something wicked this way comes.” / Macbeth.
Ray Dalio has been dropping a lot of gems lately:
-Investors are making the mistake of looking at their returns in nominal returns.
-The Fed won’t raise rates fast enough to tame inflation.
-If you’re holding cash or bonds in this environment, you’re a big dummy.
-Bitcoin is a real asset and a 2% allocation is reasonable.
Keep in mind that Ray Dalio was a Bitcoin critic not too long. I wouldn’t be surprised if he starts recommending 10%, as he does with gold. What I like about Dalio is that he’s open-minded. Unlike the old-school value investors who dismiss anything that doesn’t fit into their narrow view of investing. Like it or not, Bitcoin is here to stay.
“Numbers from the New York Digital Investment Group in 2021 found that about 22% of the U.S. adult population — or roughly 46 million Americans — own Bitcoin.”
There will only ever be 21 million BTC.
Institutions are jumping in.
Blockchain community views blockchains as a step away from centralized control of internet and back toward a free and open web. The battle for web3 is like the battle over inequality.
Anyway, the CSE people building on blockchains envision new social media sites of the future where each user post is a ledger entry with whatever stored programming they want build I to it and immutable recorded in a block chain that can be referenced publicly.
Imagine an investor buys a work from an artist (music or written article or whatever) and the smart contract built into the “sale/investment” entitles the artist and invester to both split revenue with a platform streaming it automatically settled in crypto. Bypassing lawyers, agencies, auction houses, banks etc.
These new types of transactions are built on ethereum blockchain backed crypto derivatives.
So blockchain/crypto is a next gen database and programming language. It kind of makes sense that energy will fuse with money and data and programming. Lots of BTC is mined with energy that was excess hanging around to make sure we didn’t have blackouts.
Anyway, if everyone wants BTC someday, and there are only 21 million, how many will you have? That is the 2% rationale. Could be zero or could be worth $1million each.
You can’t build micropayments easily when you need to settle daily in fiat USD, yet USD settle with ancient ACH servers. BTC is sound money that can’t be inflated, albeit volatile atm.
Compare trend line of USD purchasing power vs BTC purchasing power last 13 years and you will see the fiat inflationary problem Wolf teaches us about daily borne out in the valuations.
I predict a new BTC high in 2022. Which makes today’s price 40% discounted.
Yes Duke all of that which you are saying is true.
1) Those in power may or may not be happy with or complicit to the current distribution of BTC to make it the “sound money of the future”. The lines of power and its distribution will fall along very arbitrary lines of who held BTC the earliest and who didn’t. Why would the economic and political elite just submit to that distribution?
2) That which cannot be controlled will not be desirable for US government politicians. Why would they give up their elaborate economic control mechanisms after spending all that time to build up the fed and create this and that to create basically a command and control economy?
I do think BTC will play some role in the economy. But remember that the total market cap of BTC is tiny. Approximately the same value as silver (as of a couple years ago. dunno about now)
“BTC is mined with energy that was excess hanging around”
There is no such thing as excess energy hanging around. It’s generated on demand. Stop with the lies.
The entire BC blockchain uses the electrical consumption of Sweden to process 7 transactions per second. Visa does 200 times more.
An analysis of BC transactions at 71 hubs found 90 % were ‘wash trades’ the same people buying and selling to create the illusion of a market. Illegal in a stock but not in BC or baseball cards.
I predict a new low in 22. A Ponzi is fun on the way up but it ratchets down fast.
Talking his book.
Was at my Wells Fargo ATM yesterday to withdraw some cash. Noticed a video abut social justice and climate change on the ATM screen. Looks like the Fed is already forcing banks to implement its 2 new mandates just like I predicted.
Someone has to point out the other perspective around here.
I’m in and buying more this week.
It is somewhere between hard and impossible to regulate BTC. If they come for your bitcoin, the joke is you can just explain that you lost the password in a boating accident and so it basically vanished. And as some countries ban it. Other countries jurisdictions will embrace.
Puerto Rico becoming crypto central for tax purposes.