Massive Volatility in the Markets, Inflation out the Wazoo, Effects of Higher Interest Rates on Stocks & Real Estate, and Will High Oil Prices Cause a Recession?

Wolf Richter on “This Week in Money,” at HoweStreet.com, recorded on March 10. Here I am, seeing 10% CPI inflation coming this year.

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  67 comments for “Massive Volatility in the Markets, Inflation out the Wazoo, Effects of Higher Interest Rates on Stocks & Real Estate, and Will High Oil Prices Cause a Recession?

  1. Island Teal says:

    Ag and Au are going to “shine” this year.

    • J-Pow!!! says:

      None of this matters. My .25 rate hike will stop inflation dead in its tracks. Guar-an-TEED!

      • Gattopardo says:

        Something I really struggle with, J-Pow, maybe you can explain since you’re, like, the Fed prez and stuff.

        Why do we obsess about avoiding recessions rather than fighting inflation? A recession chops, what, 2-5% off the GDP temporarily. And those are extreme historical examples. They’re realistically more like 1%. Whoopdeedoo, a 1-2% shrinkage before a new ATH that follows. Whereas inflation, even when mild, is a 2% loss in purchasing power. And these days more like 10%. And those losses are PERMANENT.

        It seems to be that keeping inflation near zero is way more important.

        • Gen Z says:

          Because Adam Vaughan guaranteed to his foreign investors that real estate and rental prices will NEVER go down. Canada is good for the oil dictators and organized criminals because real estate doesn’t go down, thanks to Adam Vaughan and Tiff Macklem.

        • eg says:

          Presumably the people that recessions unemploy think that avoiding them is more important than a generalized loss of purchasing power.

      • Swamp Creature says:

        OOPs becasue of the War in Ukraine I can only go for .0125 or 1/8%. But I’ll make it up next time. Enjoy the low rates for a little longer.

        Buy, Buy Buy

        J Powell.

        Private equity multimillionaire

      • Moosy says:

        Yup.

        Zoltan Pazsars is on to something and China, Russia, India love gold and not a FX with USD that can be frozen.

    • 2banana says:

      Well, it just went on sale today.

    • Chris P says:

      island
      The fed controls all market and they will NOT let metals out perform their casinos today.

  2. Xavier Caveat says:

    Is ‘Wazoo’ top secret code for Washington DC?

  3. Levi C. says:

    That was excellent content Wolf, thank you.

  4. David Hall says:

    Import bans, export bans, sanctions, cities under siege, millions fleeing, high oil prices, high energy prices, China mega city under lockdown. Will it be inflation or a recession?

    • 2banana says:

      The Fed will bring you both!

    • Marcus Aurelius says:

      Both.

      To fight the recession they will have to pour currency, and credit, into the market.

      They MUST prop up the Market so as to prop up the Pensions and Insurance Companies. That keeps the inflation going.

      As for the unemployed peasants? They will need stimulus cash payments to prevent rioting. That keeps the inflation going.

      We will have Food Rationing, Gas Rationing, and Electrical Rationing (Can you say Tesla?)..All of this will be done under Emergency Declaration since we are “at war” !!!!

      Got Gold?

      • Augustus Frost says:

        Only if it doesn’t impede the Empire.

        The public, markets and economy will all be thrown under the bus to preserve it.

      • Bead says:

        Rent controls, price controls, wage controls, free instruction from incompetents; it will be great! Alfred Kahn, come back!

        • Augustus Frost says:

          Rent control for sure is going to become more common.

          After the rent moratorium during COVID, I’d personally never be a landlord in the US.

          Now that the precedent has been set, government at all levels can potentially invent any number of rationalizations to do it again.

          It’s less of a risk in Red states and cities but wouldn’t count on that as a sufficient protection.

      • Gen Z says:

        In Ontario, Canada the provincial government wants to cut social assistance and create hardship for the disability vouchers by forcing them to commit suicide, while giving billions away to the foreign corporations and rentier class.

  5. historicus says:

    PPI tomorrow likely double digits

    • Jim Cramer Fan says:

      Yes, but slightly lower than expected. Stocks and crypto are blasting off today. You love to see it! Is it premature for J POW to start taking a victory lap?

  6. General Strike says:

    If capitalism is so great, why the chaos and massive suffering year after year ?

    • unamused says:

      “If capitalism is so great, why the chaos and massive suffering year after year ?”

      Your overlords (and overladies) aren’t suffering. They’re doing better than ever.

      Does that answer your question?

      “Overladies.” Ark ark ark. I crack me up.

    • NewGuy says:

      Because this isn’t free market capitalism. It is central bank market manipulation to the benefit of a few at the expense of many. The biggest rip-off in the history of mankind.

    • Harrold says:

      Every form of gov’t in the world throughout history has had an elite class that don’t have to follow the rules. They are allowed to prey on everyone else. Capitalist dog eat dog fighting for the little people who make wages. Monopolies for the rich to protect their profit margins.

      When ever you hear of an “ism” like socialism, communism, look for the party members who live in luxury, while everyone else stands in line for bread.

      • Sit23 says:

        Correct. Classic Capitalism morphing in to Crony Capitalism because it is permitted instead of being made illegal.

  7. Xavier Caveat says:

    @ what diesel price point do the big rig drivers start losing money on their appointed rounds?

    • LGC says:

      Long ago. most truckers are already only making money off their fuel surcharges currently. They are actually losing money off the straight bill and covering that off the fuel surcharge. But that goes straight to the bottom line of whomever is paying the bill. shipper/receiver planned to pay $2/mile (for exampel0 and they get the bill and ti’s $2./mile plus 57c/mile fuel surcharge. yeah, that’s going to be a bit unexpected and unable to plan for which is the real problem.

      • Charlie says:

        Railroads a different story. Uncle Warren at BNSF has started up fuel surcharges again. I supposed the same is happening on other class I railroads. Shippers today only know the fsc for March and April (at least on the BN), so creates more uncertainty to make deferred sales beyond Apr, thus less margin control. When this oil crisis winds down in this commodity roller coaster environment, past history says the railroad will discontinue the fuel surcharge, but incorporate the latest tariff plus fsc into a new and higher tariff charge. This locks in the inflated price until the next event starts the process again. What a business model!

    • Jeff says:

      They put fuel surcharges into effect. We did very well in times of high fuel prices since we specced our trucks for fuel efficiency and hauled fairly light weight bulky loads. When the surcharged was based on an average fuel economy of 6.0 mpg we were getting 8.5 and the surcharge paid for almost all our fuel.

    • Trucker guy says:

      Well, if you discount the bullshit, which is everywhere these days; trucks that are owner ops are making an absolute killing right now. The only people not making money are those that jumped in a few months ago up to now and paid 100k dollars for a reefer trailer that normally sells for 30k and spent 250k on some garbage tier iv truck.

      Anyone who was in before the pandemic must be retarded to not be making money hand over fist right now. Even the company schlubs are making more money. The union company drivers are making a killing. The industry and job is awful but the money is there if you were already in the game as an owner op.

      Fuel doesn’t matter to drivers, that is on the broker/shipper. Fuel goes up, your rate goes up. Because everyone else’s does. I ain’t seen any “lektrick” trucks running. They all drink diesel to the tune of 3-7mpg.

      When freight slows down, then truckers will be eating their boots for sustenance. In all honestly rates have been solid for nearly 4 years now.

  8. JayW says:

    Dip buying, lower lows, lower highs, Incredibly vicious rallies, etc.

    Wolf, as you well know, this drop isn’t anywhere near done. We’re just getting started. We’re unlikely to find the bottom this year. 2023 will be the year of the recession. and, this time it won’t be a tiny 6 week recession like in the spring of 2020. This one will last at least 2-3 quarters, in technical terms, possibly longer.

    • Augustus Frost says:

      It depends upon definition of market cycle.

      The commonly used terminology for a bear market is a 20% decline from the peak which is arbitrary.

      There are corrections, bear markets, recoveries and bull markets within larger cycles.

      The 1966 to 1982 bear market covering 16 years resulted in a total nominal decline of about 24% in the DJIA but it was about 75% in 1979 or 1980 adjusted for price changes.

      There were also bear markets starting in 1966, 1968, 1973 and without looking at a chart, I recall 1976 and 1981.

      The peak in 1966 ended a bull market dating from April 28, 1942. It wasn’t even close to a mania. It started at very depressed valuations and ended somewhere about equivalent to the lows of July 2002/March 2003 and March 2009, depending upon the metric.

      This peak (whenever it occurs) will top off the greatest asset, credit, and debt mania in the history of human civilization. It’s bigger (much bigger) than the South Sea Bubble, Dutch Tulips, US 1929, and 1989 Japan. It’s bigger because of a combination of valuation, duration, geographic scope, and impacted asset classes.

      So, if anyone is talking about its end, don’t think it’s going to be corrected by a brief sharp recession like GFC.

      It’s going to last decades with multiple severe recessions and at some point what will undeniably be admitted as a real depression.

      As to why, it’s because the actual societal fundamentals both in the US and elsewhere are either mediocre or absolutely suck.

      The government and central banks have or either will soon run out of runway to “kick the can” down the road and there is a day of reckoning in store for people’s living standards.

      Printing and spending money out of an empty pocket don’t make a society wealthier.

      No, there is never something for nothing and most people are destined to become poorer or a lot poorer over the indefinite future.

      • Xavier Caveat says:

        If you were to compare the crash of 1929 to what is coming our way, think of our Civil War compared to WW2-a similar amount of time between both epochs, but what a leapfrog in technology.

        Compare a flint rifle from 1861 to an ME-262 jet in 1945, and then do the same thing in matters financial from 1929 to present. We’ve come a long way from stock tickers.

        • Apple says:

          Flintlocks were obsolete by percussion caps by 1840.

        • Augustus Frost says:

          I am thinking more in terms of relative valuation and fundamentals.

          The history of the 1929 crash and 1930’s has been written by many, as if the speculation then comes anything close to what’s existed this entire century.

          Only a very low percentage recognizes this cognitive dissonance.

          The fundamentals on the eve of the 1929 crash were light years better than those now.

          The government was a fraction of its current size which made large fiscal stimulus sustainable. The country was the industrial powerhouse of the world with a large trade surplus. The quality of GDP was much better versus now and recently. Credit standards were conservative and private debt was very low compared to most of my life.

          Socially, I’m not going to get into that. Most everyone is aware of the negatives at the time, but society was not in the process of falling apart. I presume many will dispute this characterization but just wait until fiscal and monetary policy can no longer hide the cultural rot which is already in plain sight to anyone who bothers to look.

          What most people call “bad news” will come out with a vengeance once the bear market is evident.

        • The Angel says:

          Good points as always. Since all those events, as a society we have become very specialized with a loss of many basic skills. Many today don’t know how to cook, bake a loaf of bread or a cake, clean, start a fire (they don’t even have fireplaces, functional fire pits to do so), chop wood &/or have the equipment, fix most basic items, grow a basic garden, etc. All skills necessary when money gets tight. Many do not even have the mind set to face that type of change; never mind succeed at it. So I’m thinking that this time any extended significant contractions will be deeper & more protracted due to the lack of resilience.

      • David Hall says:

        Why don’t they make silver quarters anymore?

        In Venezuela the inflation rate slowed to 340% per year, the lowest it has been in some time. Suspect they did not want to pay taxes, but wanted government spending.

  9. Robert Jones says:

    WOOOOW !!!!!! Wolf you covered it all. Love hearing your podcasts.

  10. Gandalf says:

    Stagflation out the wazoo

  11. MarketMissing says:

    I’m wondering if a critical mass of regular people are hitting the breaking point on these higher prices. People have been adapting for years, moving further from jobs to save on rent, moving closer to jobs and ditching their cars, doubling and tripling up with family and friends, cutting non essential spending, getting a 2nd (or 3rd) job, etc.

    I don’t think a lot of these folks have anywhere else to cut costs or increase income and the numbers that were barely working before aren’t working at all now. There doesn’t seem to be enough margin in a large swath of the population to absorb this inflation other than a credit card. I wonder if a lot of the spending propping a lot of this up is from crazy speculation gains or stimulus that largely went to business owners. The inequality issue is getting huge.

    As a landlord I’m looking at a couple of tenants that are elderly or have huge medical issues. Their rent is far below market and I need to raise it soon to keep up with costs but couldn’t raise it anywhere close to market rates without creating vulnerable homeless people.

    Must be nice to be a Jamie Dimon type who can put profit ahead of all other concerns and would never have to look that person in the eye or step over them on a sidewalk in a smaller community like the one I occupy.

    • Augustus Frost says:

      If someone has owned their home for a long time with low housing costs along with “reasonable” medical costs, that’s the starting point to mitigating price increases. Need to control the big ticket items.

      Otherwise, the profile you describe is only making ends meet because of government transfer payments and access to credit. It’s basic math.

      My opinion is that your profile represents at least 60% of the US population and depending upon location, up to the 80th percentile.

      According to FRED, median net worth as of the last tri-annual survey was about $121K in 2019 but this is not savings in the bank. It’s everything.

      This metric along with real median income have essentially flatlined for over 20 years or an entire generation.

      This was also during the supposedly good times where the economy expanded about 90% of the time.

      So, the question then becomes, if this is the reality now, what’s going to happen later when this mania ends?

      See my above post.

      • MarketMissing says:

        Ooof. How much of that $121k is bubble housing equity or in a pension fund that has been forced waaaay out into the risk zone? In other words how much of that median $121k net worth would evaporate once these bubbles pop?

        Policy will have to change on many levels because current policy is generating poverty and homeless folks at an unsustainable pace. I shudder to think what this bubble popping is going to do with the huge baby boomer generation getting too old to work but still having 10-20 years left to live.

        • Augustus Frost says:

          Median net worth doesn’t include vested benefits in defined benefit pension plans if that’s what you mean, to my knowledge.

          As for real estate, there wasn’t a housing bubble in 2019 by my standards but it was still artificially inflated due to lax lending standards and cheap credit.

          Since history never repeats itself exactly, I don’t expect a housing bust like 2008 initially when the stock market and economy tanks.

          If the bond bull market from 1981 is over as I believe, interest rates will surpass the 1981 peak, eventually by a substantial margin.

          I still think the government will initially impose another mortgage moratorium but with noticeably higher rates and a lousy economy, sales volume should dry up.

          Based upon this combination, my guess is that housing prices will decline but not crash in most cities.

          The worst performer should be houses in actually undesirable neighborhoods which have inflated a lot recently. I’ve looked at the price history for some in metro ATL where I live now. An example might be those which increased from around $50k in 2011 to $300K now. The neighborhoods suck but are supposedly “gentrifying” due to a central location.

        • MarketMissing says:

          Pulled from a list of what counts as part of median net worth that matches your number:

          Retirement accounts, including IRAs, 401(k)s and 403(b)s

          Looks like 26 percent of workers have access to defined benefit plans. 401ks are pretty vulnerable to market corrections. The next few years might be a bit of a wild ride and I have a feeling it will be a very different experience based on age bracket.

        • Wisdom Seeker says:

          Wondering about the reasoning for this part:

          “If the bond bull market from 1981 is over as I believe, interest rates will surpass the 1981 peak, eventually by a substantial margin.”

          Why do rates need to go above 20%? I would think we can have a secular bear market, and still have have a lower peak on rates. Even 10% rates will bring unimaginable financial hardship down upon those who’ve taken on too much credit…

        • Old School says:

          Wisdom Seeker,

          Heard two different smart people explai long term rates can only go down over longer term. Too much debt yields poor returns on debt as Japan and Europe seem to demonstrate. Root cause is shrinking workforce in most of the developed world so very low real growth to support debt payment.

          It’s above my skill level so all my fixed income is shorter duration to minimize interest rate changes up or down.

    • Apple says:

      We will know things are really bad when old people cancel their cable subscriptions.

    • Marcus Aurelius says:

      Excellent perception.

      • 91B20 1stCav (AUS) says:

        Apple/Marcus-what’s a cable subscription?/s. (old enough to remember cable’s CA legalizing referendum ad campaign (B&W CRT set days) promising ‘…TV without all of those annoying ads!…smacked of ridesharing services, now…).

        may we all find a better day.

  12. Minutes says:

    Free homes gone forever. 4.5% 30 year on its way to 6%. The rates were too damn low.

  13. Fed is reckless in their sins of omission. If they start swinging with the markets, volatility could get worse.

    • sunny129 says:

      A Bierce

      Volatility is a minor factor in the ‘long term’ if one can use risk managing tools like option trading, leveraged Bear & Bull ETfs. I lost zilch by using those during GFC but lost most of my profits, after ’09 with Crony or Predatory capitalism, with rules favoring debtors over savers and to the the top 1%!

      Now I am glad this surreal mkt (bubble) will leak slowly, with lower of the HIGHs and lower of the LOWs, sucking DIP buyers along the way.

      • douglas_stout@yahoo.com says:

        Average long term investor doesn’t need options or leveraged anything. It’s mostly matching up when you are going to need the money to what assets you are invested in. If you need the money in 30 years price movements today don’t mean much.

  14. tom15 says:

    Hmmm. Our business survived the GFC.
    I listened to the podcast.
    You say 08 was due to housing crash, not high energy prices.

    So if the fed were to make multiple rate increases similar to the GFC…why do believe no recession this time?

    • Wolf Richter says:

      tom15,

      “So if the fed were to make multiple rate increases similar to the GFC…why do believe no recession this time?”

      That was NOT the question. The question was if high oil price could trigger a recession.

      And I said no, not by themselves. It took a housing crash and financial crisis in 2008 and it took lockdowns in 2020. For there to be a recession, there needs to be something a lot bigger than high oil prices. That’s what I said.

      • tom15 says:

        Thanks Wolf

        Working and listening not as easy as it used to be.
        Not sure if its the hearing, or whats in my drink.

        • Softtail Rider says:

          Working and listening not as easy as it used to be. — tom15

          I find between my rip roaring internet connection and hearing aides, podcasts are about useless. I’m out in a field in south Mississippi30 miles to the Gulf, and enjoying the solitude and climate.

          So I did what the next stolen comment says.

          We will know things are really bad when old people cancel their cable subscriptions. — Apple

          With 7 minute commercials I have begun to realize cable was also useless. So I get internet up north and give my hotspot a well deserved rest.

          Love reading the comments and have learned from all.
          Thanks for keeping me sane and safe.

        • tom15 says:

          Softtail

          The panhandle of Florida has been my stress relief the past 2 Feb.
          Fishing pole & kayak…or waders, for 30 days.

    • Howard says:

      Listen again. Wolf did NOT say that if the FED zombies make aggressive interest rate increases and that would not result in a recession.

      Wolf said elevated oil price won’t cause recession.

      For sure, if the FED zombies raise rate aggressively, there WILL be a recession, 100%! And the real estate market will reverse in price and demands.

      The ONLY, I repeat ONLY, way to fix high inflation is a recession!

  15. Harvey says:

    Well, if inflation gets too bad, they can always measure it differently. If the choice is to inflate away some debt and increase the cash flows of corporations while eroding the purchasing power of the common man, and seeing the stock market turn over and die at 1.25% interest, my best is on the former.

    • Wolf Richter says:

      The problem is you cannot inflate away debt with low interest rates because low interest rates encourage borrowing, and you just create more debt. And this is what happened in the US.

      • Gattopardo says:

        This is a good point. Congress would have to be in on it, and restrain borrowing. Good luck with that. One side would be too busy trying to pass additional spending legislation with words like “American” and “Rescue” in the name, while the other side would try to stop the first side from getting any “wins”..

      • Gomp says:

        Bam. Thank you. I was missing that very important point.

  16. John Smith says:

    Due to current Ukraine-Russia war, when the market becomes extremely volatile to be handled even by seasoned investors. A-VIX, which represents the volatility of the benchmark ASX 200, had risen by a massive 88.67% to 20, as of 11 March 2022. This kind of volatility explosion is one of the main reasons why investors find it difficult to make money in the long run. However, there are a few tips, investors can use to sail through these volatile times and achieve their long-term goals.

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