The market finally gets it: The Fed is going to tighten to get a handle on its massive inflation problem.
By Wolf Richter for WOLF STREET.
Since February last year, the hottest most hyped stocks, many of them recent IPOs and SPACS, have been taken out the back and brutalized, either one by one or jointly. The stocks that have by now crashed 60%, 70%, 80%, or even 90% from their highs include luminaries such as Zoom, Redfin, Zillow, Compass, Virgin Galactic, Palantir, Moderna, BioNTech, Peloton, Carvana, Vroom, Chewy, the EV SPAC & IPO gaggle Lordstown Motors, Nikola, Lucid, and Rivian, plus dozens of others. Some of these superheroes are tracked by the ARK Innovation Fund, which has crashed by 55% from its high last February.
This mayhem has been raging beneath the surface of the market since February last year, and in March, I mused, The Most Hyped Corners of the Stock Market Come Unglued. They have since then come unglued a whole lot more. But the surface itself remained relatively calm and the S&P 500 Index set a new high on January 3 this year because the biggest stocks kept gaining or at least didn’t lose their footing.
But now even the giants too are going over the cliff. Combined by market cap, the seven giants, Apple [AAPL], Amazon [AMZN], Meta [FB], Alphabet [GOOG], Microsoft [MSFT], Nvidia [NVDA], and Tesla [TSLA] peaked on January 3, and in the 13 trading days since then have plunged 13.4%. $1.6 trillion in paper wealth vanished (stock data via YCharts):
This is obviously still no big deal, a 13.4% decline, after this huge gigantic run-up. During the March 2020 crash, these giants plunged 28%. But it’s the first time since then that this unappetizing event has occurred.
And it has occurred because markets finally get it: Inflation is a massive four-decade problem for the Fed, and the Fed is about to lose, or has already lost, four decades of credibility as inflation fighter that Volcker was able to build. And so it is going to tighten to get this under some sort of control.
This tightening will consist of raising interest rates moderately, and by firing up Quantitative Tightening (QT), as the Fed governors explain at every chance they get. QT does the opposite of QE, and QE was responsible for driving up asset prices to these ridiculous highs.
And this notion of QT finally sank in – even among the biggest names.
The Nasdaq managed to make this four-day work week its worst week since March 2020, dropping 7.5% in those four days, to 13,768, the fourth week in a row of declines. It has now dropped 14.3% from its closing high in November.
The S&P 500 also booked the worst week since March 2020, dropping 5.7% for the week, to 4,398, the third week in a row of declines. It’s down 8.3% from its closing high on January 3.
The Dow Industrial Average dropped 4.6% during the four-day week, to 34,265, and by 6.9% from its January 3 closing high.
But this is really no big deal. On a long-term chart, these little dips can barely be seen. It’s just that markets have been spoiled by the relentless climb.
And folks are now re-familiarizing themselves with two essential concepts:
- Stocks can lose money, and they can lose all your money.
- Cash is trash, until it isn’t.
It is, however, a big deal for folks with a portfolio full of the most hyped stocks, IPO stocks, and SPACs that crashed 60% to 90%. If there was any margin involved, it may now be time to update the LinkedIn profile and look for a job again. Maybe some of the 11 million unfilled job openings can find some takers. And that would be a good thing.
Given the repeated ugly action at the end of the trading day this week, where dip buyers were taken out on stretchers, the meme is now starting to circulate that the market has shifted from “Buy the F&%#ing Dip” (BTFD) – the rallying cry since March 2020 – to a new rallying cry, “Sell the F&%#ing Rip” (STFR).
Which is of course nonsense since every sale must have a buyer on the other side, and every buy must have a seller on the other side, and lots of people must have jumped in to buy the dip at the end of those trading days – it’s just that the dip kept dipping.
Dip buyers have long been brutalized by their most hyped stocks and by their IPO and SPAC stocks. Month after month, BTFD was lethal for them with these stocks. But since January 3, dip buyers have also been brutalized by dip-buying the giant stocks as they kept on dipping. And now, there is big money involved.
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I believe the graph will track upward again after this downward correction. Right now, people WANT TO BELIEVE IN SOMETHING. As children, we believe in the Tooth Fairy and Santa Claus. As adults, we go for the stock market. Money is the motivator. Tech is supposedly a “game-changer” and a be-all-and-do-all. From the starting point in one area of tech, the giants have the capital resources to branch out. That’s another reason tech is worshipped. Because they can land in different sectors of the economy (like amazon.com doing movies and apple doing watches).
Nothing goes to heck in a straight line. That has been proven correct every time, well, with some exceptions. So yes, the line in the chart will bounce a little for sure. Maybe Monday morning. Maybe Tuesday. But this party is over.
That party, maybe.
But the Bears are starting to get a wiggle on…
“ Maybe some of the 11 million unfilled job openings can find some takers. And that would be a good thing”
WeWork becoming We(havta)Work…
Dear Wolf and fellow commentators,
If the party is indeed over, as it appears, the main question is at what levels should you start re-entering the markets. There are any number of views regarding that, Grantham feels the long term trend for SPX is 2500 and FED would struggle to stop a fall to trend when this unravels. Then you have 2020 crash which was all of 20 days and 35%. 2018-19 FED pivot from tightening to easing with around a 20% fall.
So when does one start? My gut tells me that large falls follow a step or waterfall type of pattern. For instance in 2007-08 markets didnt fall in one large sweep. Broader index kept dragging along then fell a bit , then rose a bit from there and did not capitualte fully untill Lehman. FED kept announcing easing at that point (Oct 2008), most notably TARP but there were others interventions, constant jawboning, yet in that phase market kept falling and only stopped in March 2009 when mark to market accounting rule was scrapped.
I would be grateful if you guys could share your views on when you plan to invest back in equities. I suspect it must have to relate to time as well as % drop in value. This should not be a March 2020 like 20 day event (IMHO). While it may not go to heck in a straight line, one wonders what strategy one should use to begin entering and then pacing subsequent cash deployment so that we can track the fall to some plausible worse case levels.
What I mean by that is that say you feel 95% confident that the fall could be between the range 30% to 60% .. then one could devise a strategy to start nibbling at -30% and gradually accelarating purchases as market dips more in order to make optimal use of your cash. This in my view is more important that a stock picking shopping list which many people try to prepare. ETF picking list for those more circumspect is mkre to my liking.
Dear Wolf a post on this issue would be immensely useful.
JP Morgan said it best, and has never ever been proven wrong by ”investors” ,,, as opposed to ”gamblers”’…
BUY on the way down, but only IF you can hold through ANY possible bottom based on fundamentals…
SELL on the way UP because you can never ever know in advance the real actual top…
’nuff said” for us old and older,, pre ”boomer” types, etc., etc.
Thanks again Wolf, really and mostly,,, for keeping me out of trouble, AKA major investment losses!!
And BTW, money order in hand, and will be,,
“””In the Mail asap”’
Everyone’s emotional and financial pain/gain tolerance and thresholds vary immensely when investing in any venture.
For example, I currently have 25% of my cash in the markets even though I’m losing some money on the way down, as I tend to control my investment emotions better if I have constant skin in the game. If I’m at less than 25%, I tend to be too conservative to get back in as I find it much easier using a certain cost average method I’m comfortable with to decrease my percentage loses on certain stocks and indexes I’m confident will still be around in 20 years. I have everything automated as that helps too. I made those buy/sell choices when my emotions were stable (usually on weekends researching), as I tend to make less logical choices when there is panic or euphoria in the air via MSM chatterboxes.
Everyone has emotional limits…attempt to find yours first before investing/gambling in any venture…because if you don’t find it first, it will find you unexpectedly at the most inopportune way and time possible…
“BUY on the way down…nuff said…”
Looks like you’ll be getting the chance to put Pierpont’s theory to work…with real money, I presume, and on the downhill slope of the most over-inflated market in history. Please do give the readers updates.
It’s not about percent down. It’s about when PE ratios are good. When sticks you like hit 20, buy them even as they go down to 15. And again as they go up to 20. Sell at 30.
I’ll be adding next week. This is a head fake. We still have more than a year before this goes south. The Fed hiked 8 times 2016-2018 before the markets let them have it.
“The Fed hiked 8 times 2016-2018 before the markets let them have it.”
But back then, inflation was below or at the Fed’s target, and economic growth was moderate, and the Fed was acting just preemptively to get back to normal.
Now the Fed has a big-ass inflation problem on its hands, and that changes everything.
I would be grateful if you guys could share your views on when you plan to invest back in equities. I can see what the real estate patterns will be for up to one year. I cant tell what stocks will do for 1 second. Just gonna continue investing in stocks the same amount no matter what the rollercoaster does. My time line until death allows for this.
Which bottom are you trying to time? The one from the last five minutes or the one since at least 1720?
Repeat after me. This is a mania. This is the greatest asset, credit, and debt mania in the history of human civilization. It’s not just in the US and not just in stocks but worldwide across the three major asset classes and numerous alternative “investments”.
The dot.com bubble wasn’t
a predecessor (and was smaller anyway), as it never ended. It’s the same mania we are in now. There was also no widespread debt mania, no real estate bubble, no fake economy, no Bizarro world monetary policy, and commodities were dirt cheap.
It’s far bigger and/or broader than the British South Sea Bubble, French Mississippi River Scheme, Dutch Tulips, 1920’s US “Roaring 20’s”, and 1989 Japan.
Add it all up and it equals one thing, the majority of Americans (and residents from many other countries) are destined to become poorer or a lot poorer in the future than they are now. Most “wealth” is actually someone else’s debt with the remainder vastly inflated stocks and real estate.
Just last week Jeremy Granthum Pronounced that Vampire phase of the stock mania will end soon and result in 50% loss in S&P 500! B/w he is NOT ruling out unprecedented intervention by the Fed, at and or before that. I tend to agree with him.
During GFC (2008) S&P nearly lost 60%, ( in approx 18 months) Would have lost MORE if the ‘savior’ Fed had not jumped in the March of ’09. During dot com (2000) Nasdaq lost almost 90% ( in a 2.5 yr period – peak to trough).
S&P zoomed over 300% b/c of insane credit creation by Fed and Buy-back shares ( lead to 50% rise in S&P since ’09) by global corporation borrowing at ZRP.
Reversion to the mean and then some down AGAIN is the path of secular Bear mkt from peak to trough as evidenced in the last 200 yrs of mkt history. Time frame is hard tp pin down in the presence of possible ‘remedial’ actions (at least they will attempt) by Fed/CBers. Furious volatility is guranteed!
No one could guess the peak of this ‘surreal’ bull mkt (devoid any fundamentals) of my life time (Been in the mkt since ’82). So no one should or can predict the bottom. Mkt started sliding. the moment it realized, when there will be NO longer Fed’s put.
One should be willing to buy when all the bulls ( turned into Bears) have sold off everything including kitchen sink and no one has very little of any kind to sell any more! The macro indicators (fundamentals) ‘might’ indicate but again that too is speculative (easier said than act!) It will be crystal clear, only retrospectively!
The week(s) before I stated, clearly in previous threads that secular BEAR mkt has begun and the sentiment has changed. Before last week or 2, I was selling more than buying, although buying was more against the mkt with puts (hedged with calls). The CASH pulled off the table, is the dry powder to invest when the time is appropraite(!?)
By my reading in Barrons,WSJ, ++ there is STILL a lot hopium there. Apparently hedge fund and MFund managers are investing net long!
There is a strong sentiment that Mr Powel will re-enact his 2018 Q4, turn around down the road after 20% or 30% mkts plunge.
I won’t bet against Fed/CBers from buying stocks, indexes/ ETFs like Bank of Sweden and BOJ have done!
Hence the path ahead is NOT black and white. Adopting risk management tools like Option trading is very vital in navigating unknown waters ahead.
Djreef, as Wolf there says, I too believe the dynamics are showing themselves to be a bit different now. I too held on a bit longer than than Captain Hindsight now tells me I should have, and only got my final bit of rotating done just now on Friday.
I also thought this whole situation would take longer in unfolding, but so far it appears to be happening a lot faster than I previously believed it would, and, if anything, even more hikes are getting priced in…
Not to say you won’t get a big boost up next week or next month, of course. I don’t know. But I don’t have the stones to bet on it as things look currently.
Stock prices can be irrational and tend to boom and bust and most people do poorly.
Determine your allocation and set and forget it and go live life and rebalance once a year.
Or think about it as the only true value is the dividends and only buy when the dividend stream makes sense. SP500 dividend is $60 growing at around 5%. Plug the numbers into a dividend discount calculator and safety margin you want over a 10 year Treasury. At 3% cushion of 4.8% then you get about $1600 is what you should pay for SP500.
That method would have said the SP500 was worth about 700 when it bottomed at 666 during last crisis.
“only stopped in March 2009 when mark to market accounting rule was scrapped.”
Does mark to to market accounting rule remain scrapped even now?
“This should not be a March 2020 like 20 day event (IMHO). ”
As of now it appears not and it is likely to remain so as long as inflation remains hot.
While the Fed would have liked to stop it by now the inflation has proved to be party spoiler.
“While it may not go to heck in a straight line, one wonders what strategy one should use to begin entering and then pacing subsequent cash deployment so that we can track the fall to some plausible worse case levels.”
IMO, inflation is the item to watch like a hawk along with the state of the financial system. The moment inflation gets down to levels where politicians and the Fed are comfortable is the time when you can expect the Fed to come out and buy the house of cards with a string of acronyms. The Fed might also come in if it finds the financial system is getting unglued.
In short, entry point would be when inflation shows a downtrend or the the financial system comes unglued, which is when the “arsonists & firefighter” Fed will come all guns blazing. Yellen has said the inflation will be down by year end. If that comes out to be true, then this could be a 200 days event.
I hope this happens when all the indexes have been taken to the back and shot as was Nasdaq in 2000. This time hopefully it will be all the indexes.
Thank you everyone.I fully appreciate the futility of timing the market. I also understand the expected forward 12 years returns of the market at current valuations are not consistent with standard long term upward drift in equities that is the source of compounding magic.
I am certainly not trying to time any bottom, especially not from 1720 :). I have a 30 year investing horizon at my age. I do not think that gives a happy reading if I have a lost decade like post 2000s. I agree with Hussman that market is likely to go nowhere in an interesting way over the next 8-12 years.This is my prior, and it could be wrong, but one has to hang his coat somewhere (bootstrap assumption based on historical performance after excessive overvaluation as measured by CAPE, Buffet Indicator, Price to Sales , Inflation expectations, anything at all really that meaningfully correlates with forward decadal returns).
As Wolf mentioned, it is substantially different setting this time due to inflation, so any FED pivot would have to counter tightening inertia(no matter how mild the tightening is). At 6-7 percent inflation, doing QE will be far more difficult than doing QE at 1.5 percent inflation with markets tanking. The investing when terrified (Grantham) playbook is important because falls are sharp and paralyzing. While one may not time the bottom, it is difficult psycologically to buy when the stocks have been going down month after month for say 18 or so months.
As for to mark to market rule, it was in existence only for a very short duration around GFC and has never been restored.
Buy when there is BLOOD IN THE WATER.
There is BLOOD IN THE WATER now – ie, NOW is the time to get into the markets.
Don’t miss this once in a life-time opportunity to get in at the bottom and ride the markets up for the rest of the decade.
There will be no interest rate rises. Inflation is already on the way out.
I see a lot of talk of inflation, but in a personal sense I haven’t seen any. I don’t believe the narrative.
There’d be multiple factors that’d indicate the bottom. There’s nothing that’d tell me the exact moment but considering that this is a humongous inflated bubble -thanks to Mr. Powell & his bumbling cronies- I’m expecting the downside to be 50+%.
All high flyers are already running for the exits with at least three major news still to come: the CPI numbers for Jan and Feb before the Fed drops their hammer of rate increase. So, this is just the start of the turmoil IMO.
I’d get my 401k off the stable fund and start getting back into the stocks I have list of when their P/Es get back down closer to 25 and I’d also watch for the S&P500 P/E to get close, or below its mean.
Monthly table of this S&P P/E is available on the Net.
As a biotech investor (I focus on short targeted, late stage clinical or early commercial companies) I’ve watched market caps in my companies sink below cash in hand, even annual revs. ATLs everywhere I look. It’s felt like one of the crazy bush parties from my youth, where fuel has run out and drunks raid surrounding campsites for muskoka chairs and picnic tables. Here’s the thing: I’m not sure I’ve ever seen shorts target ATLs so thoroughly before. Meanwhile more and more people I know are actually jumping on the short bandwagon. Im wondering what you think the role tech plays in this: what happens when all these new tools allow investors to switch long to short in a heartbeat. What happens when shorts equal longs? Isn’t there some kind of Kantian ‘condition of possibility’ here, some uber systematic crash possibility, involving mass shorting?
Love the blog. You and Zen Second Life are my contrarian muses
“more and more people I know are actually jumping on the short bandwagon. I’m wondering what you think the role tech plays in this: what happens when all these new tools allow investors to switch long to short in a heartbeat.”
There are enough crazy rallies during every bear market to wipe out shorts that got it wrong.
The craziest rallies happen in bear markets.
Here is my chart from the March 2020 crash, S&P 500, daily percent moves, posted March 21, about the time I covered my short. Note the huge daily spikes:
It makes perfect sense for a lot of companies in this market (whether biotech or not) to sell for less than cash on hand. After all, it’s been incinerated like never before with no realistic prospect of sustainability once the capital markets cut funding off.
I just looked at Zen Second Life he reminds me of Wolf only more a flavor of from Chicago and done with this shit.
How about in GFC when the treasury issued a list of stocks you couldn’t short? Financials I believe. I about fell out of my chair.
Unless they’re tacitly permitting naked shorting, all the shares still have to have a long-side owner. So for every short seller (share-borrower), there will be 2 long-side owners: the share-lender and the one who bought from the short.
But: the more shorts there are, the more wicked the short-covering upside rallies will get. See e.g. KODK in July 2020.
Let us know which stocks are best to squeeze the shorts in, and Team Wolf could get together to reddit-them…
Then there was the Gamestop phenom. Bunch of pros short it cuz its a stupid company but a way bigger bunch of Robin Hooders buy it cuz they love it, hang there ( the comic book store) and create a short squeeze, which forces some shorts to buy which drives price higher forcing more shorts to cover…with shares ending up 2000 % higher.
If all the pundits are correct about technology stocks being so rate sensitive, then FAANG & MSFT are due for some really bad stock price news over the next 2-3 years.
It’s not rate sensitivity but changing sentiment. The idea that a measly increase of something like 50bp on the 10YR since the NASDAQ peak a few weeks ago is ridiculous.
Pure Wisdom served fresh daily and available (in the future) in mug form.
Although futile, the market believes it has until Wednesday to convince the Fed to change course, particularly as the next FOMC skips a month, delaying the next scheduled mass protest to March. Tantrums seem all but inevitable to occur on Monday and Tuesday.
Earnings season is barely underway. The die is cast. Performance below expectations will automatically deduct 10-20% from individual stocks within a matter of minutes. Contemplate the implications of this for the major indices.
Day trading aside, Netflix’s earnings demonstrate that the rotation argument has been beaten to death. It now bleeds out into the S&P 500 and beyond while the vast majority of participants waste valuable time frozen in shock as the market plummets.
Understandably, participants have become accustomed to assessing when the Fed will decide to levitate asset prices. The apparent historical success of the Fed Put is inviting both the uninformed and the savvy to identify the next reversal point to seize the next leg up in equities.
My advice is they urgently need to heed your advice. You have described the situation as it is. Your explanation is timely, cogent, sober and accurate. It has history on its side.
BTC is acting like it is going straight to heck.
Oh wow, were their earnings bad? Take a hit on ROE?
Are you contemplating shorting the market again Wolf?
As you’ve likely inferred, I remain long the precious metal sector.
I’m STILL short. And every time the stock market rallies, I get harassed about it.
“Longest Short Ever,” is going to be the title of my future book, hahahaha.
Even Michael Burry was a little early in his bet preceding the RE meltdown in 2006/2007. He lost a little early on but was right when the dust cleared. This was not brought out in the movie, but was so in the book “The Big Short” which I read twice.
@ Wolf –
Wolf said: “I’m STILL short. And every time the stock market rallies, I get harassed about it.”
Didn’t you post above that you covered your short about March 21, 2020?
“Here is my chart from the March 2020 crash, S&P 500, daily percent moves, posted March 21, about the time I covered my short.”
“Didn’t you post above that you covered your short about March 21, 2020?”
I published two short sales.
The first short I published, I entered into in early Jan 2020 and covered very profitably on ca. March 21, 2020 (operating on memory here, could be off by a day or two). I published two articles about that: on the day that I sold short, and on the day that I covered it.
In June 2020, I published a new short that I have still not covered, which is the short that everyone has been harassing me about.
It may not be a straight line this time. It may be a wide gap like 1987 or 2001.
“Look how often the unexpected happens – yet we still never expect it.” ~ Ashleigh Brilliant
Perhaps amazon dot com should start making money in place of making movies.
They do make money. $21 billion of net income in 2020.
Then they should continue with the series ‘The Expanse’. 😁
You will get more income on your babk deposit.
$21 billion net income translates to $300 billion company value at current inflation measures. This compares to $1490 billion current market cap. This stok might have some correction potential.
How do you compare the current economics against any historical data? We are in uncharted times and not just the US but globally. If the dollar falls what will take its place? If American loses its leadership position ( already has in the mid-east, NATO is a shell) who will step in. Why did so many politicians across the globe run on the theme Build Back Better? When to time the stock market might be the least of your worries.
The too many PE ratios left this universe long ago and now are from Fantasyland. If this is not the start of the huge crash that has been avoided for years, that huge crash is coming, sooner or later.
There is just not enough future income to be had to support the current valuations of the high-flyers. I have invested in value, utility stocks that have modest PE ratios, so they will not decline much over the long run, even though they declined now. However, when the crash occurs, for months or years, I would not be surprised to see even the stock prices for those stocks crash, because that is human nature: most of us can go into an emotional stampede that causes us to sell stocks with decent valuations.
“emotional stampede”… I like that expression. RH.
The Nasdaq leads the way down. Hold on to your knickers…
The NASDAQ has gone up about 1000% in a decade. Just unreal, literally.
And mostly artificial…
The NASDAQ QQQ has risen little more than 3X since 4/1/2000.
My I Series inflation adjusted savings bonds are outperforming my stocks and ETF’s.
My cash is not trash, at least for awhile.
Making $ in a secular Bear mkt is to go, against the MKTs with some hedges. Many investors are NOT educated, experienced or trained go against the mkts! I use Option trading and leveraged ETFs both short * long, ‘gingerly’ ( Not for the novice!) I NEVER lost a penny during GFC but lost ALL my built up profits, once the game of rules got changed by Fed in March ’09.
Mind you in it’s entire history, Fed NEVER bought MBSs, QE(s) was seat of pant plan ( no prior record or research!) by Barnake! It had NEVER suspended Mkt to Mkt acounting standard! Against these odd I was trying but failing miserably b/c untill 2008 I followed the RULES set in this land of Genuine Free Mkt Capitalism which got replaced by Crony & Predatory Capitalism!
Boy, was I NOT ready for the whiplash and shock of entire my investing experience (in the been mkt since ’82!)
Now I am relieved that the REALITY is bursting through all the BS bult up since ’09! It is a breath of fresh air and I am all for the changes pouring in!
Investing was SO EASY, When Fed’s PUT was in persistent action since ’09. Every one thought s/he was smart investor. Unless profits are SOLD aka Cashed out, many will have bitter experience of those, who lost during 2000 and 2009. Bear in mind Your MFund managers(unless it BEAR funds) will NOT protect your portfolio! Read the prospectuses of those funds.
GREED will be replaced by FEAR!
@Sunny – really appreciate your voice of experience!
I too was shocked when the losers-in-power changed all the rules in the middle of the game in 2008-2009.
Those of us familiar with the old Calvin & Hobbes comic strip remember “Calvinball”, where they’d argue while playing (anything) and change the rules midge to favor their own side. Hilarious then, tragic now. The rule of law may have died long ago (or maybe it was always only an ideal) but the corpse was exposed for all to see in ’08.
We should be prepared for any and all possible shenanigans as the Everything Bubble unwinds.
Dividends on the SP500 have roughly doubled since 2009 when SP500 was 666. That tells me stock market could go to 2 x 666 without too much of a problem. We all know the debt problem is worse.
Dividends won’t remain UNAFFECTED when the earnings go down in a secular Bear mkt!
Read mkt history of 200 yrs!
Remember the old saying “money always returns to its rightful owners”
The choices in front of you:
Stay in stocks and lose in long bear market.
Go to cash and lose 10%+ per year in inflation.
Go to cryptocurrencies and lose 30% in a day.
Go to gold and pay 20% premiums.
Go to real estate and watch the bubble implode.
You forgot shopping malls.
It is kind of like the passage in the bible where fire consumes all the useless works of mankind and only the pure things survive.
In the very long run only the things of value endure and those that did proper economic calculation and didn’t overpay will have done ok. In the short run it’s a crap shoot
I have other choices. One is to continue investing in good companies with solid balance sheets, and continue ignoring the bulls and the bears. IMO, time is on my side.
Just factor in a recession in your analysis – which will occur when the dip continues. Even a very solid company can run into trouble then…
In a one hundred percent rigged market anything could happen. The consensus seems to be inflation will accelerate as the spread between the Fed funds rate and inflation widens eventually leading to a collapse in the U.S. dollar.
Not so sure, myself, Sean.
We’ve had the best part of a century now of markets going up, which understandably leads to this sort of assumption. But the expansion was highly abnormal seen in a longer term historical context, and wasn’t sustainable, but rater based on stored energy from past aeons.
And since we passed peak conventional oil we’ve been on a debt fueled binge to drive a further acceleration in consumption, draining our natural, financial and social equity, that has left fixed income earners in the dust whilst asset owners pop their best champagne.
I guess it may be pushed on for some more years if additional monetary easing and even more stimulus gets back on the agenda, but barring some miracle breakthrough in energy conversion technology, I would suggest that we will eventually be forced to move from expansion to contraction over coming decades, and I don’t envisage equities (and many other bubbles) overall responding too well to that, at least not in real terms.
There are almost no solid balance sheets today able to withstand any kind of extended economic contraction. The economic distortions now are worse than 2008 and look what happened then. Is the FRB and UST going to bail out everybody forever? The answer is they can’t, not without crashing the USD.
Compared to the past, corporate balance sheets overwhelmingly suck. Interest coverage ratios are currently high substantially or entirely due to the fake economy (inflated earnings) and yield suppression since 2008.
Less cyclical companies should do better in the intermediate term but if the bond bull market from 1981 really ended in 2020, it’s all headwinds from higher rates going forward too.
Theoretically, that would be the best tactic. However, be aware that Enron-style accounting scams are common now in the US, even though they are much more frequent in stocks from mainland China, etc. Do not trust their financial statements even 50%.
Thus, while there may be a collapse in values even for the stocks of good companies, because investors will stampede when the market collapses, many, many corrupt companies will go bankrupt in the next crash. Like Maddoff faced too many calls for withdrawals of capital in his Ponzi scheme, so he had to give it up and seek governmental protection, many corrupt companies will get too many demands on their capital and have to reveal their frauds when sued.
While the level of corrupt accounting scams in the US cannot match the corruption in the mainland Chinese companies, or the companies of some other countries, you will be shocked at the number of US companies that will collapse. Too many companies have been operated by corrupt control groups, who are often among the ultra-rich, to fake accounting records, get over leveraged, issue too many dividends, buy back too much stock, etc.
It is too bad that the ultra-rich members of corrupt control groups cannot easily be made to bear personal liability for such, common frauds. They usually get away with it, as they and many companies have gotten away with not paying US income taxes for DECADES through tax avoidance schemes. Read how Apple avoided paying $50,000,000,000.00 or more in US income taxes in Gizmodo.
Salt-as usual, a crystal observation that the physical universe’s team always bats last in the contests with the human economic one, carrying an average well over .400…
may we all find a better day.
Not a lot of choice really, but if everything goes to heck, I’ll gladly take cash, PMs and real estate.
Because if it all does go to heck at least I will still have cash, PMs, and real estate as opposed to nothing, nothing, and nothing.
A house is a house regardless of value.
Yes, but US equities are not the only choice here.
Many international and emerging markets provide much better valuations and thus would fall much less during an extended bear market. Not only that but as US equity investors begin to get wiped out, that money would begin to rotate into these other markets at which point they would most likely begin to significantly outperform the US markets.
I recall the mantra was the same in 2008.
I held everything and it was all fine within 13 years by 2021.
I’ll probably just do the same again.
Wake me up in 13 years at the peak of the next bubble.
I hope you can still wake me up in 13 years.
I’ve read your posts on another blog if you are the same poster.
Let me guess, you believe in the government’s ability to prevent declining living standards, don’t you?
If you do, you are wrong. It’s not true in the US and it isn’t true anywhere else either.
The US has experienced extended social decay my entire life and I’m 56. It’s not the same country it was in the past and contrary to those who believe today’s environment is an improvement, won’t lead to increased future prosperity later either.
Since 2008, even with the fake economy and the loosest credit conditions in history, median household income and net worth have flatlined since the late 90’s. And no, attempts to more equally distribute the economic benefits from a fake economy and asset mania aren’t a solution either because it isn’t real wealth.
The country has effectively been eating its “seed corn” for decades and no, Americans don’t have a birthright to minimum or perpetually higher living standards.
There is no “deus ex machina” hidden in a closet available to policy makers to escape the consequences of what I am telling you.
I have 20 more years on you. Watching the same things. Couldn’t agree more with what you wrote.
I am likely the same poster on the other blog. I don’t know of any other.
I believe the government can stabilize the potential wild swings of capitalism. I don’t believe it should control it to the level it has with the Fed. On the other blog, some call me a commie for saying this (In a nice way, mostly)
Are we better off today than 50 years ago?
I think 50-60% are better off. These are the professional jobs, accountants, engineers, computer scientists. nurses, … Some didn’t exist 50 years ago. Doctors and lawyers are are slightly better off but they had done well back then also. The CEOs and corporate board members have reaped the majority of the gains. They are the top 1%.
The lower 40% are definitely worse off. Lower wages have not kept up with inflation. Unions have been driven out.
As an example:
My grandfather was a union manufacturing worker in the Midwest. He had an upper middle class life in the 1940’s-70’s.
He had a new house along with thousands of other union workers in the same neighborhood. He retired on a comfortable private pension and lived the rest of his life in the same house. His job is what the lower 40% do now. Today, these jobs do not offer the same wages, pensions, or quality of life.
My dad was the first person in the family to go to college. As an engineer, he lived a slightly better life than his parents. A little bigger house and a generous private pension. Engineering, with the computer boom became a much more stable job and wages increased over time. As a kid, I remember boom and busts in aerospace which employed most of the engineers. Companies like Boeing laid off thousands at one time. If you were lucky, like my dad, you kept your job and lived well. We even lived next door to a VP at an aerospace company because VP wages were not 100X an engineer wages like they are today.
I am also an engineer and benefited from a high demand field.
We are doing slightly better than my parents. However, private pensions do not exist anymore so it remains to be seen how our retirement will be. It depends on the risk that I am currently taking with investments. Am I lucky?
My daughter is a nurse. They are paid very well. She bought a house (not in CA). She lives better than I lived at her age. Bigger house, more vacations but no pension so she has to plan ahead.
The lower 40% are doing far worse. Lower pay, no pensions.
The upper 60% are gentrifying the traditional working class neighborhoods pushing the low wage workers into what used to be the slums. The people who used to be able to afford the slums are now homeless. Business is seeing real estate as an investment as rentals, driving up the RE prices and rents. The lower 40% are in a tight squeeze. I wouldn’t be surprised to see unions making a comeback unless automation or outsourcing wins the battle.
I believe wealth disparity is a huge issue.
I apologize if my initial statement seemed dismissive or arrogant.
I have a dark sense of humor.
However, since I invest fairly conservatively, riding the roller coaster instead of jumping off at the wrong time has been a long term strategy that has worked for me.
The only thing I jump out of is my Mad Money risky investments. I jumped out too early on those last year. Better early, than never!
Gotta be a a way to go to gold without taking physical delivery?
Buy one of the two biggest miners. They are leveraged about 2.5 : 1 to the gold price so you don’t need that much. Balance sheets are currently very strong.
If gold goes below $1200 the gold stocks will not be worth anything. If gold goes to $2500 you should double your money. You will collect a dividend while you wait on your fate.
Red, you might look into an ETF: PHYS
Many many ways.
Another choice, if you care to excercise it1
Go against the Mkts make $ with risk management tools like Option trading, only the avenue left for retail investor, against the sharks and barracudas, out there!
One cannot learn it in a zippy. you cannot buy house insurance when one’s house is on FIRE!
I don’t pay 20% premiums over here in Turkey I’m buying kilo bars at a couple percent over spot I’m sure you can buy gold for WAY less than that in the states as well Just shop around alittle
Watching the RE implode will give you opportunities to buy.
Look, I know you guys hate RE but I have doubled my equity in 5 years by just letting a good property management company do all the work, plus generate 450k a year in NOI. Plus all the tax advantages. And you are 100% owner, not a minor shareholder.
It is like free money, even with the eviction moratorium. I bought in a college city with an active retirement community on a bay [lots of boating]. Smaller city with people flooding in from the big cities.
Long term loans at 4%, short term renters on their up, leases backed up by parental money, new tenants every 2-3-4 years as they move up and out, no children to destroy the place.
I am just trying to point out an opportunity that worked very very well for me and my family.
An opportunity? To net $450,000 per year in real estate?
You can do that with about 10 to $12,000,000 cash in Southern California. Possibly 1/2 that in other areas. Or you can leverage, but it still takes a lot of cash for down payments.
If it is so easy, of course you will duplicate your efforts and push your collected NOI to $900,000.
You sound well intentioned, but the post rings a bit ridiculous. Of course it could be my ignorance of your methods.
Or buy PM miners at a steep discount.
What premium on metals? Buy PSLV, you pay SPOT no premium… then you just pay taxes on gains, vs paying premiums at a Broker. If you buy from PSLV vs SLV you are buying a physical commodity backed asset… vs the funny money money games SLV plays…
SLV being run by JP Morgan who has been fined hundreds of millions for manipulating the metals market… Most people don’t know how they defeated the Silver short last year… They ‘found over a million oz’ out of no where… and then late last year they had to admit it was an ‘honest mistake’.
I’m of the opinion that hard assets are the safest place to be, metals, land and the like. I know folks who think bitcoin is the place to be. I suppose a stockpile of cash is good for quick liquidity, but it’s losing value each day. What do you think is the safe haven?
My cash just got a 25% return on Bitcoin today. ONE DAY. Am I buying that garbage? HELL NO. I’ll take all your cash. Do you have any?
Does Mr Wolf have any thoughts on this question? In a nutshell, where should we be protecting our money? I would suspect a post on this very issue would be a great one.
Bet on a collapsing U.S. dollar especially in 2023 as the spread between the Fed funds rate and the inflation rate continues to widen. I seems to me inflation will begin to fall in the second half of 2022 but accelerate in 2023 leading to a falling U.S. dollar. A better question might be will the Fed funds rate ever be higher than the inflation rate again in the future?
The trouble is in seeing where any choice ends up over time. Quick money is certainly there to be made by those that are open to risk. I tend to be in the slow and steady camp and will always see hard assets as a slow but certain way to grow value and protect those gains. I’m not in a hurry.
Where to protect money has many solutions depending on one’s appetite for risk/gain and personal financial position. It is different for everyone. The trick of course is to find the one that fits your overall plan.
Anyone who buys Bitcoin is a complete sucker. The only real use is to launder drug money. When regulations kick it it will be game over. When it crashes and goes below zero, I’m going to go to my local Pub and get trashed to celebrate. I’m going to need Uber to take me home.
Just don’t try to pay the Uber driver with Bitcoin. :-)
Whoever bought Bitcoin, Dog coin and other crap coins at their peak are losing over 50% of what they paid for during the Buy High sell low times.
It gets worse…
Over 40% of BTC owners are now underwater… Then when you throw in the fact that over 30% of BTC is parked due to losing access…
We are now talking about an ‘asset’ where effectively at best 30% of it’s owners are not underwater…
So who exactly is going to buy into that dip? That parked 30% has created an artificial floor that has given BTC a unjustified seeming stability…
When BTC goes, its hard to imagine it does not do irreparable damage to faith in crypto…
I think Mr Robot got this right, it’s going to take a state backed Crypto for it truly to take hold. My guess is an YuanCoin…
Grantham recommended emerging markets specifically value stocks in emerging markets.
This was a little surprising since emerging markets sold off more than developed ones the last time the Fed tapered QE (taper tantrum).
Also emerging markets have a larger exposure to commodities where Grantham also identified a nascent bubble.
But he is an expert on valuation so might be worth some serious consideration.
I’m dazed and confused by Grantham’s advice, too, a good year ago, on going with EMs. Glad I sat on my hands on that one. But, I have the highest regard for him in spite of that.
Grantham is a fool who just ran his Boston based asset management into the ground and fired most of his employees.
He certainly is not a fool. If you ever read his writings you understand that he knows financial history and statistics very well.
His calls were so bad that his firm GMO is struggling and cutting staff to trim expenses. I know some of the people who were cut.
For example, the cut equity exposure in mid 2020 … just before the big rally.
If you allow someone else to manage your money, you have no one else to blame, but yourself, if your money is lost.
On the other hand,
If you manage your own money, you have no one else to blame, but yourself, if your money is lost.
Grantham’s plight afflicts everyone who has been rational and value-conscious in the midst of this epic bubble: fighting the bubble costs you returns and (for fund managers), that also costs you investors and AUM.
But then again, Michael Burry of “Big Short” fame also lost most of his investors, before he made the rest very, very rich.
You only have to be brilliantly right once, to be set for life and forever regarded as a Market Genius. Unfortunately those Market Geniuses are often wrong for the rest of their lives, and if you follow them it can cost you a lot of potential returns.
I think Grantham is of the opinion like myself that market didn’t put in a true bottom in 2000 so any gains since then are going to be temporary.
In a way modern money management is mostly a joke as they have to shoot for short term performance which isn’t really investing.
Oops. Should have said not a true bottom in 2020.
that’s my belief too. that the march 2020 drop wasn’t a bear market at all, but a flash crash. it didn’t really change investor mindset. rather than the despair you normally see at bottoms, “investors” were giddy at the prospect of all of the “cheap stocks out there” even though they were still historically overpriced.
Grantham exemplifies what has happened since 2008 where anyone who made rational decisions based on fundamental concepts you’d learn in school or just common sense … got crushed or didn’t make anything and all the people who did the most irresponsible things possible gained the most.
The choice has been to either go with the ponzi scheme you know isn’t justifiable … or make no money.
Now could finally be the comeuppance but the problem is that we have to make this choice in the first place. He was “wrong” for doing the “right” things.
He said to buy commodities gold, silver and cheap Japanese stocks. All of this relates to a falling U.S. dollar but I don’t think the U.S. dollar will implode until early in 2023 when the Fed completely loses the handle on inflation and it starts to turn to hyperinflation.
If the US Dollar falls, more than likely the rest of FIAT will fall even more and before as anyone that has doubt of the economy of government converts to US Dollars.
Maybe the Swiss Franc will outperform the US Dollar.
Cashboy, don’t count on the Swiss francs. Their CB will dilute their currency to keep their exporting companies from getting boxed out. They devalued back in ’09 and forward, as needed. Incidentally, the Swiss central bank actively invests in U S equities. What’s disturbing is that they can simply print money and buy ownership in U S companies.
@ HowNow, Socaljim
Grantham was playing by the RULES of our good ole genuine Free Market Capitalism until Fed murdered it. Congress was complicit in it. It was replaced by CRONY and or Predatory capitalisn run by top 1% and Wall ST! This is the most SURREAL Bull mkt of my life based on NO fundamentals, just insane credit creation! I have been in the mkt since ’82! I sympathize with him and also John Hussman!
I was also affected by the same deceit and betrayal of principle ‘ FREE Market CAPITALISM, by the Federal Reserve owned by mega global banks running to their advantage. ( See my comments in this other threads on that issue) No one challenged them b/c every wanted to be on that gravy train of ‘Easy-Peasy’ with no questions asked. Boy, what a deal!
Only those who entered the mkt since ’09, think that Stocks can only go up! Now comes the time, to show how ‘smart’ you all are, without Fed’s put or the ‘Easy-Peasy’ dollars!
“I have been in the mkt since ’82”
And soon after came the “Maestro” Alan Greenspan!
What are talking about?
-Paul A. Volcker became chairman of the Board of Governors of the Federal Reserve System on August 6, 1979. He was reappointed for a second term on August 6, 1983, and served until August 11, 1987.
-Alan Greenspan is an American economist who was the chair of the Board of Governors of the Federal Reserve (Fed), the United States’ central bank, from 1987 until 2006.
-The expansionary monetary policy of “easy money” attributed to Greenspan’s tenure has been blamed in part for stoking the 2000 dot-com bubble and the 2008 financial crisis.
So, what you are really asking is where to hide in something that is not in a bubble and pays a decent dividend or interest rate. Or has a decent chance to gain value.
Certain healthcare and pharma stocks
Off the top of head.
Feel free to add.
I like bank stocks, at least for a while longer.
Volvo P-1800The banks are already technically bankrupt.
If interest rates go up, surely the banks are going to have bad debts.
Tobacco stocks such as BTI has had a large runup why I haven’t a clue? Smokers are dying off and with Covid more people stopped smoking. The birthrate is falling and there’s very few next generation smokers outside of China. I guess people desperate for yield will buy anything.
Check Morningstar on BTI = 5* rating. Even though their revenue is declining, their profit margins are huge. Their PE is historically low. And, most importantly, when the poop hits the fan, BTI will probably serve as a safe haven – unlike almost everything else, including gold. Just my take on this…
There’s not really anywhere to hide once the bear awakens. Sure there are fine companies that generate substantive free cash flow. The problem though is that these companies too have been caught up in the mania of free money and now sport unsustainable P/E’s. ALL P/E’s sustain significant haircuts in a secular bear market, regardless of the underlying business model (with very few exceptions).
The other BIG issue is leverage. Rate increases bring about a credit crunch. Kicking the can is no longer the simple wash-rinse-repeat solution to resolving looming debt maturities when the cost of capital is rising faster than the CFO can model. There will be liquidity issues which devolve into solvency issues which causes other dominoes to tumble. This is when we discover how many more Archegos funds are out there.
Of your list of sectors, coal is a solid bet. However try finding a publicly traded entity (domiciled in the U.S.) that isn’t leveraged to the eyeballs.
The only real place to hide appears to be inverse ETF’s.
Please be CAREFUL with investing in inverse ETFs. Works wonder when your timing & Trend are ‘cooperative’ otherwise it is ‘suicide’
I have used them since 2003. Came very handy during GFC but NOT any more after, unless one invests in leveraged long ETFs!
There is daily decay and reset at the end of each day. They are in fact a kind of ‘derivatives’ to be used by the experiened ones and definitely NOT for the Novice. I lost quite a bit during last decade.
After having said, one can use them but only in TANDEM with the long leveraged ETFs ( mixing is an art than science but also long experience) to avoid the whiplash. But great to profit using them during ‘expected’ bounces in an going secular market. It is definitely NOT a panacea, b/c of hidden risks!
Agree regarding inverse ETFs. A derivative of a derivative, designed for those with cash accounts and who want to attempt to profit in a down-trending market. Cash accounts cannot short stocks.
Inverse ETFs are not truly the inverse of their antiderivative. Take, for example, QQQ and SQQQ or IWM and TZA, place the two in separate charts, on top of the other, and compare.
If you compare IWM and TZA, (you could even invert one if your charting service has that functionality), you’ll see that IWM has clearly dropped below major support but that TZA has not yet cleared resistance. In other words, the two are not mirror images of each other.
If the antiderivative is tracking sideways, the inverse ETF will be drifting lower. So there definitely is some decay going on there, as you mentioned.
On days when there is little positive percent change in the antiderivative, the inverse ETF will show a negative percent change.
Inverse ETFs will reverse-split when the price gets low enough.
You can bet your bottom dollar market insiders monitor inverse ETF statistics because they know those are retail investors buying in and will rally the market to try and shake them out.
For those who have margin accounts, such as myself, buying into an inverse ETF requires I use 100% of my margin, which means I cannot barrow money from my broker to buy an inverse ETF.
Therefore, I prefer to short stocks in a down-trending market, and without the use of options. I avoid shorting stocks that pay a dividend.
If you are short stock on the dividend holder-of-record date, you pay the dividend, not the company. In the past, I’ve lost money not only on my short position (squeezed), but I had to pay the dividend and pay the commission to get out (when there were commissions)!
“He who sells what isn’t hisn’ must buy it back or go to prisn’ ”
-Reminiscences of a Stock Operator
One last thing, I must disagree with you regarding the use of options as a safeguard against the sharks. The shark is your broker and as your broker, is obliged to blow out your account by whatever means available.
But to each his own, that’s what makes a market!
Profit from the comments made by the Prophet. Amen.
Thank you, HowNow.
Correction to my comment:
Dividend holder-of-record date should read:
Stockholder record date
‘ Cash accounts cannot short stocks.’
‘One last thing, I must disagree with you regarding the use of options as a safeguard against the sharks. The shark is your broker and as your broker, is obliged to blow out your account by whatever means available”
Definition of a BROKER- S/he will stick with you untill you are BROKE!
I manage mine my family of 5 portfolios.Absolutely NO traditional brokers. Only I use options (PUTS) executed via online discount brokers Schwab, Etrade and Vanguard. they work wonders if one’s timing and trend agree, like NOW! But I also use calls as hedges against ‘always’ expected whiplashes in a secular bear. I use both leveraged ETFs ( both short paired with few long ones) It worked wonder during GFC! I also use to a lesser extent BEAR MFunds, held over my buying in 2018, again protecting mine and my family’s portfolio.
I made more money during BEAR than BUll after 2000! Now the reversion to the mean has started, I gaining slowly my lost profits! Those who know option trading NEVER fear Bear mkts. I never SHORT stocks ( naked or covered!) NOT my cup of tea!
B/w during my MBA course the professor of ‘Financial management ‘told me that ‘VERY FEW’ brokers know how to trade options, effectively! Long time ago I became the ‘master’ and excutor of my financial destiny. A lot investors will be better off learning investments (+options) on their own!
” A lot investors will be better off learning investments (+options) on their own!”
Yes, I concur! Provided they (or you and I) don’t get monkey-hammered along the way. Always something new to learn, gotta stay on your toes and be ever vigilant!
The mining stocks? Oh give me a break. Those fools are making money. No one wants a company that actually makes money. We are living in bizarro world. Of course we might come back to the real world at some point!
It’s good to under stand duration and match it up to your needs. Cash is mainly for spending in the next six months or to manage duration in your portfolio so you don’t get wiped out in a draw down.
Bitcoin made its high the first week in November, this is very much like a repeat of the mortgage crisis, (an off market speculative industry which dragged down the market) however in this instance the size of the bitcoin market is very much smaller than the size of the stock market/economy. While crypto is highly speculative, it’s effect on business is limited. The crash started here. and the market is just dropping in sympathy (Musk owns a lot of it, and companies like MicroStrategy moved their entire market cap into digital. (Down more than 50% starting in November which is when Tesla put in its last high) The dollar index put in its high a few weeks later, and you might ask that question, is this a currency issue and not a stock issue? The Yuan has been rising against the dollar and what’s that do for INFLATION and trade deficits??
Under sufficiently adverse conditions, it’s not just what you have your assets in that matters but where it’s domiciled. This depends upon where someone lives but don’t think the US is completely exempt.
One of the best “investments” someone can make is in a second passport.
People took on a lot of debt recently and if government doesn’t dole it out next time there is a problem, people are going to need a whole lot of cash to make their debt payments.
Government saved everybody once, don’t know if they will do it again.
I hope that Toronto real estate collapses along with the rest of Canada.
I believe they’re going to end blind bidding but the Chinese have zilch in the stock market so the recent fall doesn’t affect them. All the Chinese know is inflation back home in China so if they see the word inflation all of them will still pile into buy.
Hello Gen Z
I have been looking at Toronto and the GTA since 2017, thinking there will be a crash. It hasn’t happened yet.
However, the laws of gravity will act someday and it might just be around the corner.
It has been irrational exuberance squared for the RE, the politicians have simply let it go crazy.
Copper and oil top my list
In Gold I Trust
Yes, the time for gold has definitely arrived.
Ahh yes. The flapper days of the weimar; The Great Depression; WWII. Such wonderful memories of the golden days.
Yep, most people carry the shingles and gold fever virus, they just don’t know it yet.
Half the Nasdaq stocks have NEVER made money and the P/E for the combined Nasdaq when you include their price in the mix is about P/E of 70+. Shorting the QQQ (Nasdaq) EFT is a way to protect yourself :-) This bubble has to burst….as does the Chinese Real Estate worth $55 Trillion- Both are NOW simultaneous unravelling – Even the I.M.F. chair and Winnie the Pooh (Xi-JinpinG) have both come out to ask Weimer Powell “NOT” to raise rates…. REALLY????
Yes, the great recession of 2008-2009 led to this as the Federal Reserve lowered rates to nearly 0% and bought Treasury securites and mortgage-backed securities (quantitative easing). A lot of the gains are artificially created due to the Federal Reserve, not due to gains from innovation and productivity.
A lot of mega and large cap stocks are down from their all-time highs
Disney down 32%
Google down 14%
Apple down 12%
Microsoft down 15%
Amazon down 25%
Netflix down 43%
AMD down 28%
Facebook down 21%
Ford down 20%
Tesla down 25%
Bitcoin down about 47%
“A lot of mega and large cap stocks are down from their all-time highs”
That has little significance when they all are higher on a year over year basis.
@Bobber: You might recheck your charts.
AMZN, DIS, NFLX are all down year-over year.
BTC is hanging by a thread and could fall off your list this weekend.
interestingly it’s F that has had the best performance and is the only one still genuinely holding it together…
And down 50% means it takes up 100% to recover.
As tempting as it is, I am not so sure that shorting stocks and protecting yourself should be in the same sentence.
if you’re gonna do it, the best way in my opinion is to buy out of the money puts or to buy a reverse etf like sqqq. you do that, your downside is limited to whatever you put in.
You don’t go net short. You do pair trades. You would have made a killing shorting ARKK and buying APPL or MSFT, and you would have been neutral from a general market standpoint.
If that was a neutral trade, then I guess shorting APPL and buying ARKK would have been, too.
Wolf – you are so right, the party is over, and the hawkish talk by the Fed and rate hikes will be just 1 of many catalysts for this ongoing correction/crash, of markets that are so ridiculous, – I saw that movie in 2000, but this by far will be worse. You have posted countless examples of this undoing, and why.
Seattle Guy – that’s right about Xi of China and I thought at 1st it was kinda of amusing, 2nd thought was OMG, that means that China is in bad shape too – US rate hikes scarring them? – that to my knowledge has never been said by them to the US.
Here’s a another biggie below, and this is on top of several posts I made about many other hedge funds selling like it’s 2008.
Jeremy Grantham, co-founder and chief investment strategist of Grantham, Mayo, & van Otterloo (GMO) said in a report called “Let the Wild Rumpus Begin” that stocks are now in the midst of a “superbubble,” that it won’t end well.
Grantham, who has been running the firm’s investments since it was started in 1977, was similarly bearish at market tops in 2000, and during the Great Financial Crisis of 2008.
“Good luck! We’ll all need it,” said Grantham, whose firm manages about $65 billion in assets.
He noted that US stocks have experienced two such “superbubbles” before: 1929, a market fall that led to the Great Depression, and again in 2000, when the dot-com bubble burst.
He also said the US housing market was a “superbubble” in 2006 and that the 1989 Japanese stock and housing markets were both “superbubbles.”
“All five of these superbubbles corrected all the way back to trend with much greater and longer pain than average,” Grantham wrote.
Many investors don’t want to believe that the stock market is overdue for a broader pullback, Grantham argues, especially since the market fell into bear territory — albeit briefly — in March 2020 at the pandemic’s start.
“In a bubble, no one wants to hear the bear case. It is the worst kind of party-pooping,” Grantham wrote. “For bubbles, especially superbubbles where we are now, are often the most exhilarating financial experiences of a lifetime.”
Grantham believes that the Federal Reserve’s moves to cut rates to zero — and then keep them there for nearly two years — is a main cause for the market’s current frothiness. The Fed is widely expected to begin raising rates at its March meeting.
“One of the main reasons I deplore superbubbles — and resent the Fed and other financial authorities for allowing and facilitating them — is the under-recognized damage that bubbles cause as they deflate and mark down our wealth,” he wrote.
Grantham added that “as bubbles form, they give us a ludicrously overstated view of our real wealth, which encourages us to spend accordingly. Then, as bubbles break, they crush most of those dreams and accelerate the negative economic forces on the way down.”
This speak volumes and is a very bold statement and sums up a lot of what has been said here way before him.
Excellent post Martok. Grantham is one of the few credible commentators who calls it as he sees it. Interesting to note that his views frequently echo what Wolf has been saying here for months.
Greenspan’s old phrase of “irrational exuberance” comes to mind. Part of that irrationality is overspending based on the artificially inflated value of one’s assets. Some of the people who have done that will receive an unpleasant cold reality shower in the near future.
The Emperor has no clothes. Will be interesting to see how this situation plays out in the fall midterm elections.
yep. i’ve been saying that for a long time, that people are not buying houses with their stock or crypto wealth, at least not in the traditional sense of cashing out and buying houses with that cash. it’s just giving them the false confidence to borrow and spend more with other sources.
Consider: a $300,000 mortgage, at about 4%, is a monthly hit of only $1000, and that’s a tax write-off (or it used to be). If you have a 20% down payment, you can get a house priced at about $375K. That sure as hell beats paying rent, although the buying and selling of a house, annual taxes & insurance, and the all-to-real maintenance costs have to be factored in. But avoiding rent servitude is a good reason why housing prices should have skyrocketed. When will it end? Dunno… But that increase in inflated equity will trickle down to the next of kin anyway.
there have been many places and times when renting was far cheaper than buying. a few years ago, i rented an apartment for $2k a month that had just sold for $500k, as an example.
I disagree. The main decision is how much you are going to spend on shelter and whether the rent vs. life style is best for you. If you don’t use the money for a down payment, it can be used for other investments.
Practically I think it has to do with family size. If you are single it can often make sense to rent as 1 bd sfh are not a common thing. If you have family and need 3 or 4 BD then probably a SFH purchase makes sense if you feel you can stay there 7 years or more.
Just my thoughts having been a homeowner and a renter.
In Southern California, a big reason to buy is safety. People are paying a premium to buy homes in zip codes where the police still respond and arrest criminals. This is very true.
Listened to an hour long presentation by an apartment developer yesterday. He said developers and their lenders are closing up shop in a lot of progressive cities that are talking about price controls and have busted budgets.
When you build a development, you have to make an assumption on rent increases and property tax increases to plug into a calculation to see if there is going to be a positive return. If the numbers don’t work,you go somewhere else.
The dude next door to me is renting for $2,500/month on a house that is at lease worth $700K. Good deal for him. The owner doesn’t want to sell and have to pay capital gains taxes.
Jim Cramer bought a farm pretty smart move
Old School, I, too, disagree… with your comment about property developers who are thinking about long-term rental issues. Many developers sell the complexes asap, if they ever really owned them. Besides, the tax scheme is such that they maximize depreciation in the first several years. Swapping them out every 3 years is common practice. They fish where the fish are biting, not whether a city is “progressive”. Propaganda for the “right”? Look what just happened to Aaron Rogers. Bad karma.
If you don’t mind me adding, this time has been “irrational exuberance squared”
It has been total madness worldwide.
““One of the main reasons I deplore superbubbles — and resent the Fed and other financial authorities for allowing and facilitating them — is the under-recognized damage that bubbles cause as they deflate and mark down our wealth,” he wrote.
Grantham added that “as bubbles form, they give us a ludicrously overstated view of our real wealth, which encourages us to spend accordingly. Then, as bubbles break, they crush most of those dreams and accelerate the negative economic forces on the way down.””
this says it all. the “wealth effect” is a farce, and always has been. while it is true that it might cause people to spend more during the “good times” when they have a lot of unrealized paper wealth, all of the extra economic activity and then some is canceled out by the slowdown that occurs when the game finally falls apart. and it always does.
This cycle washed out a lot of value money managers, but if you manage your own money it’s easier to stay the course as your clients don’t pull their money if you under perform for a year or two.. Have to admire Grantham for sticking to his knitting.
Buy Buffett value investing on the cheap and one of best
Yep. Best to buy it in a recession when it gets close to 1.0 book and then sell roughly 4% of shares per year in retirement for income. I tried to buy at book and sell at 1.4 book, but it meant I sold too early at about $185 six years ago. Now $310.
Tried to buy it back in 2020 at 1.0 book, but I was too cheap and missed out by $1 per share, cost me $130 per share. Oh the heart aches of an investor.
Buffet does give good advice, one thing he said is people don’t usually regret holding brk for the long term.
The Wealth Effect along with it’s conjoined twin, the Poverty Effect, has always been a Central Bank slight-of-hand.
The appearance of increasing wealth, which is simply increasing prices from depreciating value of local currency.
That was a very helpful summary of where we may well be positioned. I have been bearish since Nov. ’19, but timing is always nearly impossible. You just have to wait until it happens.
Thanks for that very astute post. I have many friends who’ve been spending like drunken sailors in Hong Kong, thinking their newly-found wealth is a result of their financial shrewdness or prowess or whatever.
I stopped listening to them months ago to save my own sanity, as I was a lone “voice of reason” in a hurricane of hubris. I shall now remain smugly silent and let the chips fall. As Ted Geisel said… “You can’t teach a sneetch.”
“Grantham added that “as bubbles form, they give us a ludicrously overstated view of our real wealth, which encourages us to spend accordingly.”
Which is why, as I’ve said many times in the past, there is going to be the biggest sale in history on cars, boats, planes, RVs and the like. When money gets tight, the first things to go are the extra toys worth the most money. But there are no buyers at that point, only sellers, so prices get crushed into oblivion.
People have short memories. I remember the first crude oil spike back in 2008. Once fuel hit $5 per gallon, the town was littered with “For Sale” signs on trucks and large SUVs. People didn’t want them. Now we have nearly $5 per gallon fuel and people buying these dinosaurs like they’re going out of style. Won’t last, especially once everything melts down. The carrying and operating costs of these things are absurd.
The crypto day traders are the ones who will be having the biggest garage sales. Once their electronic tulips crash into oblivion, and stay there, their whole fantasy is over with. Time to GET A JOB. Thinking you could sit on your ass and produce nothing for the rest of your life while getting rich was 100% due to the most reckless FED of all time, as Wolf has put it.
“Which is why, as I’ve said many times in the past, there is going to be the biggest sale in history on cars, boats, planes, RVs and the like. When money gets tight, the first things to go are the extra toys worth the most money. But there are no buyers at that point, only sellers, so prices get crushed into oblivion.”
So true! I saw that specifically in the RV industry around 2009.
Back in the mid 80’s, we lived next door to a guy who was a commodities broker and owned a seat on the CBOT. They were living the high life… new Jaguar and Mercedes in the driveway, 3 karat rocks, new “headlights” for the trophy wife, etc.. You name it, they had it.
Then something abruptly changed and the cars turned into rusty Chevy’s, trophy wife went south, and the house went back to the bank. I think he even had to sell his seat – and it still wasn’t enough.
Since then, I’ve never looked at life as an all you can eat buffet.
Yes, true, Mr. Mushman: look right now at what’s happened to the RV companies: WGO, THO, LCII. The market is starting price-in their fire sales.
Hopefully I’ve been waiting for a good sale on sailboats I suspect one is coming shortly from what I’m reading and feeling in my gut
When people start dumping all these expensive toys as you are predicting, would that not cause inflation to fall, and perhaps turn into the deflation ?
Yes. The question isn’t if, or how, but merely when.
no. because expensive toys don’t get figured into inflation calculations. cpi doesn’t account for boats, private jets, or rvs.
Very true In 2008 I took my gas guzzler off the road and started using my bike a lot more Unbelieveable how shortsighted these people are buying these bohemoths And fuel is almost certain to go much higher from here unless of course we get a severe depression then all bets are off
Anyone with money in the market well knows what has been going on the past 10 years. Just hang it on your shoulders. You own it.
Yes, the great recession of 2008-2009 led to this as the Federal Reserve lowered rates to nearly 0% and bought Treasury securites and mortgage-backed securities (quantitative easing). A lot of the gains are artificially created due to the Federal Reserve, not due to gains from innovation and productivity.
A lot of mega and large cap stocks are down from their all-time highs
Disney down 32%
Google down 14%
Apple down 12%
Microsoft down 15%
Amazon down 25%
Netflix down 43%
AMD down 28%
Facebook down 21%
Ford down 20%
Tesla down 25%
Bitcoin down about 47%
Your money in banks not safe either, in 2010 congress passed a bill to confiscate your funds ,we savers will pay off the debt and starve
BS. Grow up.
I think Flea is correct on the banking legislation. You fiat in the bank is a liability of the bank and I think the legislation means anything above FDIC amount is truly not safe in a crisis.
FDIC insurance is bank funded and I suppose would be back stopped by government which these days means if needed Fed would print it up, but that is just socializing the loss to savers.
There is a very small risk to keeping your money in a bank as they are down a notch from owning treasury bills, but usually you are compensated by an adequate interest rate. In the upside down Zirp world, the risk/reward is up side down.
If a bank bails in the deposits, they are not technically insolvent, so the FDIC won’t be triggered. You will not get a penny of your bail in money back. You will get shares in a bank that had to rob you to survive. You can thank the left for that wonderful piece of legislation, Dodd Frank.
“If a bank bails in the deposits, they are not technically insolvent, so the FDIC won’t be triggered.”
That’s BS. A bank is a regulated institution, and it cannot bail in anything or anyone. The FDIC decides when a bank runs into trouble, and then the FDIC swoops in and takes possession of the bank and runs the show, and it decides who gets bailed it.
The stockholders and preferred stockholders and holders of contingent convertible bonds are INSTANTLY bailed in by the FDIC when the FDIC takes over. In other words, the entire equity capital gets bailed in first. That’s the capital buffer, and it gets bailed in by the FDIC by design.
Then the FDIC sells all the assets to other banks, and it shifts deposits to other banks, making up the difference with deposit insurance.
Bank bail-ins are entirely appropriate. We are talking about unsecured creditors.
Most people presumably know their bank lends their deposits out. That’s why they get paid interest, traditionally anyway.
Well, everyone should know what this means. We don’t have “money” on deposit. It’s a loan to the bank.
Yes, deposits are unsecured debt for banks.
But for depositors, their deposits are INSURED by the government (FDIC).
If depositors follow FDIC rules, there are no consequences for depositors if a bank fails. Got it?
Quit spreading braindead banking BS here. This gets really tiring. Do that on ZH.
You totally missed the point I was making. When a bank goes insolvent the FDIC can resolve it as you described. But that was before Dodd Frank.
Now the banks can be bailed in which is when the deposits are turned to equity. That keeps a bank from being insolvent and no insurance payout is necessary, because when the depositor receives equity, they have technically not lost any money. And when the bank gets an injection of capital, your deposit, they are no longer insolvent.
No, a federally chartered bank has no right to bail in depositors or anyone else. A bank CANNOT do that. The FDIC can do that after it takes over the bank. If a bank tries that on its own, it will instantly be shut down by the FDIC and taken over by the FDIC (and the execs may end up in jail). The theory you’re expounding is just blogger BS, and there is a lot of blogger BS out there about banks. End of this nutty discussion. Good grief.
The Cyprus Experiment
‘While the public became familiar with the subject of bailouts in the aftermath of the Great Recession of 2008, bail-ins attracted attention in 2013 after government officials resorted to the strategy in Cyprus. As discussed in The National Herald, the consequences were that uninsured depositors (defined in the European Union as people with deposits larger than 100,000 euros) in the Bank of Cyprus lost a substantial portion of their deposits.’
Note: even here it was only uninsured deposits that were affected ( given bank shares) A lot of the money far over the 1OOK limit was Russian.
I agree with Flea Your money is definitely NOT safe in the banks Nothing is safe with bankers even the shrimp at all you can eat buffets
@ Flea –
I think that is only money beyond FDIC insured limits. ($250,000 per deposit/depositor)
The $250K is per individual depositor…. depending on how the account is titled, that can be expanded (for example beneficiaries of a trust are each protected but the grantor of the trust is not).
FDIC / NCUA insurance is tricky…. and most financial institution employees, when asked to explain it, don’t get it right.
The FDIC rules are based on a basic principle that is easy enough to understand: “Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category.” This principle allows you, for example, to buy brokered CDs from your broker, just like you buy stocks, and each brokered CD by a different bank in your brokerage account is insured by the FDIC for up to $250K.
Here are some resources from the horse’s mouth:
The last time anyone lost insured money in a US bank was 1933.
There have been 511 US bank failures since 2009.
The biggies were part of the GFC.
Year Cost to FDIC No. failed
2010 $22.9 billion (official) 157
2009 $38.73 billion (official) 140
Again, even in the Cyprus crisis where the govt, not just the Bank of Cyprus was insolvent, it was only the uninsured amounts, over 100K euros that had to accept bank shares for the bailed-in amount.
The ruckus, partly created by the Russian oligarchs, overtook in the media the negotiations of Cyprus itself with the ECB and IMF. This is where most people first heard the term: ‘bailed- in’.
Five hundred and eleven failed US banks since 2009, without any insured depositor losing a cent, should establish the credibility of the FDIC.
Can’t help noting: no one lost a cent in a Canadian bank during the Depression.
Bitcoin getting absolutely monkey hammered and NFLX getting shellacked is oh so satisfying to see. Schadenfreude is delicious.
TSLA will be under $500 by March 1. Bank on it!
Crypto’s getting “monkey hammered” is a hilarious term!
Someone posted that Crypto could be leveraged 5x on margin and able to buy equities with – maybe they bought those equities on margin too – what a colossal train wreck that will be, – if true.
Also read where the WallStreetBets Apes “stonks” are getting “monkey hammered” too!
Have to admit Schadenfreude is satisfying to me too, as so many “self proclaimed” experts told me the markets are safe to invest in and I was missing out, along with 8-ball Cathie Woods commentaries, and one she said Bitcoin would go to 500k – LOL
Charlie Munger says people would try to trade turds if they could figure out how to do it.
Munger using bathroom humor: He may have been fixated at the “anal stage”.
He’s actually right. In the last few weeks I heard the story of the young woman who farted into jars and sold them.
The headline was “90 Day Fiance star switches to selling fart jar NFTs after heart attack scare.”
God what a time to be alive.
Some cities package up their treated sewage and sell it as fertilizer. Milorganite is a brand of fertilizer produced by treating sewage sludge by the Milwaukee Metropolitan Sewerage District. There is probably a market for turds.
Nobody knows the price of any stock next week, next month or next year.
About the best a person can do on some stocks is to be pretty certain how much they are likely to payout in dividends over the next year and possibly next 10 years.
Nobody knows what SP500 will be next year. About all you can be sure about is you probably will get around 1% dividend payment or $45 -$50 even if market tanks.
Impossible!!! They tell me Crypto will replace the US Dollar soon!!! I mean how can I not believe ZeroHedge?????
I just checked out ZeroHedge and I feel like my IQ has dropped.
ZH has a warning about some site being not suitable for teens. If ZH thinks it’s scummy, it probably is. The comments are weird.
But for every 10 -20 of its paranoid culture rants, there is 1 good bit on finance, like Grantham’s piece. On a good day.
Oh no, now I feel guilty ….. NOT. Seriously, ZH is a good site to visit if you want to have a bit of a laugh.
This may end up being a hard comedown for the gambling addicts and everyone effected by them… but the hazards of that sure beat the outlook of impending neo- feudalism for a large chunk of the population!
Great alias! I know it’s you Medusa! >😉
It’s all just Sienfeld-o-nomics. Said Elaine, “It shrinks?”. Responded Jerry, “Like a scared turtle!”.
Maybe it’s the one. Or maybe it isn’t. This market is driven by foolish behaviour. Come Monday afternoon we might see records broken again in the stock market. But the bears might be here to finally stay.
It’ll come one way or another. The fed isn’t supplying infinite free money anymore. One thing I’ll say with a large amount of confidence, if you’re in crypto right now, you’re screwed.
The difference right now is that that margin calls will start in earnest very shortly. As Wolf’s November article showed… Margin Debt is almost TWICE what it was at the start of the March 2020 stock market pullback. There are exactly two ways of paying off Margin Debt… pay cash to your broker when he demands it… or do nothing and watch him sell your stock to pay the debt.
With a half a trillion dollars in EXCESS margin debt outstanding, stock prices are going to be under pressure that won’t let up for quite a while.
Cramer says one more week of pain ,then I think dead cat bounce ,short the market
I happen to like Cramer. But he’s only right about half the time. The other half of the time, he’s wrong.
What time is it?
If you flip a coin and try to guess ‘heads” you will be right half the time. Cramer adds no value. He is a cheap carnival huckster.
And rates are still essentially zero ……
and the Fed is still buying (QE)
When the paltry rate hikes come….they will have little to no effect of tamping down inflation. The wealth destruction in the stock market will likely have more impact.
The talking heads on cable shows still bullish (paid to be bullish) and are still debating the likelihood of 3 or four 1/4 pt raises. The CPI just went from 2 t o7% ….that’s about twenty 1/4 pt incremental gains!
But the real unmentioned factor is the Geo Political threats ….Ukraine and Taiwan….. and the unbridled debt creation of the federal government.
Central Bankers never learn….. they just don’t have the guts to dial back when things are good…..to let markets actually “correct”, flush excesses.
Good point on Taiwan and Ukraine. You could also add mid-east and Mexico…
I think the market tradeoff is mostly due to Ukraine … it smells a problem … if a problem happens over there, then the market will take a big big hit. Inflation will soar.
Ukraine is a ‘politically’ convenietly invented priblem absolutely NOTHING to do with Mkts slide! MSM goes along like a sheep!
I agree With Wolf. No one in MSM wants to confront Fed for their almost ‘criminal’ monetary policies! Barnake/Fed believed in so called ‘wealth’ effect in re-energizing the economy. But did any one point to them that 90% of Americans own less than 10% of Wall St wealth ( bottom 50% NONE!) Rich became richer with 1% owning more than 50% and the top 10% more than 90%. MSM is/was deadly silent on this fact.
Nearly 25 reporters ask quetions to Mr Powell during his press conference. They all throw him soft balls. No of them are brave enough or have an integrity to ask Mr. Powell, why is he punishing those on fixed income, savers, retirees+ with financial repression? It is simply disgusting! I call them Pressitutes, not reporters.
I have read some where in the past, that any ‘sane & brave’ economist who will ‘directly challenge the Fed/FOMC members on their policie, should expect to find no future for his career in USA. They have a ‘god’ like ststus. Hence can get away any thing like saying in 2008 ‘ No one saw thos coming’ and later this or next year blame it on Covid, rest swipe under the carpet!
Leading up to a potential war, the market usually slides, and oil jumps. That is what we are seeing right now.
Then, usually after the war starts, the market usually rallies and oil slides.
In this case, Russia is a little bigger player than usual, so I would question if it rallies just after the war starts.
Who in their right mind would put all that military hardware on the ground in the middle of the freezing January winter if they weren’t planning to go in. Have you seen the satillite pictures???. It looks like a repeat of Stalingrad in WWII. I have no doubt that right after the Chinese Olympics, Putin will invade Ukraine and our dear leader will do nothing but issue Carter like sanctions, like was done after the Soviets invaded Afghanistan. I see oil going to $100/barrel overnight and gas at $6/gallon across the country.
What trader can go home long over a weekend with Russian tanks and now missiles poised?
Some here on this site hold the Fed is all powerful….
I don’t need to paint the scenario where we find out that is not true.
The media keeps pointing to the FED … but they know it is a Ukraine foreign policy disaster unfolding. The media hopes you don’t figure that out.
Can you imagine how high oil will surge? This is a repeat of the 70s.
“The media keeps pointing to the FED … but they know it is a Ukraine foreign policy disaster unfolding.”
Almost every word is nonsense. So let’s parse this:
“The media keeps pointing to the FED…”: hahahahaha, the Fed is hardly anywhere on the front pages of the MSM, such as the NY Times, the Wapo, the LA Times etc.
But the Ukraine has been on the front pages every day for weeks. The media have been hammering this topic.
“foreign policy disaster…” Wait, Russia started this, Russia is threatening to invade the Ukraine unless it gets x, y, and z. It put down its demands in writing and submitted them to NATO, and a united NATO, to its credit said, no, forget it.
Save your political wishful thinking for party-time with your friends. That stuff is not appropriate here.
Thanks, Wolf, for calling out SocialJim. Conspiracy grist for the faint of heart.
Here is how life works on Wall Street. For example, if you work at a money center bank, and if your bank does business with the FED, and if your research dept puts out a piece that blames DC for a problem in the market, then DC is upset with your bank, and you may get fired. That is not a conspiracy.
In fact, some banks even have a relations dept review all research before it leaves the door …
“Leading up to a potential war, the market usually slides, and oil jumps. That is what we are seeing right now’
The stocks overvaluted by 3 standard deviation away from hostoric norm. US gdp to Debt is over 130%, Mkt cap to GDP is over 200%. Inflation is flaringp and Fed is caught trapped. It cannot do anything about omicron and supply chain problems.
OIL is going up b/c there are no new or very few rigs in the horizon. Demand is slowly going up. Without ENERGY, there is no EConomy based on consumption. ESG will go nowhere. Europe is caught in this conundrum.
The above is the reality. Ukraine is just an excuse. If there is war, that will be the war where there is no winner! Both parties know this. So rhetoric contiues!
SocialJim, I don’t doubt what you’re saying directly above. Marketing departments, for example (rather than just big banks), screen correspondence thru their legal departments to prevent lawsuits. When I’ve had lousy or otherwise destructive employees, I tip-toed around until I could get rid of them, but I did get them out. It’s understandable (not “conspiratorial”, as you point out) to put a muzzle on people who you employ to keep them from sinking the ship. Conspiracies – “The FED wants to strip everyone of money or assets, pass them along to their ‘buddies’, skim some along the way, then watch, from a chateau in the Alps, as chaos unfolds in the U S.” Too often angry, jilted, lonely people make that crap up. And it’s angry folks who swallow it without chewing. Evidently those stories are making some pricks rich as they gain followers. I think that’s one of the real attractions on Wolf Street: Wolf may sensationalize (poetic license?) but, as far as I can tell, he’s being candid and shares what he knows. And in language we can all understand. (poetic license on that last, grammatically incorrect, sentence)
Heard some smart people discussing that currently spread between 2s and 10s indicates Fed has three 1/4 point rate hike arrows in the quiver and then it’s recession time.
Could be really bad if we get recession while inflation runs hot due to supply problems.
Wait till the Fed starts reducing its balance sheet and the 10-year yield is then allowed to rise. The Fed can force long-term yields up by shedding $4-$5 trillion in securities, if it wants to.
If “smart people” assume what they’re seeing in the Treasury market is market wisdom instead of the results of Fed manipulation – the Fed’s STILL buying Treasuries — they’re not “smart.” They’re just plain dumb. Or more likely, they’re talking their book, and their book is full of bonds, and they fear the losses coming their way.
At this point, with the Fed owning 60% of the 10 year, there is no way to “normalize” rates without routing the markets and/ or taking down a few of the big banks. They have no choice but to choose inflation as the preferable out come.
When does the so called Fed tightening start?
So far mainly Blah Blah Blah
Tightening in an election year?
Might not happen.
Federal Reserve Credit
last week surged $88.6bn
to a record $8.826 TN.
Over the past 123 weeks,
Fed Credit expanded $5.099 TN,
Enjoy the show!
Maybe we will find out who the heavy weight champion regarding treasury prices is the market or the Fed. I really don’t know. Let’s get ready to rumble.
If Fed stops buying billions of MBSs and Treasuries, tomorrow, the true yields will rise up, across the BOND spectrum. They have kept suppressed so the bond reaction is really muted and not representing the reality. Come April, we will know, right?
Yes, there is some of that already. But the Fed owns such a huge portion of the Treasury and MBS markets that its balance sheet would have to shrink substantially before markets would be free to go where they want to go.
According to my theory, long-term yields will remain in a band until the Fed ends QE. During the taper the band shifts upward. After the end of the taper (April and forward), the band shifts up some more. And as the Fed actually reduces its balance sheet, the band widens, allowing yields to rise further. When this will happen depends on how fast the Fed will move.
What the Fed doesn’t want is a seizure of the Treasury market. It doesn’t want the 10-year yield to go from 2% in April to 4% in May. That would be too much shock-and-awe. And it doesn’t want a seizure of the corp bond market either. And there could be issues because there is a whole lot of corp debt out there that the hot money has jumped into.
“The Fed can force long-term yields up by shedding $4-$5 trillion in securities, if it wants to.”
Looks like it wants to given that it wants to increase short-term rates and fears inversion.
If it had not wanted to it would still be buying $120billion every month and reverse repoed it and feeding the market its candies.
This will prove to be an intersting movie (as long as inflation stays high or the financial system does not crack).
It will get more interesting if inflation stays up and recession arrives in the form of an unwelcome guest.
The problem with central banking influencing or manipulating a market is that people have a choice to panic if Fed gets it wrong.
Those bullish MSM talking heads (and most outliers) are paid by BlackRock or VanGuard. If they want people to throw money away – they write the script. If they need a controlled collapse to buy more companies – they write a bear script. I lost faith in any market after watching Fink write the Cares act. Antitrust laws are so badly abused today that most people, even millionaires, are not safe from these ultimate predators.
historicus-your last sentence again illustrating a keystone of the modern American ethos: “…if a little is good, a LOT more is better…”.
may we all find a LOT better day.
Regarding gold as a safe haven, wouldn’t higher interest rates reduce the market value?
The best time to own gold was before 1973. We all know what happened then. Milton Friedman’s thesis was that gold, tobacco and commodities result in inflationary and deflationary cycles.
Gen Z: pop into a good “business library” (like at a college with a large school of biz) and sit down with a 50 year volume of SRC’s (Securities Resrch. Co.) chart book and look at the first volume which has charts by industry. Take a look at 1982 on that 50 year chart and see which industry groups got monkey hammered the most (cyclicals) and which fared pretty decently (only got ball peen hammered). Staples, utilities, sin stocks – alcohol, tobacco. Education/publishing didn’t fare badly but that industry has been sacked, so look elsewhere. Gold tracks well with inflation expectations, so if the FED actually does what it’s saying or if we don’t have a war, that haven may be “taken out on a stretcher”, as Wolf aptly puts it.
At the start of the Great Depression, banking leaders, politicians, and economists were saying that the economy needed a “cleansing”. They had no idea just how widespread that cleanup that was going to be.
Gold tracks well with inflation expectations, so if the FED actually does what it’s saying or if we don’t have a war, that haven may be “taken out on a stretcher”, as Wolf aptly puts it.
Somewhat. But the reason to also hold gold is protection agaisnt societal breakdown.
True. But I (we) thought that the local right-winger in our neighborhood who built a bomb shelter (during the Russia/US nuclear stand-off) didn’t fully consider the fact that there were many people, some of whom had picks and shovels, who would no doubt poke into his shelter if push came to shove. You can only be completely self-centered for so long.
Endeavor: “Gold tracks well with inflation…”
Does gold track well with inflation? Sure hasn’t in the last 6 months. I’d be interested to hear what you’re using as your basis for this claim.
Melchior Palyi’s short treatise on the 20th c. inflation (A Lesson In French… Inflation) offers some insights. Many others argue that gold is relatively un-correlated to CPI.
Your “social breakdown” comment is right on the mark though, IMHO.
Finally, there seem to be two inflations happening: consumer prices, and financial prices. Only one has been recognized as “inflation” by MSM and academia. Financial prices (stocks, bonds, investment real estate) is a supreme failure of the economics profession. In the old days, the term inflation meant pumping up the money supply, and rising prices )of any- or every thing) was the consequence. Now its all jumbled up.
I saw one guy on that had a model for trying to determine price of gold. It comprised three factors. Can’t remember them all, but one was real interest rates. Highly negative real interest rates should be supportive of gold.
Some say it’s like a life insurance policy. It pays off if financial system dies.
The price of paper gold is being manipulated by Fed, Banks (JPM?) and Wall st for decades, which is an open secret for seasoned gold investors. Remember Hunts brothers manipulating the price of Silver?
One may buy physical gold but it’s price still priced by gold futures mkt!
IMHO better buy options ( both calls & puts) and pocket the $, like now!
Go by the spread between the Fed funds rate and the inflation rate. I think it will widen in 2023. My guess is buy gold near the end of 2022.
@GenZ: Gold has a mind of its own. Rising interest rates from 1973-1982 didn’t stop gold from having an epic run.
Declining interest rates from 1982-2000 didn’t stop gold from 20 years of doldrums.
But from 2000-2011 Gold outperformed stocks by over 5x.
I don’t think anyone knows what will happen next, or the gold chart would look a lot more stable.
Finally, fundamentals asserted themselves.
I can only imagine the fantasy hopes and narratives whirling in the heads of the all-in-leveraged crowd. I don’t follow all the chatter online (outside of well-reasoned stuff, as here). But the downward pressure is speeding up thought processes. Confidence builds slowly and evaporates quickly — that is biology. Fear is engineered to arrive quickly. Fight or flight impulses take hold — but flight to where? The land of mythical buyers and bagholders?
Recalling 2008, unwinding spread from the obvious frothy asset to other asset classes. People who just bought into houses at this peak had better be well diversified, with a good expected cash flow. That was a ticket down and out of the middle class for some. I recall a guy back in 2007, who just bought a condo in my neighborhood for 5x what I paid (ten years earlier), asking me if I thought it was a good deal. I kept a straight face and tried to mumble something nice.
Some stocks are no longer about fundamentals. They are about making money trading “shares” an in attempt to profit between the values. It no longer is meant to represent these companies shares. With these meme stocks it is just a token for entry to the casino
During this pandemic the rich became richer and the poor poorer.
Like certain Night Show Host Says, Rich People. They’re Just Not Like Us. Us Pay Taxes.
There is no motivation to fix things because is the same system that makes the rich be richer.
So all this? Just patching leaks with bubblegum, nothing more.
The rich don’t pay taxes… why should they? Congress creates the rules and the taxation system. If Americans think that a guy who evades taxes and runs casinos is going to help the average numbskull out, we deserve what we get: lower taxes for the wealthy. What’s not to like?
My God, are you kidding me? You’re still talking about an event from over 5 years ago? GET OVER IT.
Agreed, the crazy orange is gone, unfortunately there is still the scum in Congress that doesn’t want you to vote.
The clown car is still circling, towing the GOP’s presidential hopes, stringing along a bunch of folks in a silly narrative right this second. The guy’s brand just won’t stop, as long as a slew of breathless fans keep following it. 1980s, 1990s, 2024.
Yet the orange rage lives on. Weird. People used him as an excuse to showcase their own mental health disorders. It’s sad.
DC: “You’re still talking about an event from over 5 years ago?” Much of the commentary on this site is about things from 1929, 1982, 2000, 2008. to point out a few. “5 years ago…” isn’t ancient history. And the point I was making is (drum roll for the dumbbells) that the gullibility, paranoia, conspiracy worship keeps marching on.
The theater of the absurd is temporarily off-stage. They’ll be returning again very soon, this year or close to 2024.
Writing off losses is legal.
If Pelosi or Feinstein ever had a loss, I ‘d bet they would write it off.
Anybody pissed at Amazon for their tax payments? How about their carbon foot print and all those trucks polluting the atmosphere?
Amazon trucks which each deliver hundreds of parcels a day are a lot more efficient than individuals driving to the stores in separate cars.
Yeh, these Amazon trucks are efficient alright. Load music blasting down quiet streets, parking illegally and blocking driveways, drivers who just can;t drive worth a s%it, trucks spewing pollution from vehicles that could not pass emission testing. You can have all of this and more this. ENJOY! I think I’ll still with the old fashion way and go and pick up my own groceries.
He was Pres until ONE year and less than a month ago. During those disastrous four years, the Fed was constantly lashed to cut rates and in 2018 did 3 times. Maybe JP should have defied him, but for a Pres, even that one, to so blatantly ignore his oath to respect the independence of the Federal Reserve was unheard of. There is a lot of praise for Volcker but he had the WH backing him, not trashing him. It was after those last three cuts that the bubble became a super bubble.
Yep, that was not T’s finest hour
the difference here is that i think the “rich” overplayed their hands. you do things slowly, people don’t notice. but even the mainstream media has been constantly bleating that nearly all of the “stimulus” went to the wealthy, and that the top 1% doubled their “wealth” during the pandemic.
Like historicus said, the FED and their rich buddies decided to “have some fun.” Rapacious greed is an insidious disease. These people are mentally ill, by and large.
DC: if you think that FED and their buddies decided to “have some fun”, you might want to reconsider what constitutes mental illness.
Not all balloons “pop” though. Some of them develop a slow, unfixable leak and kind of go: “fffffffffffff” until the air’s out of them and then they lie there, limp and forgotten and stepped on until someone throws ’em in to trash and takes em to the dumpster.
Other times, whoever is holding the air-goes-in-part, let’s up on the pressure there and the air rushes out with a humorous long slow farting sound that gradually becomes less and less vibrant.
Thanks, I really needed that tonight!
We can only hope that Jay Powell and his Fed Friends know how to do the controlled farting deflation rather than the “pops” we got during the tenures of Bernanke and Greenspan, or the “I can hold it in forever” of Yellen.
I know this is a US site but for anybody who wants a head up for the US..
In the UK, taxes have gone up, the employer insurance contribution so not blatantly obvious. Also various tax bands haven’t been lifted, fiscal drag, so effective tax rates are higher across the board.
Additionally there is a partial default on pension obligations ISAs (individual savings accounts) by jigging away from RPI (retail price inflation), which is will be heading through the courts as will be a loss of ~10k in dollar terms per pensioner.
Disgracefully, the tax on gas use is staying as the government sees the gas price crisis as a gift income!
I think the UK is starting to think in terms of a fiscal reponse to dampen demand, so there is an expected cost of living crisis this year as the real wage/prices imbalances flows through.
There is also the view that this is the beginning of a devaluation (which is my own view for both countries). However, its certainly a government response to dampen consumption to maybe give some leeway to the central bank.
I don’t expect any fiscal response from the democrat administration so i guess it will truly be all up to the Fed to damp consumption but really the separation of government and central bank, because its fundamentally pretend, doesn’t help when you need more joined up thinking.
At the same time nothing will tame consumption more than 30% of the stock market. All going to be very interesting!!!!
(I remember thinking all going to be very interesting before 2007/8 and then thinking sht they printed money..)
It’s a big mistake for citizens when government controls central bank. Just look at Turkey. Central bank should be independent or currency ends up worthless as history shows over and over and over.
Why even have central banking at all?
When it comes to government, less is always more
So, I guess you admire Somalia?
I guess in theory independent central banks can help the economy run more smoothly, but in practice I think they end up assisting politicians corrupt the world with wars and vote buying.
Banks lend long term and borrow short term.
This has led to liquidity issues for banks once in a while, and the Fed served an important purpose….intervening to save essentially sound banks that had short term issues.
The Fed also gently expanded the money supply to meet the demands for a larger monetary base resulting from an expanding economy. The supply was increased in reaction to the expanding economy. Recent Feds have had this backwards.
This Fed has three mandates found in the Federal Reserve Act as revised in 1977.
Moderate long term interest rates.
You wont find any mention of that third one on their web site nor in their publications. It is all “dual mandate” (the first two).
But it is that carved out third mandate that would have hamstrung and prevented the machinations of the Federal Reserve and their antics since 2009. Moderate means “not extreme” and would have kept a positive yield curve. But the Fed intentionally pounded down the long rates to Force investors to take greater risk. Moderate long rates would have prevented the raping of future generations of their wealth and pulling it forward with cheap long term debt creation to fluff today’s markets.
I think the central bank should be run by the govt, because they are responsible for the state of the economy for the nation, and supposedly answer to the people. Private bankers can no longer be constrained by law or location. They answer to no one.
1. Does the Fed really “answer to the people?” My understanding is that the Fed is owned by member banks, and is governed by a Board in Washington appointed by the President, and that reports to the legislature. But it doesn’t really “answer to the people,” …does it? At best its a co-op of bankers reporting to the US government. As such, it does the bidding of the federal government, and the banks.
2. The Fed was initiated by BANKERS, for BANKERS. It is run mainly by bankers. It is sold to the public as a “stabilizing agent” of the economy, but its bailouts (both individual banks, and the investment markets) and its bond market manipulations, lead to the very excesses that we faced in 2008, and now. (Don’t forget the roaring 20’s nor the Great Depression, etc., etc.)
The way I see it, the Fed’s attempts to maintain short-term stability lead to market fragility and systemic unsustainability.
Glad to get a perspective from outside the U.S., thanks.
Living in the U.S. I would like to hear your opinions and stories from other countries. So like Lord Sunbeam, state what country your from.
It would be interesting to hear theories on the junk bond space.
I see that JNK is down from its 52 wk high of 110, closing at 106.59.
Remarkably aloof given the equity carnage described by Wolf.
My take would be that this correction is viewed as valuation driven by Wall Street rather than a fundamental/systemic risk to corporation’s ability to repay debt.
Yeah… JNK is not only NOT falling with the stock market the way it should, it’s ALSO not falling with the bond market the way it should.
There’s one scenario where it makes sense, and that’s if the JNK bonds are concentrated in the value-oriented sectors whose stocks are largely still healthy, and whose profit outlook isn’t impaired by either inflation or supply-chain woes?
Or maybe JNK is just a domino that hasn’t fallen yet, like the cartoon coyote who’s run off the cliff but hasn’t look down yet to ask why there’s nothing under his feet…
Consider this, WS: junk bond defaults fared much, much better (as a group) than many stocks in times of crisis. Default rates of junk bonds, normally, are quite small. Here’s something from Reuters, based on S & P, written 4/13/09:
“NEW YORK, Sept 3 (Reuters) – The U.S. junk bond default rate rose to 10.2 percent in August from 9.4 percent in July as the worst recession since the 1930s left more companies unable to pay off debt, Standard & Poor’s data showed on Thursday.
The default rate is expected to rise to 13.9 percent by July 2010 and could reach as high as 18 percent if economic conditions are worse than expected, S&P said in a statement.
Default rates have surged from less than 1 percent in 2007 as an economic downturn squeezed corporate revenues and a global credit crunch dried up funding. A 13.9 percent default rate would be the highest since the Great Depression of the 1930s, when it hit 15.9 percent.” But if rates rise, JNK will be toxic, defaults notwithstanding.
Correction: … junk bonds (as a group) suffer much less damage due to defaults than many stocks, in times of crisis.
Lord Sunbeam says “I don’t expect any fiscal response from the democrat administration so i guess it will truly be all up to the Fed to damp consumption but really the separation of government and central bank, because its fundamentally pretend, doesn’t help when you need more joined up thinking.” Put the central bank where it belongs, at Treasury. What to do with the Oligarchs? Tax them. Restore financial regulation. FDR said in his famous 1936 Madison Garden speech. “”We had to struggle with the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering. They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.”
I must thank you again for sharing your insight! You have kept me cautious, and nimble, along with my past experiences. Nothing goes to heck in a straight line like a slow down trend and a slow fed. I guess cash is trash for awhile, thanks again. We need some shock and awe with a half a point raise!
Rates are oncreasing because rich ,need a return on money,so when everything deflates or goes on sale as warren says,they buy on the cheap same story turn the page
So who’s at fault? The ninnies who buy in at the top, or the sharks who feed, like catfish, at the bottom? Who are the bad guys?
“The SPAC Ship Is Sinking. Investors Want Their Money Back.” Funniest headline of the month from the WSJ.
If this is the beginning of a major self-off in US equities and cryptos, how will that impact the housing market?
The bursting of the dot-com bubble has been hypothesized to be one of the catalysts for the 2000s housing bubble as investors redirected their funds away from risky stocks to “safe” RE.
Will that happen again and give a boost to the housing market? Or will the headwinds of rising mortgage rates (which have likely dropped again along with the Treasury 10 year yield) zero that out?
Wolf would know for sure, but I bet 20% of the housing stock that is mortgaged is in danger of a 2008 repeat go being underwater. With laws changed to eliminate jingle mailing of the keys to the bank. Both a slowing economy and rising rates will be a big problem.
Dazed And Confused,
The San Francisco housing market is much more dependent on stock prices, particularly IPO stocks and tech stocks, than on mortgage rates. Some years ago, I correlated SF house prices and the Nasdaq going back over the big sell-offs. There is about a 4-6-month lag from the beginning of a big tech stock sell-off and a SF housing downturn.
But the sell-off must last long enough to get over the 4-6-month lag, which the March 2020 crash didn’t do.
This may also apply to the Silicon Valley housing market. And there may be other cities with a heavy concentration in stock ownership and stock options where this would apply. But I don’t think that the Tulsa housing market, for example, is dependent on stocks.
The new wildcard is crypto. This now involves some big money. There is now leverage. Ownership is concentrated in some cities (including SF and Silicon Valley). A sell-off in cryptos may add to the effects of a sell-off in tech stocks.
If this sell-off continues to meander forward in an orderly manner, with many big ups and downs, for long enough, I will start another data series on the Nasdaq v. SF home prices, using the Case-Shiller this time. The problem with the CS is that it lags the actual market movements by about 3 months. So the lag is very long, but it’s interesting from a historical point of view.
Agree. But I may want to add that during the March 2020 short crash some people actually bought houses at a decent discount, so it had a pretty immediate effect. I guess it was so few transactions that it doesn’t show up in the numbers.
That is true Wolf, and perhaps for other parts of CA as well. Brad Williams (former economic forecaster for CA) was quoted in a 2011 WSJ article: “California created a revenue cliff by building a large part of our government on the state’s most unstable income group.”
The article also states that high CA earners have especially volatile incomes. Their incomes fell by more than twice as much as the rest of the population’s during the last recession.
Another article quote: “The state’s progressive tax rates amplify the income gains or losses of the wealthy.”
But that is a 2011 article. Still the case today? I emailed Williams at the consulting company where he works now and asked that question. Didn’t hear back.
Yes, the CA budget is hugely dependent on capital gains. Now CA is swimming in money. And they’re trying to spend it all. If the market turns hard enough, long enough, CA will be paying with IOUs again because it’ll run out of money again.
I’ve seen it several times here in CA. In any bubble, the government goes instantly into drunken sailor mode and spends and over-promises itself into the next recession. The optimism overshoot is frightening. Now they are talking about free medical for non-citizens. What are they smoking?
The fed created the stock bubble of 2000. That crashed. They then created the housing bubble to save the economy. That crashed. Now they have created a housing bubble, a stock bubble and a bond bubble. There is nothing left to bubble up. Welcome to the “Decade of Fear and Loathing”.
after every central bank created emergency, enter the central bank to the rescue….to self author new powers and mandates, accrue more power.
Worldwide crash then imf or world bank issues a global currency =digital the great reset
“The FED created the stock bubble of 2000”. You may be onto something… Maybe the FED stole my son’s tricycle or caused male pattern baldness. Maybe everything that goes wrong is due to the FED and, of course, their buddies because, bottom line, they want to gather up everyone’s assets and create a calamity. Sounds plausible, yeah?
“the seven giants, Apple [AAPL], Amazon [AMZN], Meta [FB], Alphabet [GOOG], Microsoft [MSFT], Nvidia [NVDA], and Tesla [TSLA]”
They used to be FANGMANTIS. Long way back when a 1.1% fall was “one heck of a ride”.
Jim Cramer is all over the map. One day he said “This is the greatest economy ever” The next day he was literally s$itting in his pants after the plunge in his favorite stocks in the NASDAQ. His charitable trust which he manages is going to need a bailout thanks to his stupidity in managing their funds.
The Jim Cramer – Dennis Gartman Investment Comedy Hour…
‘he was figurately sh%tting his pants’
…and literately choking on it.
There is a funny thing at top of ZH now about Cramer and his ‘Magnificent Seven’ top picks.
Six have cratered. Tesla is…we’ll see.
His last most recent screaming (literally) BUY!
When Bear Sterns cratered back in 2007/2008 Cramer was on record as saying Buy, Buy, Buy! This clown is a carnival huckster of the worst proportion. Why he is still on CNBC baffles me. He should be terminated immediately. I feel sorry for the victims of his bad investments especially those in his charitable trust.
It is not investment advice. It is entertainment. Did you not read the disclaimer?
Yup he’s a “presstitute” as Celente would say Paid to put out for his John’s on Wall Street No doubt about that Anyone who listens to him deserves what they get
Cramer has been pushing Chinese stocks for the past 3 to 4 years. He is a sellout if there ever was one. He should move to China. and be done with it. He even got Covid and gave to everyone in his office.
“Quiet, Lisa! The dog is barking.”
“Woof!, woof!, woof! woof, woof! woof! woof!”
“That dog can sell anything!”
He gets paid to be positive good or bad
Consider the channel he’s on – CNBC. It’s stock market shilling, pimping, pumping (and dumping). That’s all they do, all day, every day.
CNBC serves their advertizers and high net worth investors. They couldn’t give a f$ck about mom and pop businesses or blue collar working stiffs.
Man, if I hated something on TV that much I gotta think I would stop watching it.
1) UPS union didn’t strike. If they did, Xmas sales would have been blamed on them.
2) Ret to senders are up. Online traffic is down. Labor and fuel cost areunstoppable.
3) Our young generation played all night on video games – shoot, shoot, move, move, move – became fantastic UPS recruits.
4) They are smarter quicker and more efficient than the union guys.
5) The wife bitch around : we need new windows because it’s cold, a new car, a new fridge…while the man of the house is in his truck.
6) They fulfilled the American dream.
7) Higher energy and higher assessment are piling up. Debt is rising.
8) UPS would like to keep them all, but they can’t because of the new labor contract.
9) Slowing down, less hours, higher inflation, lower real wages, before layoffs.
10) They are better, smarter and quicker, but unfortunately UPS will they have to let them go in the next recession.
The internal weakness of the stock market, whether gauged by the S&P 500, the NASDAQ, or the Russell 2000, appeared for all to see in early November, 2021. Do a Google search on Advance-Decline Line chart, New Highs vs. New Lows, and Adv./Dec. Volume, esp. the latter for the Russell 2000, and you can plainly see that warning signs were flashing not just Yellow, but Blazing RED by mid-Fourth Quarter last year.
Investors that have been in many market cycles since 1981 such as moi, monitor these metrics in order to try to gauge an entry point for Shorts and an exit point for Longs. This time is hardly different, but more extended and worse by several magnitudes to what we saw in 2000 and 2008. The New Millennium has won the title of the Historic Bubble Millennium.
As the Liquidity Machine goes into neutral and then reverse, we are going to see Systemic Failures throughout the global system due to the unprecedented levels of debt sitting on the shoulders of just about every entity out there. To surmise that Gold will not do well in this type of chaotic environment, and just wait until the food supply shocks hit from the Vaccine Mandates regarding cross-border truck shipments to and from Canada, is to ignore thousands of years of history regarding the Yellow Dog. The precious metals are doing very well on Stock and Bond market sinking days, I am just not ready to go hog wild on the mining stocks that operationally are negatively impacted by surging inflation and substantial Country Risk in a period of social unrest that will follow.
Cash is never trash when most investment alternatives are in Grossly Overvalued territory. Watch short-term rates go up regardless of Fed foot dragging as liquidity problems and systemic clearing problems spring up like April showers. Going to be a real mess ahead.
Nailed it, particularly the first paragraph.
David – thanks. Right there with you (albeit younger) and glad to have wise elder company here!
Credit spreads not showing much stress yet, but that is now worth watching again.
Thank you, David, for the heads up on some of those basic technicals and your general insight. I haven’t paid attention to advance/decline lines since it was brought to my attention by the late, great Alan Abelson (Barrons) back in the late 90s. Prior to the fy 2000 NASDAQ bust, in reference to the mania, his quips, “when the last bear sprouts horns…” and “no one rings a bell at the top”, that got me thinking…
1) BTCUSD weekly entered it’s backbone, under the cloud.
2) Acc/dist divergence with price.
3) Creepto Titans sent price to DM # 9 on lower volume.
4) May 17 2021 – big red, on huge volume – fractal zone is next.
5) IWM 1:1. // IWM & MID 3:1 QQQ.
Watch-before stock market opens Mon, Jan 24 chest pads jolt applied to DJIA futures will be absolutely Earth-shattering,like 1,000,000 volts.
And it will be all green afterwards.As bitcoiners say “To the Moon !”
A million volts through the chest pads?
Not quite. Only one hundred Joules in a biphasic cardioversion of ventricular tachycardia is what works for me.
Of course, I always ask for the background music to be the Ramones’ “Gimme Gimme Shock Treatment;” played nice and loud when the electrocardiologist pulls the switch to juice me up.
“Peace and love is here to stay and now I can wake up and face the day
Happy happy happy all the time shock treatment, I’m doing fine”
Aw shucks…cold shower of Science quenched the Fires of Poetry… ☺
I have no skin in the game, although my savings are slowly melting due to inflation.
I can’t escape those eternally skyrocketing stock charts,they are everywhere-Economist,WSJ,Forbes,Bloomberg…
It is getting nauseating.
The music playing in my narrow (and not very educated mind) is “Blood upon the Risers”.
Long time ago irreverent GI’s modified “Battle Hymn of the Republic” and made it 100x better.
I sincerely hope that the chest pads will not work Sunday night:
“He counted loud he counted long he waited for the shock
He felt the wind he felt the cold he felt that awful drop
The silk from his reserve flew out and wrapped around his …
AND HE AINT GONNA JUMP NO MORE !!!”
Let this disgusting Bubble pop and let them blow another one-but only after I’ll die in 15 or so years.
Grab him at the airport, strap him to a chair.
Hurry, hurry, hurry, he may be losing hair.
He doesn’t need a new bike, he only needs our care.
Dan must be sedate….ed! Crash, screeeech, cough, cough, cough. Drumsticks falling too floor.🤕😹😹
The new bike arrived home on Friday after a fifteen week wait. There’s fresh snow outside, and it’s perfect for these conditions. I love it!
I hear Nassim Taleb made a fortune on one day in October 1987.
My VIXY is looking good for Monday. It is annual, blooms once a year for a day or so, when everybody freaks out.
My broker won’t let me buy the more leveraged stuff like UVXY. Too late now anyway, this time around.
Black Swan or “Mother of Mercy, is this the end of Rico?”
So the first baby steps to something like normal, historical valuations begin and the Street starts crying”
‘Wa, wa, wa, policy error! policy error! Stall warning indicator sounds!’
The Fed just has to stay the course. It might be kinder to the market to rip the band-aid off with a .5% hike. That is very unlikely but IF they did, the market could do the 30% puke it has to do anyway and then the Fed could say ‘there there, its all over’ For now.
But the important thing, whether the meds are dripped in, or shot in, is to ignore the ‘wa wa, policy error’
Land this bird in the Hudson….Hmmmm got it.
Flight 1549: “Ah, this, uh, Cactus 1539. Hit birds, we lost thrust in both engines. We’re turning back towards LaGuardia.”
1. Look above pythonscript is writing comments on wolfstreet.
2. Unless a big name (Apple, MSFT FANGMAN) crashes 50% or more, regular people will be blissfully unaware of stock market.
3. Common people have three major fears. Jobs, inflation and debt
4. Marriage rates are falling. So no wife to bitch about. Even married households expect 50% contribuitions. so, if wife want a fridge she better come up with half the money.
5. “Put a stop loss above the profit margin bro…Your investments will be safe bro”.
6. A very sad picture will be the mainstream media coverage of job loss. It will hurt everyone directly or indirectly.
7. S&P and DJ index were all time high even in 2016. Then again went to a high in 2020 and even now they are so high compared to 2018. So, even a recent invetsor is netting profits until now
8. Please tell me when to buy the dip
Your wife will out smart u, if u have one.
I like women, but being married to one is a little bit of a challenge.
Especially when she knows she holds the wild card, and can just take half of what’s yours any time she decides she wants to upgrade. Then when she gets tired of the next one she takes another half. Now she’s got a “whole” when she goes shopping for #3. The court system has destroyed marriage.
“I like women, but being married to one is a little bit of a challenge.”
That belongs on a tee shirt!
Trophy wives are professional gold diggers. If you marry one, don’t complain when she takes your money. It’s what they do.
Cheepr’ to keepr’
petunia, i tend to agree. that’s why i married a woman roughly my age. anyone who goes 10-15 years younger is often asking for trouble.
Are you saying that ME is written in Python? A fresh idea :)
Accumulate few generators to protect yourself from mayhem and make
money selling electricity to your friends and neighbors.
You may generate(pun intended) mayhem, through the legal entanglements that may result from being the ‘friendly’ neighbor.
ME/Dawns-think the neessary fuel supplies/suppliers will expire before it becomes an actual issue…
may we all find a better day.
During New Orleans flooding robbers followed the sounds from the generator to steal them.
It’s healthy. I know so many people with bloated portfolios and net worth.
It does feel unreal.
We need a big clean up.
When free money fuels endless riches and speculation, society becomes totally skewed and the idle rich become arrogant and nasty to the people who produce real wealth by going to work everyday.
I love capitalism, but this one is socialism for the rich, a text book example of what central banks are for: steal from the poor to fatten the super rich.
“I love capitalism, but this one is socialism for the rich, a text book example of what central banks are for: steal from the poor to fatten the super rich.”
What central bank do has little to do with capitalism or free markets, IMO.
Especially since 2009.
*the Fed FOUGHT inflation rather than promoted inflation
*The Fed defended the dollar with rates equal to or in excess of inflation so holders of US currency would not be harmed.
*The Fed expanded the money supply to meet the enlarging economy, not “pump to push” the imagery of a greater economy through inflation and market rallies.
*The Fed was there to provide money for short term banking liquidity issues, not to back stop gunslinger hedge fund operators.
*The Fed dealt only in Federally backed paper, and did it all by themselves.
Money was distributed so semi conductors could be onshore due to stupid corporations moving overseas but no unions and cheap labor ,now we the people will pay the price
prior to 2009
“the Fed FOUGHT inflation rather than promoted inflation”
So 1968 to 1980 never happened? So the Fed Chief Burns never got arm-twisted by Nixon to open the floodgates and win the ’72 presidency? Try a history book sometime?
I agree with you. Central banking is always the first step in the takeover of freedoms in a conquered country.
It is the opposite of free markets.
1) We need a new panic. The snow blizzard panic was not good enough.
2) Omi destroyed Moderna, creeptos, zoom, peloton, Amazon. We need a replacement.
3) If we don’t get one ==> invent one.
Abu Dhabi was attacked, by Iranian’s Houthis.
The response : no internet in Yemen and….
If rates go up too quickly that would cause one
heck of a recession. Do you think Biden would
go into the next election in the middle of a huge
pullback? The fed is still buying for goodness sake.
The market is in no superbubble. The dollar is being
allowed to depreciate to take care of the pandemic and
great financial debt crises.
“If rates go up too quickly that would cause one
heck of a recession.”
In 2018 Fed Funds went to 2%…… was there a recession?
People seem to confuse the markets with the economy. Markets would suffer, some, but 2% Fed Funds with 7% inflation doesnt cure anything.
“The dollar is being allowed to depreciate to take care of the pandemic and great financial debt crises.”
And what caused the financial debt crisis?
The Fed subsidized the creation of debt by having rates at ALL TIME LOWS for quite a while. ALL TIME LOWS. Too much debt was created.
Did you hear of any Trillion dollar spending bills in Congress ten year ago? Now the word Trillion is tossed around Washington DC like a frisbee on campus in the Springtime.
The CAUSE…unrealistically low interest rates can NOT ALSO BE THE CURE. Logically speaking
“The market is in no superbubble.”
So, a market that reaches record highs during a highly disruptive PANDEMIC ISN’T in an easy money, speculative super-bubble?
Wolf, I don’t mean to wade into the vaccine mandate politics, but what is the outlook for the ongoing supply chain issues given that the federal government has now banned unvaccinated truck drivers at both the Canadian and Mexican border?
There will be a shift. Markets are very good in sorting out that sort of thing via pricing. Vaccinated truckers run the US-Canada route and the US-Mexico route because shippers will pay a little more if supply of trucks declines on those routes. Unvaccinated truckers will either get vaccinated to get the higher rates (and that is already happening now), or run domestic routes and might make a little less. It’s not rocket science. Markets are very good at sorting this out.
If of the 10s of thousands of truckers, a few dozen get together and block a highway, then this is a strike and a blockade, and there have been quite a few of those in the past, including of railroad tracks in Canada. Those blockades of transportation arteries can be very disruptive if allowed to exist for more than a day or two. And it only takes a small number of people to accomplish this.
Someone in the industry doesn’t agree.
Challenger Motor Freight, one of Canada’s largest trucking and logistics companies… While Challenger is in a decent position… Einwechter said there are plenty of other carriers facing a massive drop in capacity. The cumulative effect, he said, could be disastrous to the supply chain.
“I don’t want to a be fear-monger, but we need to be deeply concerned about the ramifications of this,” he said.
Now is the moment when we see whether the Fed/Democrats/Biden are really serious about inflation.
Are they willing to tame inflation and pop this bubble?
Popping the bubble will directly affect the wealth of the PMCs – the Democrat base.
It’s ALWAYS about pretending to help the little guy publicly while privately protecting the moneyed special interests. They won’t be doing SHIT about inflation if it hurts the whales.
If the FANGS etc. top was the first week of January, then they will bounce off that 10 trillion dollar level and go back to 11 trillion before continuing to decline.
Unless things change, we are right at the top of the sign wave on world wide quantitative easing this month. Real interest rates running at record highs complicates the story somewhat though.
Equity risk premium used to be 6% over t-bills, but what is a stock worth if a t-bills yields minus 7% real?
Alternate was equity risk premium was 3% over t bills. What is a stock worth if 10 year yields minus 5.5%?
What is house worth if real mortgage rate is minus 3.5%?
Fed has made us all fly blind
2 important mistakes in one sentence Wolf :
“… $1.6 trillion in paper wealth vanished”
1. “paper wealth” is wrong – “real wealth” must be the correct term for somebody has bought with real money and get real money back after stock sales
2. “vanished” is incorrect term since the wealth not vanished, it changed hands (someones loss of stock market operation is someones others profit !)
Most interestingly is the question to which hands. Unfortunately the statistics here offer no support !
Actually, wealth does vanish when stock prices go down, just like it is created when prices go up. This is a published figure: market capitalization. Everyone in the market participates in the wealth creation and wealth destruction of the market on a second by second basis.
Some people might come out ahead in a sell-off by selling short or by selling before the decline and then holding cash. For the short sellers, this creates wealth. For the cash holders, this maintains wealth. For the rests of the participants, and for the market overall, wealth just vanished.
No one got that $1.6 trillion that the giants lost in market cap. That “wealth” vanished. Just like it was created on the way up. That’s why asset price bubbles are so exciting: the create “wealth” out of nothing. During a sell-off, that wealth goes back to where it came from.
The short sellers that made money by having sold what they didn’t own, their gains would reduce the overall $1.6 trillion loss by a small-ish amount. Sort interest in these stocks is small in relative terms. For example, only 0.6% of the Apple shares were shorted.
“That “wealth” vanished. Just like it was created on the way up.”
But the whining will be cacophonous … as if the magic money was bequeathed.
The rabbit pulled out of the hat really never was “in the hat”.
Wolf it is impossible that wealth vanishes,for that money what you buy stocks with exists and that money what you get when you sell stocks exists too – so it is real wealth and it never can be destroyed when created once. It just can change hands. That means the illusion to have wealth vanish for many. But those who buy low and sell high get the money from them who buy high and sell low. Short or long positions are of no concern in this consideration since the creation of profit is the same just the time the transactions happens is exactly opposite.
When you say wealth vanish then tell me please the dollars with which you bought securities are burned or where are they – they still exists – just have changed hands.
I suggest you do some deep thinking on what you said. But believe whatever you want. Fine with me.
Credit bubbles create money. Banks get to create money by creating and issuing debt, with government approval. Most money in circulation is created that way, not printed on pieces of paper. Then when the debt is not paid back, as when people’s (or firms’) finances crash in a market crash and they default on the debt, the money (unpaid debt) ceases to exist.
Wakar, if somebody buys one share of Apple for a dollar less than the previous trade, cash transfers from person to another, so there is no more or less cash, but EVERYBODY who holds Apple stock suffers a loss of market value. Market value ( wealth) simply evaporates.
wakarimasen, you’re forgetting that price is set at the margins. if a public company has 1,000,000 shares outstanding at $100, the market cap will be $100 million. that doesn’t mean that $100 million in cash was paid for those shares. it only means that the last share to trade was sold for $100. it says nothing about the other 999,999
Wolf is correct.
Let me see if I can explain.
A company has 3 shares and 3 “holders”.
Each share is $100. Market cap is $300.
If a 4th person offers $110, 1 of the 3 sells.
It means wealth has been created for the 2nd and 3rd holders.
Market cap has been increased by 110 x 3 =$330.
Note, only an extra $10 was used, but the cap increased by $30.
I think your comments are focused on the seller and buyer only, which makes it true.
However you have missed the “Market cap” details.
The reverse happens on the way down.
Hope this helps.
RE helps to understand this math concept.
If 1 house in a neighborhood sells for 100k more than the identical house a week ago, then all houses in the neighborhood rise accordingly.
Hence, wealth created.
Is there a difference between wealth and market value?
particularly when market value can be manipulated by an Entity that can creates dollars from nothing to push market values? and the knock on effects of funny money, creating low interest rates, allowing stock buybacks, offshoring, etc.
Do stock buybacks and offshoring create wealth? or does it make a country and people poorer?
Phleep said: ” Then when the debt is not paid back, as when people’s (or firms’) finances crash in a market crash and they default on the debt, the money (unpaid debt) ceases to exist.”
I don’t think so. Because the money has already been introduced into the system where the money stays.
Wakarimasen said: “money what you get when you sell stocks exists too – so it is real wealth and it never can be destroyed when created once.”
I get your points, but actually the money can destroyed by inflation, when the FED continues to create money from nothing, diluting the value of those dollars you hold —— as the FED has been doing for decades.
It is all to the difference between actual and illusory wealth on which point you have been making good arguments.
Money creators from nothing, get to distort “wealth” and pick winners and losers.
Was it wealth, or was it funny money puffery? created by a FED that creates dollars from nothing precisely to suppress interest rates, inflate asset prices, “support” markets, cause an illusion, create a “wealth effect”, etc.?
Is their wealth created or just a distortion? A mirage, where some shrivel or die trying to travel through, and the well watered prosper from the carnage.
“paper wealth” is wrong – “real wealth” must be the correct term for somebody has bought with real money and get real money back after stock sales”
Using your example, if a stock rallies to a new high, and 20% of the outstanding stock traded on that day to make the new high, then 80% of untraded stock is revalued to that new level, on paper.
For this 20 % real wealth were created and the mechanism which I described worked. Wealth changed hands. Stocks not traded are of no interest until they are traded.
“Stocks not traded are of no interest until they are traded.”
That is not so. Can be used with the elevated value to buy more stock and other uses.
And it is considered wealth by those who lend, and by those who own the stock.
“paper wealth” IS wrong. There’s no paper.
It’d now “digital wealth” and it can disappear as fast as the electrons in your computer.
If two other people decide to trade your primary holding at a 10% discount to the prior trade, you and every other shareholder has seen your digital wealth disappear instantly.
Is the nascent declining StockMarket helping take liquidity out of the financial system and how will that now temper the FED’s QT actions ?
Do you still think it will not make much difference to their speed of actions. Thank you !
If the market plunges 80% in one day, then of course, QT is off the table. I doubt that will happen, circuit breakers and all. I’d be deploying my cash before it gets there. The Fed sees the financial excesses that have been contributing to inflation, and they’re going to wring those financial excesses out of the system. A decline in asset prices is part of the plan. But it needs to be orderly and spread out over time (years) with many ups and downs.
“If the market plunges 80% in one day, then of course, QT is off the table.”
Oh, really? So inflation is just fine at that point? Interesting. Why even pretend to care about inflation then?
If the market plunges 80% in one day (or in a few days, given today’s circuit breakers), it will knock the housing market and the broader economy into a tailspin, and suddenly there’s a glut of everything because people and businesses will just freeze up. There is a good chance that inflation stops in its tracks. At that point, so much paper wealth has vanished that QT would just be a rounding error. So it would make sense to stop QT. Mission accomplished, I’d say :-]
Some of the wealth taken out of the markets might have a bigger impact on inflation than 4 quarter pt raises.
I suspect that this may be exactly the plan that Fed intends to execute. If they rase interest rates sufficiently high to puncture the portion of “wealth effect” that is caused by high stock market returns of past years, but not too high as to avoid significant housing market decline, they may be able to reduce consumption just enough to bring inflation down to a level that suits them (say, to 3% or 4%).
“…but not too high as to avoid significant housing market decline…”
Huh? High housing prices ARE the problem. Lower prices are the solution. You’ve got it backwards.
depth, they’re not a problem for the people who already own houses. just for everyone else. and the powers that be only care about the former.
Where it counts, rates have already been hiked. The rates at which the government borrows, and the benchmarks on which virtually every lending rate is based, are those of the multi-decatrillion-dollar Treasury market.
The one year Treasury is already trading well over 0.50%. The five year rate is already up past 1.50%. Twenty years, over 2.00%.
As you’ve pointed out, mortgage rates are already back up above 3.50%. Yields in the stock market, which also move inversely to price, have also been rising. Other central banks have hiked. The entire global financial system has hiked. Fed funds is about the only domino left.
If the Fed actually pulls the pin on QT and starts the unwinding of that giant balance sheet you will hear the echo of Ross Perots giant sucking sound on the M2 teat which is looooooaded with liquidity. Margin Call Cascade Hell will ensue. The markets could test the March 2020 lows and below if the Fed is even moderately aggressive in doing it. Does the Fed have the kahunas to do this? An army of talking heads claim that the Fed has none and therefore will not have more than one rate hike before capitulation due to the cry-babies on Wall Street ( A Wolf Richter Description) get their M2 teat re-gorged with liquidity. An entertaining side show will be playing while we are waiting for either Dow 50k or 20k. The main event of the show is titled ” Return of the Price Fixer”. It will be great boy and girls. We will see overworked and under-paid people hacking on a Cow or Chicken as The Price Fixer roams the land seeking Truth, Justice and the American Way. The Doc will be in his bunker with his Keiser Helmet and tennis ball spike protector ready for the apocalypse. Well, except when my wife needs me to fix or do something or when she is cooking. I don’t have Internet in the bunker so when a new episode of The Expanse is on Bezos Prime Video I will be out.
Surging inflation is a risk. Biden gets the blame, The Biden administration just announced it’s the Feds charter to subdue the inflation. They will do what is required including QT and raising rates, Did you notice how fast the Fed narrative moved from “transitory” inflation. Think that was an independent decision?
The word “transitory ” was deleted just after J Powell got re-appointed for another 4 years. Coincidence anyone??
“With an administration appointing incompetent leaders on basis of skin color, what could go wrong? We are about to find out.”
Democracy is the theory that the common people know what they want, and deserve to get it good and hard. -Mencken
For those names in one’s portfolio that do not pay dividends and the unrealized gains are substantive, the best way to play a bear market might be via selling long-dated deep ITM covered calls.
1) No need to sell the underlying security and pay Uncle Sam capital gains tax.
2) Close out the option position at much lower price prior to expiry with no tax liability.
3) Sleep soundly every night.
Been keeping dry powder since July. Looking to enjoy the downward grind before dipping a toe in …
Oh god, is it happening? Is it finally happening? It seemed like everyone was waiting until the new year / after the holiday shopping season propped up by stimmies. But is it FINALLY happening?
Not really, we have double digit true inflation and Fed is throwing weak sauce at it. Give it another year nothing unwinds this fast plus the fact nothing has been unwound.
The fact that the FED is still pumping QE right now is the real story, and the fact that nobody has bothered asking them WTF they’re doing.
If that is the only wind behind the sails keeping the ship moving then you QE. A rapid or instant drop in the money entering the market would cause unknown consequences. Something about Spiderman comes to mind. With great power….
I see that they are trying to pull off the biggest bank heist in history. They have QE buying assets up like a vacuum and and interest rates at damn near zero. They aren’t going to jump stop both life lines at once. They have to slowly reduce the support until the market smoothly doesn’t even know that it has been withdrawn. This has global repercussions not just here in the great US of A. This is a global game of balance never seen before. I think it will take beyond 2022 to get to where they are hands off
The only investment today worse than the stock market is the junk bond market. If interest rates go up the bonds will decline and you will lose principal. If interest rates go down, the only way they will do that if there is a recession. Then you will have defaults on the lower quality junk bonds. To top it off you will be stuck with taxable income and long term capital losses. Lose, Lose, Lose.
The blood in the bond market is always difficult to detect.
The damage seems to be hidden on agreement, until ….
I am waiting for the BTC collateralized trades or deals to start falling apart…cascading … selling begetting more selling, tumbling dominoes
‘With an administration appointing incompetent leaders on basis of skin color, what could go wrong? We are about to find out.’
Could it be worse than when they were all one color?
Vietnam, Iraq, Afghanistan. Did you think Cheney is part Cherokee?
It was Colin Powell who tried to talk Bush II out of Iraq II ( the occupation) the worst disaster since Nam and one that will have repercussions for 100 years.
Maybe a bit more color?
Your comment has nothing to do with the unfolding woke foreign policy disaster which is partially responsible for dragging down the equity market.
“Given the repeated ugly action at the end of the trading day this week, where dip buyers were taken out on stretchers, the meme is now starting to circulate that the market has shifted from “Buy the F&%#ing Dip” (BTFD) – the rallying cry since March 2020 – to a new rallying cry, “Sell the F&%#ing Rip” (STFR).”
This is one of my favorite Wolf paragraphs ever. “…dip buyers were taken out on stretchers…” is hilarious. The whole BTFD meme is so tired. Didn’t Isaac Newton BTFD in the South Sea Bubble, then lose everything? I absolutely love when I see these braindead cryptobros talking about BTFD every time they go down. These guys will lose everything. I can’t wait for the sob stories. “But I used to be a millionaire….”
Charlie Gasparino was on the Fox business channel and said that high net worth investors are literally “Taking off the heads” of their financial advisors for not getting them out in time.
Pffft. The market is still near all time highs. Greed much?
Stocks up 25% last year, and now they are entitled to that money, locked in….bequeathed because, well just because.
Feeling entitled is not the game.
The Fed ramped up, accelerated, stole from the future to fluff the present with all this debt creation struck at all time…ALL TIME low interest rates. And now some losses and lots of whining because that Fed game just cant go on forever. It was a ploy……that caused a massive inflation that is not going away anytime soon.
Newton re-entered at ~700, but the peak was at ~1000 :)
So he could have exited.
1) For entertainment purposes only : Mums in law dominate the world, outsmart every men in the house, because it’s all about power, since Homestead 1860’s. We are disposable slaves.
2) QQQ weekly : Sept 21 2020 to Nov 2 lows support line that met yesterday low. If breached the weekly cloud is below.
3) QQQ daily closed Oct 4/5 gap and entered Oct 4 fractal zone.
4) QQQ Heinken : from Oct 4 low a round trip to yesterday close ==> 0.886 > yesterday buying tail.
“Mums in law dominate the world…. We are disposable slaves.”
One of my proudest trades was exiting the marriage trade (for contract theory geeks, a ‘relational contract:” a continuous set of overlapping trades being renegotiated at any time, and that market never closes). My ex optioned out on me at the worst moment (for her), then got hasty to remarry,, and signed the document I produced. I kept the house.
No,the proper legal term is “adhesion contract”
Translated into Latin it is “vae victis”
Commentaries and explanations are in the song “Hit the Road,Jack”
After the mild sell off last week post 100+% rise, Fed is already sh itting in its pants. They will back off from all QT talk and talking about raising rates talk. Next week stocks will rise again after Fed backs off.
No Democratic govt can now afford crashing the stock market and they will take inflation any day over stock and asset collapse. China or Russia not being democratically run will win from now. Democracy has always been bound to fail in the long run economically. Imagine If a corporation is run democratically and employees vote to elect CEO who in turn will determine their salaries and bonuses and work hours. Will it ever be successful. It may look rosy first but It’s setup for failure in the long run. Democratic system is finally there, at the end of the rope.
“After the mild sell off last week post 100+% rise, Fed is already sh itting in its pants.”
No, not the Fed, but from what you’re writing, it seems you are.
PS: There are lot of DENIERS of reality with blind faith in Fed’s magic. out there!
We will see on Monday. Hang tight.
I bet you are one of those, who entered the mkt in or after 2009, right? Most of the newbies (45y or under) have NEVER experienced a secular bEAR in their life time. Hence clueless!
Been in the mkt since ’82 gone through more than one bear!
Bull & Bear are the two faces of same coin. You cannot have the one without the other. like growth and recession. This time asset growth (NOT the real economy) was created by insane credit creationby Fed/Cbers (the same team who brought us already two boom-bust cycles in this century) unparralled in human history. Doesn’t mean there won’t be reactive bounces which are bear trap or bear squeeze like last Friday! Stay invested and enjoy te experience of protracted seculat bear.
All the best for you and yours!
We’ll see some form of soft wage price controls enacted before the fall elections. That polls well. Get the greedy corporations. Help the middle class. I see it coming. You see it already in the jawboning going on against the energy companies to lower the price of gas,
Price control never works b/c it creates shortages and black mkt! Read history!
It worked for Nixon in 1972. Got him re-elected in a landslide. Read history!
I didn’t say it was a good thing to do.
On Aug. 15, 1971, in a nationally televised address, Nixon announced, “I am today ordering a freeze on all prices and wages throughout the United States.”
After a 90‐day freeze, increases would have to be approved by a “Pay Board” and a “Price Commission,” with an eye toward eventually lifting controls — conveniently, after the 1972 election.
As Nobel Prize‐winning economist Milton Friedman correctly predicted, however, Nixon’s gambit ended “in utter failure and the emergence into the open of the suppressed inflation.” The people would pay the price — but not until after he’d coasted to a landslide re‐election in 1972 over Democratic Sen. George McGovern.
By the time Nixon reimposed a temporary freeze in June 1973, Daniel Yergin and Joseph Stanislaw explain in The Commanding Heights: The Battle for the World Economy, it was obvious that price controls didn’t work: “Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets.”
Several lessons from Nixon’s folly remain highly relevant today.
They stop that by borrowing against their portfolios, use the proceeds to make leveraged bets on the energy markets, and then they have their government start a war with Russia?
Then everything that happens after is because of the war and everyone are clean.
1) $5T BBB to induce inflation & WTI to an all time high, to reduce real debt.
2) Crude oil Futures weekly, free bs, for entertainment only : Sept 22 2008 fractal high to Aug 26 2013 high : a resistance line.
3) Jan 17 2022 is a throwover bar above resistance with a selling tail.
4) Option #1 : return to a parallel line from Sept 22 2008 close, for support.
5) Option #2 : crude oil move higher to Aug 26 2013 fractal zone.
The first decade of the century was a 10% loss in the S&P. The second decade was a 200% gain. If you put time value on that the loss looks a lot worse. If the Feds mandate is market stability they should be fired. In reality the Fed has stopped making policy, since Greenspan, and are keeping their fingers out of it. They keep rates low, basic economics, which has worked better I guess. Now the Fed is stepping aside from even their most basic policies, and markets have hit a minor rough spot, and spec tech is getting hammered (again) but its deja vu mostly. The Fed tightens (marginally) and markets react. The only thing that is new is the challenge to the dollar; China, Bitcoin, and Euro. They are sitting on piles of low interest debt while rates are rising, no problem there. They front loaded a ton of spending. If stocks do come back those higher bond yields will evaporate, and they can rollover their debt. There is more than a little hysteria about rate hikes.
6) My bible is the first phytonscript, written 5,000 years ago.
MSFT knocked it off.
Among the losses last week:
Bank stocks down 10.0% (up 0.1%)
Transports down 4.1% (down 7.5%)
S&P 400 Midcaps down 6.8% (down 8.7%)
Small cap Russell 2000 down 8.1% (down 11.5%)
Nasdaq100 down 7.5% (down 11.5%)
Semiconductor stocks down 11.9% (down 13.0%)
Bitcoin down $6,660, or 15.5%, to $36,435
(down 21% year to date).
Etherium down 28% this week !
Litecoin down 27% this week
Binance down 28% this week
What is in place to stop everyone holding stocks in their 401k from moving that money to into a safe money market account in their 401k? Anyone here have any experience with this?
Yes, you usually can move to another fund(as from S&P500 to Bonds) within your plan. Time constraints and the number of moves will vary with each plan.
You can do it, but everyone can’t do it at the same time or stock prices would tank.
You can use cash to limit volatility of a stock portfolio.. With cash paying zero and annual standard deviation in stocks roughly 17% you can easily determine reduced risk/return profile by varying cash position. 50/50 gives you standard deviation of 8.5% for example.
In Fidelity, I have been using SPAXX
Oh noes, all the Bitcoins in my 401k are crashing! I’m out of here, moving to the safety of a DAO that has a great whitepaper outlining a plan to build a decentralized NFT exchange.
Cryptos might indicate we are in a software bubble in US. Software has allowed many improvements in standard of living, but we still live in a real world that needs real materials and real construction of shelter. Society isn’t doing a good job producing housing at an affordable cost.
Let them eat sh!tcoins and bored ape NFTs.
The stock market is not my area. I keep wondering about margin debt. How might it factor in to things here? I am too unsophisticated to even know how to ask the question but likely you get where I am going here. Mortgage I get. I recall this was addressed by you in a post last year, I think. I will look for it again.
Margin debt (leverage in general) plays a big role: it’s the great accelerator on the way up, and on the way down.
This will keep getting addressed here. So hang tight.
I think that the margin balance for January will come down a lot. I’ll cover that on around Feb. 18, when the margin data comes out.
Typically the giants stay strong til the bear really gets going. Its where people that just have to be invested place their bets on the basis of relative safety and liquidity…..but eventually the boys drag them down due to the obvious…..if the economy looks weak or rates will be increasing costs or taxes will be increasing……whose stupid enough to think that these islands in the storm will not be affected.
The bear is just getting going…….expect this one to last a while aside from the bounces like the one I expect next week.
If a broker suggests bottom fishing some of the hottest names due to 40% drop….just smile and tell him to find someone else to buy his next BMW.
People seem to be very skeptical about whether or not the Fed will follow thru with tapering and interest rate hikes. I am trying to figure out how the Fed see things and what their options are.
If they don’t actually stick to the tapering and rate hike plan, how likely would it be for the USD to lose its position as the World’s reserve currency.
What does the Fed fear more, another Great Depression or the USD losing it’s position as reserve currency?
Fed hasn’t followed thru anything since 2008. fool me once shame on you fool me twice shame on me. Those who think Fed will ever QT are just day dreaming.
The Fed did QT from late 2017 though mid-2019, until the repo market blew out. And back then, inflation was BELOW the Fed’s target. Now inflation is blowing out, and the Fed has a brand new standing repo facility in place to calm down the repo market and continue with QT. So enjoy the fireworks.
I think how the Fed acts (wrt rate hikes and QT) depends on:
1) how inflation behaves
2) the stability of the financial system and how safe Financial Institutions are
Typically in the last decade any fall of 2% has made the Fed run to the markets rescue but this time around it seems to be sanguine enough to be a bystander. Looks like there are more important matters to attend to than the markets at least at this moment. Also the Fed might see no reason to come to the rescue given the market run up when there are other weightier matters at hand.
So much of the recent paper wealth was froth and over-enthusiasm anyway: it was quick and literally, easy come, easy go.
Anybody who hurriedly piled tiers of credit on the recent froth deserved what they got.
Too bad the Fed can’t do anything whatsoever about supply side caused inflation.
And look how long it took for Volker’s efforts to tame inflation and how insanely high he had to raise rates. Also consider that the market levels back then weren’t massively fictional, that nearly one in ten US companies weren’t zombie corporations, and what happened in China wasn’t a factor at all.
I think the Fed will chicken out, especially since this is an election year (don’t feed me the non-political claim) and do as they always have done in these times of the extreme bubbles they’ve caused – kick the can further down the road.
Winston: “the Fed will…do as they always have done…”
Using the word “always” is an invitation to a challenge.
Have you considered the Volker action in the 70’s when the Fed jacked rates up to nearly 20%, or the 1920’s-30’s when (as Friedman and Schwartz claim) Fed INACTIVITY arguably led to the depression?
This Fed leadership, along with those of the last 4 decades have certainly tended toward can-kicking. But that does not rule out the emergence of a backbone in the Mariner S. Eccles Building. 7% inflation – and rising – might induce spinal formation. We can hope, can’t we?
1) The DOW osc around Oct 26/ 27.
2) If Dec 1 low breached, next week, before moving up to Oct 26/ 27 area, it might be leg 4 of 1 down.
3) Since May 10 last year, the DOW built a Lazer tilting up. There is hope that the DOW will cont to make higher highs til mid 2022. Hope isn’t good enough.
4) If failed, Mayhem, in stepping stones.
Stumbled across this website by accident few months ago and since then have been following with great interest. THANK YOU Wolf for your data backed analysis and insights.
I am trying to understand how QE and QT works
During QE does Fed buy bonds at market price and during QT does it also sell at market price ? If so – is there a chance that it could lose money in the process ? Also, who and why would rational investors buy these bonds knowing that their value will fall with rising yields.
Your insight into this is much appreciated
Yes, there is a chance the Fed could lose money on its bonds. But you don’t need to worry about that aspect of it because the Fed creates its own money and it doesn’t matter if it loses some of it.
So far, the Fed has been making huge amounts of money on its bonds. The Fed remits nearly all of its huge profits every year to the Treasury Department. For 2021, the Fed sent $107 billion to the Treasury department. The Fed was about as profitable as Apple in 2021.
If the Fed loses money, it just wont sent any money to the Treasury department. Which means a loss of revenues for the Treasury Dept.
right, but if the fed loses money on its bonds, doesn’t that mean that it lost the ability to remove currency it created? in other words, it printed $8.8 trillion, but can’t destroy $8.8 trillion. so then the money supply is permanently increased?
No. It doesn’t matter. Even theoretically. In practice, any losses would be small because it makes a lot of money on a lot of the bonds it has.
The Fed can create money and add it to its capital account, no problem, instead of the cash (reserves) accounts of the primary dealers. Capital and reserves (liability) are on the same side of the balance sheet. Liabilities + capital = total assets. So it can reduce assets, which has the effect of reducing the reserves account and the reverse repo account (both liabilities). And at the same time, it can shore up its capital account by a little if it needed to.
People need to understand that the Fed can do whatever Congress allows it to do. It’s not like any other company or bank. As is appropriate for an organization that creates money to buy stuff with and pay for things with, it uses special accounting (“central bank accounting”) because the normal accounting rules cannot be applied to an organization that creates money.
People need to stop worrying about a modern central bank making or losing money. It’s irrelevant.
Thank you for your response Wolf. I thought some more about this and still don’t quite understand something (maybe what Jake W is alluding to).
Let’s say I am person X who holds 30 year bonds that yields 5% and in the 15th year fed buys it as part of QE. But due to QE bond yields have been brought down to say 4% and hence bond prices have increased. Hence, I make a profit on my bond sale. This is money that fed pays to me as it does not care about profit or loss ( as you point out). As QE continues bond yields keep going down and old bond holders keep making money due to rise in bond prices. So there is more money in the system injected by FED as was the intent of QE
When QT begins all suddenly things go in reverse. The fed is trying to sell bonds and as a bond buyer I would want higher yield to compensate for my risk ( I am not the FED – I do care about profits). As bond prices go down the FED loses money – but I as a bond holder I do get to keep the profit made during QE and buy back my bonds.
So at the end of QE+QT – wouldn’t a bond holder like me just make money at the expense of the FED ? On top of that if there is inflation during this period I get to gain even more ( time value of money)
There seems to be a basic asymmetry between a bond holder (who cares about profit) and the FED (who does not care about making profit but more importantly making a loss) which seems to always favor the bond holder.
Am I missing something ?
“Am I missing something ?”
Yes. The Fed is not a bondholder like you. As explained in my comment above.
407 comments on this post. I think this might be a record.
The record is over 500. There are a few of them, I think.
this market reminds me of Jan 1973. During the fall of 72 it was the “nifty 50” that held up the market while the average stock was in its own bear market. Then the Dow peaked on Jan.17th and we proceeded the go into a long bear market that didn’t bottom till Sept. of 74. It wasn’t a crash just a long slow steady decline that just wore everybody out.
After the Friday close (14400+/-) I plotted on a 1yr 1day chart a Fibonacci retracement of the Nasdaq (/NQ), with the starting point at the Covid Low (12915) and the end point the recent all time high (16767), and found a few interesting points. 1. the Nasdaq is now at the level of the 50% Fibonacci retracement; 2. The Nasdaq Closed at a point that has been support and resistance at least two times (10/4;7/29) since the Covid low; 3. Nasdaq closed below the 200 day SMA and the slope is not turning negative yet; 4. The Nasdaq is down 2367 or 14.15% since the high. None of this guaranties any direction, but the 200 day SMA is still positive, the price it trading outside the lower Bollinger band, and the Bollinger Bulge is close to maximum. Some analysts might interpret these to suggest it is time for a change in direction.