But the mayhem started beneath the surface in Feb 2021.
By Wolf Richter for WOLF STREET.
Stocks on Friday turned Thursday’s blistering beautiful rally into a miserable dead-cat bounce. And it put some marks into the sand.
The S&P 500 Index dropped 3.6%, the worst drop since June 2020. The index is down 14% from its 52-week high and has turned red year-over-year (-1.2%). For the first four months this year, the index is down 13.3%, the third-crappiest beginning of a year, after 1932 (-28%) and 1939 (-17%).
The real fireworks took place at the Nasdaq, whose composite index plunged 4.2% and is now down 23.9% from the its intraday high in November, and down 11.7% year-over-year. For the month of April, it dropped 13.5%, the worst month since October 2008, which was the month following the Lehman bankruptcy.
The Dow Industrial Average dropped 2.8% today and is down 10.7% from its high. And it’s now also red for the past 12 months, at -2.6% year-over-year.
The Russel 2000 fell 2.8% today, is down 24.2% from its high last November, and is now 17.7% in the hole for the 12-month period.
This chart shows the percentage change of the four indices over the past 12 months since April 29, 2021, with all four indices ending today below the red line (data via YCharts):
The biggest stocks are falling apart.
Today’s hero was Amazon [AMZN], which plunged 14% today. Last night, it had reported a big loss, slowest revenue growth since the dotcom bust, and rip-roaring expenses, topped off by nauseating guidance. It is now down 34% from its closing high in July 2021, despite a huge bout of financial engineering announced in March: a 20-for-1 stock split and a massive share-buyback program, just now when it lost money:
The biggest stocks that were able, by their sheer heft, to cover up the mayhem beneath the surface after February 2021 have now let go.
I threw in the N’s because they were once part of the infamous FANGMAN stocks., percent change from high, and date of closing high:
| $ today | % today | % from closing high | Date of closing high | |
| Netflix | 190.95 | -4.6% | -72.5% | 29-Oct-21 |
| Meta | 200.47 | -2.6% | -48.0% | 1-Sep-21 |
| NVIDIA | 186.40 | -6.2% | -44.5% | 29-Nov-21 |
| Amazon | 2,485.63 | -14.1% | -34.3% | 13-Jul-21 |
| Tesla | 870.76 | -0.8% | -30.0% | 4-Nov-21 |
| Alphabet | 2,309.00 | -3.7% | -24.4% | 2-Feb-22 |
| Microsoft | 277.52 | -4.2% | -20.6% | 22-Nov-21 |
| Apple | 157.65 | -3.7% | -13.8% | 4-Jan-22 |
As a sign of our times, Microsoft peaked in November to the day when CEO Satya Nadella dumped half of his Microsoft shares with totally impressive prescience, and it too has now let go, and he sure knew when to dump the shares into someone else’s lap.
The mayhem beneath the surface started in Feb 2021.
The market started falling apart beneath the surface in February 2021, and soon there was utter mayhem beneath the surface, with dozens and dozens of IPO stocks and SPAC stocks and other highfliers getting systematically and brutally wiped out by 70%, 80%, 90% or more from their ridiculously overvalued peaks.
From stocks that had recently gone public to stocks that had been around for a while but had been discovered by the stock jockeys during the pandemic were taken out the back and shot – I covered some of them in my Imploded Stocks. This is the dotcom bust all over again, only much bigger and much worse.
But the big ones kept the show going and covered up the mayhem beneath the surface. Then last Fall, the big ones started giving in, one after the other, starting with Facebook that tried to divert attention from its problems by uselessly changing its name to Meta. And one after the other they began to wobble, stumble, and plunge.
So this has been in the works for over a year, and it took out the smaller most speculative and most ridiculously overblown highfliers first, so well summarized in the ARK Innovation ETF [ARKK] and the Renaissance IPO ETF [IPO].
The ARK Innovation ETF, which tracks the biggest hype-and-hoopla stocks, dropped 3.6% today and is down 70% from its high on February 16, 2021. Yes, that February, when it all started coming apart:
And the IPO ETF fell 3.9% today and is down 53.8% from its peak on February 16, 2021, yup, that one.
But “Nothing Goes to Heck in a Straight Line.”
That’s the WOLF STREET dictum. There will be a bounce. Dip buying is alive and well when the price is low enough. Dip buyers that didn’t get out of the way fast enough this year got carried out on stretchers. Turns out, dip buying profitably is a lot harder in a down market than in a relentless bull market.
Thursday’s huge rally lasted one trading day and ended at 4 PM, and afterhours it was already a mess, following Amazon’s earnings report. Thursday was a classic dead-cat bounce, powered by widespread short covering and dip buying. And dip buyers, if they weren’t able to sell yesterday, got knocked around today.
Nevertheless, they will still be trying to buy the dip and drive prices up for a little while, and it can happen any day because nothing goes to heck in a straight line.
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“But the mayhem started beneath the surface in Feb 2021. ARKK now -70%.”
Is Cathie Woodshed even showing her face in public anymore?
Yes. She said she’s right, and the rest of the world doesn’t get it.
I hate it when reality doesn’t agree with me too.
She’s a business genius. She figured out a product to sell to people with no knowledge of markets or economics and milked it. Not commenting on the ethics but I’m pretty sure she knows exactly what she is doing
I didn’t know who you were referring to, but I did a keyword search with her name along with bitcoin and learned ALL I need to know about her investment advice:
Cathie Wood Says Bitcoin is Worth $1 Million – April 20, 2022
@Winston – In 2020, when oil was $40 she said oil was going to drop from $40 to $12.
@SilentC
“She figured out a product to sell to people with no knowledge of markets or economics and milked it.”
That product is social media.
No wonder she is buddy buddy with E.Musk. They both can sell ice to eskimos just by tweeting.
I take it Cathie Woodshed is fairly young and has never felt or understood the power of inflation, (her investors are understanding it now). The sad thing for them is that the power of inflation is really just starting……
It’s only a short while ago that I posted something like this……though I can’t remember the exact words ….ha ha
You can do without Apple and buy a cheaper phone, You can live without microsoft upgrades or anything new that it contains, you can give up netflix (and now Amazon Prime). You are unlikely to afford a new electric or an ice car for a while (so there goes Nvidia), you can easily dump google search and go for something like Startpage or whatever to avoid being tracked, You can dump Tesla, as you can buy good Chinese made electric cars, like the MG, doing the same distance or more, for half the price (but they may also be too much for most people, including me, at the moment)
and finally..you can give up using Amazon (bit of a prophet there lol)……
and that is the power of inflation.
I take it Cathie Woodshed is fairly young and has never felt or understood the power of inflation
> She is 66. She absolutely was of age in the 70s and graduated from USC in 1981. Maybe he only thing she learned from 1970s California was the power of cults.
Anyone else notice that she speaks with a similarly low, bass loaded, voice of conviction as Elizabeth Holmes..?
phleep
Ha ha, is she the same age as me….? Well I remember in 1974 as a pint of beer went up nearly 100% in one year…these are lessons you remember….maybe she had servants who went shopping for her so she didn’t notice the price rise??………. lol
Loose money leading to pricy beer and Cathie Wood. Love’s little nightmare, like.
Sounds like Google has the best prospects of the bunch?
Just last month on March 1st, she bought 9.4 million dollars worth of Shopify shares for close to 700 dollars a share. Shopfiy is worth 426 dollars a share today. Whoopsie.
ARKK is helping people build generational wealth by transferring moolah from ARKK’s investors to ARKK’s trading counterparts.
Alex Vieira is the investor who initially pumped that stock through his artificial intelligence computer program for trading. He was the one who initially pumped Beyond Meat. With his money Shopify can make massive swings up or down if he’s trading it. Canadians are worse than broke and if our housing market collapses in price no one will have any money for anything. Our housing market is just entering the freefall stage.
@SocalJim –
Viewing ARKK as a “distribution” tool – a way for elites to offload their turd stocks to noobs – that theory explains a lot!
There are other such vehicles out there – the IPO and SPAC frenzy.
Whenever you’re buying shares, one should ask “why is the other person selling?”, as well as “who will buy these from me later, and why would they want to pay more than me?”
66? She’s a merely a fall chicken
In her defense ARKK is 128% higher than it was seven years ago… which is not bad. A few dividends along the way as well.
People who bought at the beginning (in 2014) or any time up until the pandemic started haven’t lost any money in ARKK .
That said… professional investment advisors aren’t supposed to be cheerleaders. They are supposed to tell us what to get out of as well as what to get into.
SpencerG,
“In her defense ARKK is 128% higher than it was seven years ago…”
Yes, the sell-off is still very young. So be patient. There is a good chance that a number of her current holdings are going to zero.
Here’s a quick refresher on averages. Say a person makes the following return year after year: 1500%, 2000%, 5000%, 6000%, -100% for an average of 2880% a year, should you invest with him/her?
The answer is probably no. Why? See that -100% at the end? That means he/she has lost all the moolah.
But if you were to multiply the stock price times the invested capital, you would see she lost way more money than she every earned.
She got into a huge bull run and thought she was a genius. Sounds more like an amateur.
@gametv
Any gambling monkey can pass himself as stock picking genius in a crazy doped bull market.
Kathie should run for the senate, she’d fit right in.
Fuel for the next bear market rally.
Pure wisdom dispensed daily.
There is little doubt that the markets are going lower.
There are times when it can be profitable to babysit the markets.
I’m guessing none of her “investors” recognize a mania.
It would also help if the theme of the fund was actually right. None of the firms I recall in the fund are “disruptors”.
More like a bag of hot air.
She was on CNBC yesterday defending buying more telecom. Who knows, it may be a great company in the long run, but there’s a lot of blue water before you can swim to the island.
I find it pathetic that any media source reports on what been going on in the stock market as a collapse. Most stocks in this country are over valued by a factor of 10. Any company that has a PE ration greater than 5 is overvalued. The fact that any company has profits which allow them to advertise tells you that we as consumers must demand with our wallets all corporations reduce their prices to the point where they have nothing left over after expenses to pay for 1 dollar of advertising. Wake me when every stock in the market is less than they were in December of 2009. Everything since then has been artificially inflated and must be allowed to fall back to that price and stay there for decades.
Sounds like she has a mental illness instead of an opinion on the market.
In case you didn’t know, she is a Christian fundamentalist. The claims that her funds are “God’s work” and that God helps her make the stock choices.
Must be the 1st testament God who has no qualm dealing out punishments 🌩
You always know it’s a con when they start talking religion.
So true!
I wonder if the religion stuff is a result of all the drugs she probably took while in California during the drug frenzy in college at that time.
She probably saw God a few times back then.
I was on Haight St spr66-spr67. Naturally everyone wanted to see God, but I never did. I did have a few of what we called “rebirths”, though. A good one could last 3 days, most were shorter. And it was the bunch that got terrified from their trips that turned to Jesus or one of many other cults.
You just had to accept whatever your mind conjured up as being ok. That’s where Keasey got the phrase “acid test”.
At the apex of corners 3 & 4 of the last lap of the Kilometer Time Trial on the velodrome, “God” appears. Problem is, you’re seeing stars by then and the only focus is keeping on the black line and bringing it home.
When you get it right, that’s how it’s supposed to be.
Lmao
“God’s work” “God helps her pick stocks”
Would make TOTAL sense to any Calvinist, whether they knew enough to realize they were a Calvinist or not….and that’s the real problem with that worldview.
Bill Hwang from Archegos (which blew up spectacularly last year) is also another fervent believer in Divine Investing.
I believe someone said this of Michael Milken (the junk bond guru): “he could have been a preacher”.
Men of God and Men of Money make strange company.
They should not mix – Jesus and the whip in the Temple area
What does the future hold? I’m not buying any dips for quite a while.
Don’t know anything about buying any “dips”…
But I would suspect relatively soon, you could rent them pretty cheap by the hour….
Markets are seriously in denial to think things will be back to “normal” soon. The fed hasn’t even started attacking inflation. Russia is gonna be bogged down in Ukraine for 20 years. This should now be assumed with their statement that Ukraine is riddled with WMDs that they will have to carefully hunt down.
You don’t fight the fed. That’s supposed to be rule 1 of investing. Even with major crashes in 2001 and 2009, with a housing crash to boot — few seem to remember the pain they felt.
The speculators who said the FED would never raise are now betting on – or should I say praying for – a Powell pivot, which is kind of like Charlie Brown waiting for The Great Pumpkin.
Lucy keeps offering the football and Charlie keeps trying to kick it and winding up on his arse.
A Powell put is dependent on the ability of the Fed to do QE again . When inflation is running so high, QT not QE is likely .
Is the Fed unhappy that some of the fluff has been taken out of the market . No.
If the market really crashed , there would be a good chance that the Fed wound step in, but that is nowhere near current levels
Hard to know for sure…the Fed folded like a dollar store lawn chair after the mkt lost 20% in the Fall of 2018 (10 yr Treasuries had barely topped 3% then).
In a lot of ways the Fed has made itself into a one trick pony (this pony has one trick) and despite inflation now, it is hard to be confident of the Fed showing backbone/adaptability today…after 20 yrs of demonstrating their opposite.
I wouldn’t be surprised if the fed changes its inflation target to something higher so they can avoid interest rate hike or qt. They’ll come up with some bs about the transition to green energy, post Covid life, growing population, etc as a reason for the “natural” rate f inflation needing to be well above two percent.
“You don’t fight the fed.”
OK to fight the BOJ who said they will ignore economic realities and buy all the ten years necessary to keep the rate at .25%?
Central bankers ignore economic realities. (transitory?) And when they do, you can call they wrong, and act accordingly. IMO.
The Fed is the cause of all the speculation/insanity. Cranking out money and credit beyond the growth of the economy is criminal.
“Too Big to Fail” would have been a great marketing term for the Dinosaurs when the meteor hit.
So where can we expect a bottom? Dow 30,000? What will the signs be that we have hit it? Once we have hit it and know, how much of the gains following said bottom will we have already missed?
It’s not the bottom you have to worry about but bumping along the bottom for thirty years like Japan…..
“Bottom?” This thing is just getting started. How about DOW 7,500?
Depends how far in the future.
Ultimately, a lot lower than 7500, though it may be in price adjusted terms.
Look at the S&P 500. A 14% decline isn’t anything out of the ordinary historically but the dividend yield on the SPY ETF today is 1.41%.
If it were double, it would still be historically low, compared to what is actually normal pre-late 1990’s.
Low interest rates (the bond mania) have only been one of many rationalizations for the stock market mania, all under “it’s different this time”.
With rising interest rates, “investors” are going to “break-up” with TINA. The romance is on the way out.
The presumed end of the bond bull market means that interest rates are on a multi-decade path to blow right past the 1981 high.
Since the actual long-term fundamentals totally suck, there won’t be anywhere near enough real growth for dividends to be even close to competitive with much higher rates.
This is only one many negative fundamentals coming up. The rest have been in plain sight but ignored for years because that’s what happens in manias.
All the shortcuts and free-rides taking have piled up like a mass of junk in a car’s back seat, and suddenly the brakes are hit and all that stuff comes cascading chaotically into the front seat ….
Agreed! We’ve got to find that lurking recession before we start worrying about a bottom. Let JPowell get the funds rate up to at least 2%, let him run off about $800B from his balance sheet, and have housing decline 5-10%, then I might pop up a look around for a bottom. Until then, it’ll be a long slog downward.
A bottom..
Maybe when the CAPE ratio reaches somewhere between 10 and 19?
(right now, even with today’s decline we are still at a nosebleed 32)… so a very long long ways down still to go..
Of course if the fed chickens out, pivots and decides to starts printing again, then all bets are off, its ‘to the moon’ again.
Its depression, but it really is all in the Fed’s hands now, with all the QE and interest rate suppression, it has become a command-and-control stock market, not a free market given the fed’s hand has been massively tipping the scales since 2009.
The bottom will be whenever the FED decides it is the bottom and restart QE and printing again… that could be in 6 months, or could be in 5 years.. who knows..
Thats a whole lotta faith in the Fed.
But the Fed cannot beat reality – the Fed is finished.
First goes the petrodollar as commodities get tied back to gold.
Then its hyperinflation in the US.
Grab some popcorn, and watch the Fed try and control the price of money then.
Everything points to hyperinflation starting early in 2023.
Nah, but everything points to much higher interest rates in 2023, and much lower asset prices.
No hyperinflation in the US by the standards usually used here anytime soon, not even close.
It’s never happened – not even once – in any country where the majority of “money” is actually credit. That’s the reality.
Every example typically used here (like Weimar Germany and Zimbabwe) didn’t have a functioning credit market.
That’s why they printed. There is no point in destroying both the currency and the credit market when interest rates are so low. It’s idiotic and no central bank or government is going to voluntarily do it.
Somewhere below 1500 on the S&P 500 and 4000 on the NASDAQ, without a severe recession. Lower than that with one.
4000 on the NASDAQ ha ha ha Tell me you don’t know what you’re talking about without telling me you don’t know what you’re talking about.
Tony,
You may be too young to have been around during the dotcom bust when the Nasdaq shookalacked 78%.
So let me do the math for you: if the Nasdaq shookalacks 78% again this time, from the high of 16,212, then it would kapfloomph to 3,564.
Wolf:
Good, very good to see you have grasped and understood the wonderful inputs from MAD magazine to which I subscribed for many years AFTER leaving my teens…
Too bad it’s gone, far damn shore…
VintageVNvet
Just acquired a copy of “Spy vs Spy: The Complete Casebook” (classic). P.S. “Dead Cat Bounce”, my favorite stock market term. (no offense to any cats out there reading this).
Your arrogance shows your ignorance of economic history and how the world actually works.
Tony… don’t let the Doomsayers get you down. In 1999 the P/E ratio for the NASDAQ was 175X and for the NASDAQ 100 it was over 100X. Currently those figures are 22.6X and 30.01X.
That said, the likelihood is that the FED will drive prices lower as it snuffs out inflation. Valuations are still well above their historical averages. So now is a good time to lower your exposure to the stock market.
> So where can we expect a bottom?
That’s the 64 trillion dollar question. Guess it right, and have cash ready for it, and you can be comfortable for a long time.
Is it 1987, 2000, or 2008? Or (gasp) 1929?
I don’t think it is 1987, or 2020 (stark v-shape, with Fed put). But every time has a few different factors.
Who will step up? JP Morgan (the man) is dead and now, maybe the fed is, functionally. Musk is no JP Morgan.
“Is it 1987, 2000, or 2008? Or (gasp) 1929?”
Or is it Janet Powell morphing into Irving Fisher before our very eyes?
Stay tuned ……
The current environment is a lot worse than 1929.
It’s the worst in the history of the country. It’s just not evident yet to most “investors” because it never is at market tops.
The grasshoppers are desperate to get out and dance in the consumer sunshine. I am with the ants, scurrying around the bunker, tightening down and storing resources.
The stock market will retrace two thirds of its losses later this year. They’ll lie about the inflation rate leading into the midterm elections and the U.S. dollar will fall. August to the end of December this year should do well. I would take profits long at the end of December. Long term the U.S. dollar will rollover and die. The stock market long term will only go up because of a dollar collapse.
Tony, I love that at least someone here isn’t all gloom. Historically, I know how to tell we’ve hit bottom. It’s when I chicken out and increase my cash position, and thereby start missing the gains. I agree with everyone else here that things are extraordinarily bad. I just think the Fed will start printing like crazy to try to monetize into a soft landing.
About 1/2 through a recession.
DOW 31,732 or DOW 31,688 and a rally to DOW 35,371 by the end of this year
Brian Hill,
“So where can we expect a bottom? Dow 30,000?”
There are people who still have a “DOW 10,000” hat somewhere in a drawer, and some of them fear that their hat might become fashionable again :-]
During the dotcom bust, the Nasdaq plunged by 78%.
Agggghh. With DOW at 10,000 and the inflation at the grocery store, my retirement portfolio might be able to buy me dog food :P — if I am lucky, I can get the free-range stuff for older dogs. ~Brian
My portfolio is key word. Whomever lost on a portfolio? No one, that’s who.
Anyone who hasn’t moved their retirement equities mostly into cash is playing with fire.
I would guess the most near-term bottom will be where the bottom was in March of 2020. When we get there, I have no idea, but I won’t be buying until then.
Agree with you YW, but only in the short term.
Other than short term, with the fundamentals SO sorry, as many on here have commented:
Dow below 18K, S&P 1500, nas ducks, don’t know because never existed in the decades I was ”investor” in SMs before getting out when realizing that NO Matter what I did, the SMs were going to do ”their thingy” to my clear detriment as a small investor, etc., etc.
Mine too. March 2020 is the nearest strong support technically.
It’s also potentially “cheap” enough based on the currently inflated fake lagging fundamentals to attract a lot of “bargain” hunters.
My broker manages over 6 Billion, so he’s a man to listen to. He said last week that if the S&P broke through 4170 it had a further 3-8% downside. Thanks to his advice I’m sitting on a pile of cash waiting patiently for bargains.
8% below S&P 4170 isn’t even close to a bargain.
It’s still a moon shot nose bleed level.
Ask your broker what HIS investments are in. I’ll bet he says real estate and treasuries.
Secular bear markets last 1-2 decades: 1929 & 1969 are the two others in the past century.
More like Dow (DJIA 30) 3,500.
Bottom? In 2009 it was when Warren Buffet bailed out Goldman Sachs — almost to the day. The gov’t bank bailout was 4 months earlier. Right after that there was another rapid move down in stocks.
This time I think it will be when rate hikes slow the economy down enough that inflation is back around zero.
Good thing I own a few shares of SARK. That has to be the most hilariously appropriate way to short this ridiculous casino. Cathie is getting a bit long in the tooth, but still has the stones to appear on CNBC.
CNBC will buy her lunch to be interviewed. Plus pay her travel expenses.
A guy I know, that is now long dead, was interviewed on CNBC years ago about the amendments to the Clean Air Act. That’s the comp.
Plus talk condescendingly to her. I’ll give her this much, she is quite brave and doesn’t get flustered by the bullying I’ve seen of her on CNBC. Sarah in particular must be hard to answer but CW does act with grace under fire.
I just wish she’d revisit her convictions a lil in this market and help her shareholders money from plummeting on the daily. There are some ways she could improve performance.
The darlings are being escorted out into the street after the night of hard partying.
Breathtaking. Amazing what a difference six months has made. Regime change?
Financial scandals next. Those swimming without gear are tossed up gasping on the beach. Politicians will pontificate.
Even a few who seemed to walk on water (or at least talk in ponderous Zen koans) may be struck by lightning. I just hope the popcorn isn’t popping for me.
Ask not for whom the corn pops. It pops for thee.
Plunged, dipped, sank… Wolf is a great writer but he needs some new descriptive words for these chaotic markets. Here’s a few possibilities coined by the late great Don Martin, cartoonist for the late great Mad magazine. Microsoft stocks Skazooched today while Amazon went Thwak and Intel got Skazooched. Meanwhile, GE Shares Gaplorked early before Glinging, then ending with a Ploof! Tesla rolled over with a Gaggak-Thoof and then from there it was pure Foomadooma. As for Meta, Gaah! Spoosh! Thak! Judging by after-hours trading, tomorrow looks like Splabadap day for the DOW.
Sorry, it’s late.
All new to me – Brilliant onomatopoeia.
I’ve always wanted to use that word!
Actually that was great DB. No apology necessary. I remember Don Martin but hadn’t thought about him or his cartoons in a long time. This skazooching is just getting started. The market will continue to go THWAP!
Don Martin! Yes. And the great Gahan Wilson. Both back in the day.
“Poit” – best Don Martin descriptive ever. Saw it when I was like 13 years old. I felt so dirty !!
We can give Cramer some new sound effect buttons. One sounding like a world of tinsel and razzle-dazzle melting and falling off a cliff ….
Faceplant. Nextsplixed. Mrsofty
Nvdiblah rottenaapled ENRONED
AmaDone? And the new verb my trader friends use. You have been
Toonced! I shake my head at oooo
14 % down. They forget the 100 percent up in 18 months and the
700 percent lift in the last 12 years
Of fed engineering. Moral hazard has a steep price
Spiltkuppad may work best over here in the UK.
“Dip buyers that didn’t get out of the way fast enough this year got carried out on stretchers.”
Hilarious stuff. Wolf could do stand-up.
In April 1981,
Dow was 777, gold ~ $800, silver $50+, 10 year Treasury 15.4%, dollar unquestionably the world reserve currency.
Fast forward 41 years to 2022:
Dow 32,882, gold $1896, silver $23, 10-year 2.89%,
dollar sort of the world reserve currency.
Fast forward another 41 years to 2063:
Maybe, not out of the question, that–
Dow 777, gold ???, silver ???, 10 year Treasury 15.4%,
who has the world reserve currency?
gold price has been illegally manipulated for a long time, on behalf of the dollar
Look at what gold buys in tangible goods. It isn’t relatively cheap, not even close.
The ridiculous supposedly unmanipulated prices I infer from your sentiments imply that it should be possible to buy tangible goods (like cars and houses) for a small fraction (in ounces of gold) versus any time in the past.
As an example, the average priced car now sells for somewhat more than 20 ounces of gold now, can’t remember exactly. This isn’t out of line with what it took to buy a Ford Model T prior to 1933. I think the low was 13 ounces in 1926 but it had been noticeably higher earlier even after mass production started.
Regardless, the modern car is a lot better than any Model T.
If gold is worth $5K or $10k because this supposed manipulation ends tomorrow, this means it will be possible to buy a car for four or eight ounces.
Gold is expensive historically, a psychological premium. An argument can be made that it deserves an above average premium due to the credit mania but claiming it’s significantly underpriced isn’t supported by its historical relative value.
Oh yeah? How much is pristine condition Model T today?
$13,000 for a 1927.
Hopefully by then everyone will be imprisoned for creating ponzi’s not just Bernie Madoff. Ponzi’s destroy the world and the future. Over the last 14 years we’ve seen what ponzi’s accomplished.
There really is only one question left at this point: Who’s gonna blink first, the BTFDers and “VTSAX and Chill” crowds or Chairman Powell? All else is practically irrelevant.
Powell has his eye on inflation and protecting the US dollar as a viable currency at this point, not on bubble stock prices. Speculators are on their own. The Powell Put is gone.
For once I agree 100% with you.
I had a bunch of errands to run yesterday and it was like a scene in a movie. I saw a few houses I was interested in go up for sale. Checked them online, sold in the 2010s for all around 150-250k. None of them less than a million. The most obscene: tax appraisal in 2018 for 89k. Sold in 2015 for 150k. On the market for 1.35 million. Needs some minor work as well.
Literally every single place I went in the chattering and gossip of the people were about renters getting shafted for 1k month rent increases, landlords going to month to month rents since they are selling their properties, people talking about spending 40k dollars on off road UTVs, middle aged housewives besmirched with a shit eating grin bragging about their house being their ticket to retirement at 50 years old. All three people adjacent to me at the barber shop bragging about their new toys, how much everything costs (woe to them of course) and the housing market they’ve gotten rich off of.
Meanwhile my company (service industry trucking/contracting) is being beaten and flogged to the point I’m down from 50 hours a week on average last year to 25-35 hours. Stock market getting their comeuppance. Housing market seems to be at critical mass.
The masses are still gobbling away at the trough but there isn’t the farmer dumping out bags of feed on their head anymore. They’ve yet to realize what is soon to come. The Fed is backed into a corner, they’ll save the people that matter to them, us peasants wrapped in our gold dyed linens will be swept away once more. If only I was lackadaisical enough to enjoy the party while it was going. Oh well, at least I won’t cry when the repo man takes my 2023 model V8 12mpg diesel dually and 1.5 million dollar starter home.
@ Trucker Guy –
Where is this market you speak of?
Relative appreciation is an interesting thing to watch. Sounds like the market you discuss went up between 4x and 6x since 2010. California, which was once a highflier, didn’t go up nearly as much. Lakewood, CA hasn’t gone up 2x in that time period.
North Idaho/Spokane area.
Most of the counties locally have seen steady 30% gains each year with some hitting 40% according to realtor/Zillow data which should probably be taken with a grain of salt. Realtor shows Pend O’Reille county WA at 74% year over year.
Of course that is just the general market. I only look at the low end. Such as trailers, cabins, and general crap shacks since I live alone and won’t have a family, I don’t want more than 2 bedrooms.
Said shit holes have tripled or quadrupled in under 5 years. It’s a hot trendy area. There’s no reason an 1890s cabin that is off the grid with a blue tarp on the roof and the foundation is literally stacked up rocks should be selling for 250k but hey, I saw a bidding war on one last year.
It’ll will crash. It has to. Given the brain power of the local populace up here; sound financial decisions are few and far between. I wonder if there is regional data on ARM mortgage usage.
But yeah, people saying housing had doubled in a couple years aren’t capturing the whole story. As Wolf has shown with construction, the lower end has been gutted. So what little is left for sale on the lower end is insanely over priced.
If anyone was to buy in this market, you’d be a fool to do so, but even more of a fool to spend 400k on a trailer in the boondocks when you could spend 600k and get at least a house on a slab near town. But, people buy based on monthly payments. I’ll keep sitting on the sidelines.
My FOMO and emotions make me annoyed with the situation but I think about turning loose a down payment on something 4x over priced with the subsequent decades of payments and I feel like vomiting, then I get the warm cozies knowing I have no skin in the game.
With the new rising rates, I’m priced out of the market now anyways. Nothing I can do but hope it crashes. If it truly is different this time I’ve already missed the bus due to my age and the opportunity wasn’t there to begin with. I have a CDL, have been homeless, have lived out of vehicles, have money in the bank to last for a few years without working, have nearly no possessions. Something, something you don’t lose the game if you never played it to begin with. The collapse of the consumer economy doesn’t hit you hard if you aren’t a part of it. I’ll be fine, and in the 99% chance it all comes crashing down like it always does, I’ll be like a vulture ready to feast on the corpse. Being a truck driver, I already smell like one and am antisocial. And truck stop food is about on par with rotting carrion.
@ Trucker Guy-
Thanks and good luck to you.
A lot of the price-rise has been from Californians cashing out and moving north. But the root cause is the FED/Banking cabal in there continuous effort to make us all debt slaves.
As the prices in Oregon and Washington have moved up, a lot of Californians are looking to other states. I now hear a lot of talk about Texas and Tennessee.
@Trucker Guy, Spokane has one of biggest RE bubbles in the entire country. However, inventory is up nearly 50% YoY in a matter of weeks there – also one of the highest stats in the country. Seems like the rats are jumping ship. So hang tight, wouldn’t surprise me if is one of the first markets in the US to crash.
Trucker Guy,
What’s going on in trucking industry these days? I’ve heard tons of new authorities being granted in past few months and demand has gone down.
What is that doing to prices in your industry these days?
Thanks for the insight.
I know two mid twenty people looking to buy their 1st home over the past year.
One has bid on 16 homes. Current house is priced at 350k. Relator said to bid at least 50k over or you will not get it.
The other person has bid on 5 homes. Just lost out on a a $245k home after bididng 264k. She was told she was not even close in the running.
Both are getting totally frustrated.
Mr Wolff comments about Ms Woods being right and sellers of her companies wrong sounds just like 1999 dot.com bust talk.
I would consider myself a terrible investor very fearful and not seeing trends.
I don’t understand the USA ability to maintain and grow economy over a 40 year period with a few recessions along the way with rural America and industries moved overseas over time.
Maybe the debt bubble and the fact that irrational behavior can last a lot longer than I can imagine.
I want the future to be bright for my children and grandchildren with cheap energy and housing and opportunities in abundance for those with the fortitude to seek out those opportunities.
Having witnessed in awe as Mr. Wolff has provided in his info feeds of facts the greatest transfer of wealth ever witnessed probably for centuries.
I have frequently been told that if one gives 1 million to the masses that money will end up in the hands of the rich which this latest “most reckless FED ever” has accomplished.
Thanks again for the facts!
> irrational behavior can last a lot longer than I can imagine.
Welcome to the world as I fundamentally see it: at its core, one succession of that after another. It WILL last longer than I can imagine, longer than my life (or anyone’s).
I can think of two thought regimes: one the US postwar view (I was raised in) which expects a sort of rationality from the world and a march of “progress” (and is urged by our instincts, on the road to having children, hopes for them, etc.). The other, I think people right after WWI experienced, maybe Vietnam war, and to some degree me, was, irrationality is the core reality. Chaos of any duration and intensity is possible. And at points, impenetrable: inherently incalculable. As thinkers, Mandelbrot and Taleb go there.
I am long volatility. I make money when the chaos happens, like now.
How do you go long volatility?
VIX ETFs
ARKK is the equivalent of a bad bank.
I told everyone to buy the inverse ark fund when it came out. Timestamped. Like I said those fake apple earnings even to this day irks me. I took every variable into account worldwide and their earnings should have fallen 12 percent for the quarter.
ARKK is just a very bad and volatile ETF (Extreme Trash Fund).
Apple is like Tigers Woods in golf. He gets all the drops other players would never get you know behind a tree and some fake drop and what do you know no tree. Same with Buffett just because of his name. I know Apple’s first quarter earnings earning were bogus. Everyone and their mother knows it. Everyone is asking themselves how could that be after their earnings were released? Corruption to the nth degree.
the only question that matters is; will the fed defend the dollar and let everything crash or will they punt and start printing again? If Powell and Co. have bought into Schwabs great reset where” you’ll own nothing and be happy”then maybe they will let everything crash and bankrupt the over leveraged .If that is so then they must crash housing as that’s the most leveraged. Hence rates will go higher than most think.
I have been actually thinking about it… don’t have a definitive answer, but it certainly smells of it.
The Fed has no interest in abolishing the $, not until they are ready for it, and they are not. It’s their monopoly.
So rationally you would think, the housing can go to hell and everything else. Things will get cheaper then they start printing the $$$ again and buy it the dip or whatever you want to call it.
What a shame that the sole question and focus isn’t, where will the next productivity come from?
Are we that far gone?
How will the governments of the world pay the interest on their national debts, if interest rates double? Sanctions and conflict brought chaos to the energy, fertilizer and grain markets.
David Hall,
The higher interest rates apply only to newly issued bonds. The existing bonds won’t change until they mature and need to be replaced. All those 30-year bonds out there with their low coupons won’t change for many years, same with 10-year and 7-year and 5-year notes with years of remaining maturity.
Only about 13% of securities outstanding are short-term bills, and their interest rates will change roughly with the rate hikes.
So at first, there will be relatively little impact. The big impact on interest rates immediately is the surge in the overall debt!
Thanks for the response.
Thirty year mortgage rates are 5.4%. Most people will sell their homes and pay off their mortgages in less than ten years.
Some corporate or muni bonds are callable and will be paid off before their maturity date.
On the other side, the effect is the opposite, though. If/when inflation returns to more moderate levels, governments will be paying higher rates on older debt.
SS: The foreclosure avalanche has started with 181% surge to highest levels since March 2020…
In March 2022, foreclosures surged 181% to highest levels since March 2020, with Chicago, New York, LA and Houston lead the pack. Some eight months after a nationwide moratorium on foreclosures expired, foreclosure filings soared to the highest level since 2020.
Last month, 33,333 properties across the US faced foreclosure, a 181 percent jump from March 2021 and 29 percent pop from February, according to a report by foreclosure tracker Attom. The first quarter saw 78,271 properties with a foreclosure filing, a 39 percent from the previous quarter and 132 percent from last year.
SoCalBeachDude,
“The foreclosure avalanche has started with 181% surge…”
You clearly just read a headline without looking at the actual data. The data comes from ATTOM, and I get it in the email.
This surged was from record lows (near zero) and foreclosures are still near record lows.
So patience! Foreclosures won’t be a problem until home prices sink enough to where troubled borrowers can no longer sell the home and pay off the mortgage.
Right now, with home prices having spiked this far, borrowers who cannot make the mortgage payments can sell the home, pay off the mortgage, and walk away with a bunch of cash. So those foreclosures that are taking place are very few and are special cases.
“Foreclosures won’t be a problem until home prices sink enough to where troubled borrowers can no longer sell the home and pay off the mortgage.”
Which may not be very long at all. Because I think the first foreclosures will be the most recent buyers who did the dumbest thing ever and bought at the pinnacle peak of the biggest real estate bubble in history. I can imagine vast swaths of them being 20% underwater in a matter of months. #gettinguglyoutthere
Being underwater alone is not a problem, just numbers on a page.
Well, until someone loses a job….
Those recent buyers won the house contest though 🤣🤣🤣
DC : “Foreclosures won’t be a problem until home prices sink enough to where troubled borrowers can no longer sell the home and pay off the mortgage.”
Don’t worry the Government can buy the foreclosures up for all the immigrants coming and get them Jobs and food stamps & save the mortgage lenders from embarrassment and invites to
Hi End Events and drinks with the fed at the watering hole
While still low as you stated, there was indeed a 181% surge in foreclosures just as that article stated.
Jim Cramer will be sh$iting in his pants Monday morning as he has to explain to his audience why he has been so wrong on everything, especially tech stocks. He may have total diahrea, and will be advised to bring a change of pants just in case. He was on yesterday telling his audience on CNBC that the Fed was not responsible for inflation. What a f$ckin moron.
Cramer has been through this rodeo before. I imagine he sleeps like a baby. Has the ice veins of a true huckster. He’ll always just wave his hands and redirect toward the next big thing, and never admit he is wrong. Those types seem pretty prevalent as centers of attention (and, shudder, “leadership”) these days.
Behind every such “leader” is a fanboy cult.
Misread it at first as a ‘fanboy clit’ and somehow it served the context just as well.
Yes he doesn’t strike me as a guy prone to being plagued with guilt and remorse.
Anybody whose mouth moves faster than my ears can listen and comprehend, I tend to ignore….
Hence my preference for written word…
COWG,
Agreed. That is one reason, in part, why I don’t listen to podcasts.
I’m probably the only one here who was banned from the library in the fifth grade as I read too much. It is nice to hear there are others who like the printed word over a nonstop talker. As for Jim Cramer I have never understood his draw. Anyway thanks to all as you send me to the dictionary and to an acronym site to understand some words.
I watch Cramer as sheer slapstick entertainment, as a contrary indicator, as a sign of how ludicrous modernity has become. He is buzzing around like an insect sped up.
Cramer invest his money in index but shill stocks to earn his money
5 million a year ,yes man to cnbc
Just like FOX, masses looking for confirmation of what they already want to think and hear.
I’m fascinated by so many of my otherwise smart friends and family who are shell shocked that the market is dropping. They didn’t listen to me for over a year saying that valuations were grotesque, but were convinced it would just keep going up.
Same goes for housing prices, no matter how often I explained basic math around interest rates.
I don’t understand how this collective delusion took over so much of America.
Indeed, all to many people are entirely lost in hopium fantasies and delirious and inane false perceptions rather than dealing with actual real fundamentals such as PE multiples and mean pricing. No, folks, it’s not different this time!!!
The delusions come straight from the top. The USA has been borrowing and spending like a drunken sailor for 50+ years on the back of the dollar printing. When that ends, America will come back to its senses.
Neural chemistry. “Success” mutes the risk response. Source of many a great cartoon. Maybe based on being engineered as energy-conserving (i.e., lazy): when stuff is (seemingly) good, I don’t work so hard to look for bad. I eat everything I can find and spawn offspring. Life looks like a big buffet and frolic session. Until it looks like a hall of whirling knives.
This is ~correct.
It is intellectual laziness and greed.
Then, when they know better fear. Like deer in headlights.
…and so rolls the wheel of human history…
may we all find a better day.
“ I’m fascinated by so many of my otherwise smart friends and family who are shell shocked that the market is dropping. They didn’t listen to me for over a year saying that valuations were grotesque, but were convinced it would just keep going up.”
Fascinated !?
Hell no, not me…
I’d be taking inventory of all their crap to see if there was anything I wanted…
Have discussed the fancy stuff we want to pick up from liquidations. We are expecting some deals.
There’s going to be a fire sale on RVs, trailers, cars, trucks, boats, side-by-sides, snowmobiles, etc. Due to medical regulations, some consumer items cannot be re-sold, such as chest “enhancements” and tooth veneers.
RVs and boats seem destined for a scalping. Both require excessive amounts of fuel to use, and extremely high maintenance and storage costs.
Sell the RV’s and trailers? Where are they gonna live after the foreclosures?
Giant liquidation sale. Everything’s gotta go. How low does it go?
All of the pandemic gains in stocks and RE will be wiped out, guaranteed. How far below that we go remains to be seen but it will be significant and painful for many. Lots of layoffs coming too.
On important matters, it’s ultimately because most people prefer to remain ignorant and/or believe a lie.
The unpleasant truth that their life is going to be turned “upside down” financially is contrary to their personal preference.
Even here, plenty of sentiments that financial markets are going to tank.
It almost never translates into posters acknowledging that there are going to be noticeable tangible declines in most people’s living standards.
It’s Even the minority view of the end of the mania is overwhelmingly in the abstract.
Einhal
The American people are by and large Lemmings. There was an old video game in the early 80’s by the same name. I used to play it on my Apple IIe. They don’t read history books or read any books at all for the most part. They have no ability to do independent critical thinking. They parrot all the bull s$it that they hear from the mainstream media, corporate hucksters and financial advisors. They make their investment decisions based on all of this faulty information. When they lose their money they will all sound like whining dogs.
It is amazing to me that nobody in the establishment-pandering financial media doesn’t seem to understand that these are short covering rallies on the way to a grinding re-setting of equity valuations.
Yes but the real question is: are we going to see a Y2K type Nasdaq retracement? I recall it was something like 5300 to under 2K.
And the DJI went from ~8000 to ~12000 and back.
The only thing I don’t understand is why the dollar is so strong…
Don’t know about Cramer the clown but there will be many still to happen Depends
Moments for retail investors Might be a good time soon to buy alcohol and MJ stocks ;)
I’ve stocked up on the booze miniatures. If barter becomes popular you can barter the minis easily.
OTOH if you have a fifth you’ll need to sell it in its entirety because no one will trust an opened bottle.
I think the miniatures will be more fungible. And if things never get that bad, you can drink the booze. I considered tobacco but it goes stale and I don’t smoke.
Anyone can grow MJ. It’s a freaking weed that grows anywhere.
That is the great thing about booze- unopened, it lasts as long as you can live.
booze can and does ”evaporate” through the cork, even with all the modern plastic in place…
seen in recently with a bottle that goes to the one last standing of the three musketeers of my two best friends from 6th grade
holder sent us current photos after someone commented the bottle looks like it has lost some in the last couple decades
NOT suggesting anyone should drink it sooner rather than later… LOL
I had full size Absolute bottle for few years, but when I eventually decided to drink it, I found the about 1/10 of it had evaporated. I suspect that manufacturers don’t seal them for such a long storage. I suspect your minis will suffer from the same problem – unless you find a way to completely seal it.
Otherwise you advice is good – minis will indeed go well in barter trades IMHO.
The bottle of my favorite bourbon has the same issue. That stuff seems to evaporate through the glass. It’s down to one-third now. I’m shocked, shocked, shocked that there is evaporation going on in here! Everyone out at once!
Don’t buy in plastic bottles,they begin to leak ,also keep them out of sunlight
Yeah Wolf, my bottle of rum seems to be doing the same thing. Hahahaha
Cmoore,
I agree! And why the Euro is falling against it?
Cleanest dirty shirt.
So when the cleanest dirty shirt is on fire, what then? Break out the mini liquor bottles and MJ inventory?
But yeah, China looks so weird and messy right now. Capital flight there, Xi getting sclerotic and weird? Europe hanging on by its fingernails. The yen going down ….
Cleanest of the dirty shirts I guess?
If by dollar you mean DXY, it’s strong because it’s a relative measure against other currencies while the CPI is effectively the measure of the dollar vs goods and services. The DXY is mostly comprised of the British pound, the Euro and the Yen. Eurozone is experiencing pretty bad inflation and they’re still printing. The bank of Japan came out Thursday and said they will print to infinity and beyond.
The dollar will continue to strengthen on the DXY until these other central banks reverse course. The DXY strength is a very bad thing for the global economy and that in itself will most likely cause a global liquidity crisis.
Exactly right. The stronger the dollar gets the closer we are to a true crisis. Currency traders apparently believe that Jerome is going to battle inflation. I think he raises rates a few times before the economy goes under and then he stops or retreats completely.
Do you suppose he has had a clean backup plan worked out a long time ago? I mean what are his probable retirement and chill options. Genuinely curious.
I want the USD’s exchange value to absolutely soar.
I see it as the last chance to have the option of maintaining purchasing power elsewhere outside of speculation.
Haven’t decided where I might or can move yet though.
Yes, cleanest dirty shirt. I looked at it and can confirm: it’s filthy and it reeks, and it has this horrible ring around the collar, but then I looked at the NIPR-and-nutball currencies (EUR, YEN, et al), and I had to call in the bio-hazards team to remove them.
Is that DXY or your laundry? 😛
There is no other currency that can even remotely challenge the US Dollar and that is becoming more the case every single day.
Have you heard that central bank of Israel has reduced USD share in their foreign exchange reserves ? And Israel is a very close ally of US. Perhaps this fact points to the fate of USD in the future – it will remain the dominant world currency but its share will be declining more and more.
Hmmm, I’m wondering which currency they chose to replace there USD reserves?
British pound, Australian dollar, Canadian dollar, yen and yuan.
Japan , Euroland and Britain are dependent on energy and food imports , which are going to be short supply because of the sanctions regime vs Russia. The US is a large food and natural gas exporter and only a small oil importer
Defense spending in Euroland is going to explode. The US is a large exporter of weapons
dollar is strong because us is raising interest rates compare to Europe or Japan.also some capital is fleeing to US from Europe because war.it is really simple and looks it can continue for couple of years or so .you can expect much stronger dollar before gets weaker.
It depends on the currencies we’re comparing the dollar to, it’s going up against some but falling against others. A big chunk of the overall DXY gain is utter collapse of the ruble and almost all currencies are appreciating a lot against it, and that distorts total numbers and relative comparisons. Then the BoJ and ECB are not yet raising rates (QE still ongoing) and BoJ still committed to very easy monetary policy compared to the rest of the world, deliberately to stoke inflation. If anything dollar is gaining much less than what I would have expected vs yen and euro given that difference, it’s gained by not really all that much. (The energy prices in Europe issue is a red herring–Putin’s bungling mess is causing food and energy prices to rise everywhere including in the USA, and since Americans do much more driving and eating–all that obesity–than Europeans, if anything the total food and energy inflation is hitting us harder, it’s a global pool for those commodities.)
But the USD is falling against some other currencies. South Korea’s central bank has been a lot more aggressive in fighting inflation so the won is doing relatively well. RMB is up and down but China has been tougher about inflation fighting for the yuan. Then of course Canada and the Bank of Canada ahead of us with that 50 bp rise. Nothing too mysterious about it. And in general with this inflation the true purchase power of the dollar is falling fast relative to things like commodities in general.
Miller, be careful who you call obese. According to the CDC:
The US obesity prevalence was 42.4% in 2017 – 2018.
From 1999 –2000 through 2017 –2018, US obesity prevalence increased from 30.5% to 42.4%. During the same time, the prevalence of severe obesity increased from 4.7% to 9.2%.
Obesity-related conditions include heart disease, stroke, type 2 diabetes and certain types of cancer. These are among the leading causes of preventable, premature death.
The estimated annual medical cost of obesityexternal icon in the United States was $147 billion in 2008. Medical costs for people who had obesity was $1,429 higher than medical costs for people with healthy weight.
So, almost half of the Wolf St. readers may be obese. We can thank McDonalds, et al and remember that the wonderful Mr. Buffett and Munger own scads of Coke, Kraft Heinz, Sees, Dairy Queen… they must not lose sleep over obesity.
Good one HN:
Was definitely getting to the obese state at end of 2020 called ”covid fat” by the better half!
Book at local library, ”Fast, Feast, Repeat” was SO good I ordered half a dozen to share, and took the suggestions to heart: lost 25 pounds in 2021!!!
And now, slowing down the losses, aim to drop ONE# per month in 2022 and am on track, so far..
It is definitely a really really difficult challenge for those of my ”elderly” years, far shore.
Good luck and God Bless to all.
You have it backwards. People aren’t obese because Kraft, Dairy Queen, etc. are everywhere. Kraft and Dairy Queen are everywhere because people are obese. America has an obesity culture.
Body mass index is not accurate for all. Some athletes with very low fat percentages, but high muscle mass, calculate as being borderline obese.
But in general, adults in the USA do not have good fitness or a good ratio of muscle to fat. There’s a Mickey D’s by my home and I ride by it on my bicycle frequently (Coming home, at speed, when the wind is SSE). The drive-through is always, I repeat always, backed up, and cars exit to merge onto MN Hwy 55 next me, I see the reality of many people’s existence. It ain’t pretty.
“Judge not, lest ye be judged.” I have heard it said … But to be honest, these drivers look like they are moving towards death as fast as I’m riding. To each their own, eh?
The USA is fat with debt, fiscally speaking. I do judge that with disgust and contempt.
Full disclosure: I have, in the past, been overweight and not as health conscience as I am now. It is not a sin to be in that state.
But the national debt is a sin. Interest rates have been kept low for many reasons by the Fed, and $3 x 10^13 is one of those reasons. If rates were where they NEED to be now, Uncle Sam’s monkey would not be supportable to be carried on the backs of the citizens of my country.
That pisses me off!
Obesity transfers expenditures from productive things to remedial things. It raises the cost of my being in an insurance pool: it makes me poorer. It burns more fossil fuels and degrades the environment (not to mention all the food wrappers everywhere). I was a smoker, a drinker and other things and I dealt with it the way I regard as the true American way: I fixed it, whatever it took. Without a dime spent by anyone else. I was temporarily somewhat overweight while quitting smoking. I would never talk like this unless I’d been there, or somewhere similar.
Least dirty shirt, Cmoore …
400 PhD’s can surely engineer our Soft Landing. You can’t convince me that these well educated wizards gave no thought to hoovering all that money created during the pandemic. Could Taleb be right?
4000 software engineers surely couldn’t crash a Boeing 737 either….
Jus’ sayin’….
COWG,
That’s what everyone though at first. So, to make a point, they did it again.
Condolences to the Richter family, from a long ago event.
Sometimes, life throws curve balls at you.
Economists live in a fantasy world of economic theories.
As Taleb himself has written!
You should see the Cathie Wood/ARK Invest staff’s posting at their website. Still saying TSLA will eat the whole world at vast valuations. You’d think it was 2020. All made to look neat in a spreadsheet you can download and tweak yourself.
there ”used to be” some rule, similar to Murphy’s, etc., that went something like, ”the intelligence of any group goes down according to the inverse of the number of people in that group…”
4 some reason, it certainly appears to be continuing to be true, no matter what ”advanced degree” people may have actually earned through rigorous academic focus and productivity.
and will always remember reviewing a hundred or more ”monographs” approved for PhD awards, almost all of which had ”conclusions” that were absolutely NOT supported by the so called research data IN THE paper…
This was over 50 years ago when there was still at least some semblance of ethics in most universities.
VVNV-well said. my observation has been that true ‘hands-on’ experience has been culturally devalued to the point where it’s something to be avoided at all costs and, if absolutely necessary, shoved off onto someone/somewhere else (hearkening back to the ‘American Vision’ of the ’90’s where services could and would replace our actual industry because we owned and would always maintain our lead in ‘intellectual property’ going forward…).
may we all find a better day.
No, 91B20, it wasn’t different long ago. Read Thorstein Veblen’s “Theory of the Leisure Class”. Manual labor was always derided. Did the Pharaohs have a hand in building the pyramids?
How-good point re: Veblen, but for a brief moment in the U.S. emerging from the Gilded Age to around 1980 when organized labor seriously began to disintegrate and it was felt EVERYONE needed to go to college in order to make a decent life for themselves, ‘working-class’ wasn’t a perjorative…
(when i say ‘hands-on’, i mean actual, floor-up working experience with that which is being administered/managed, be it the trench being shoveled, what passes the retail counter, assembly of a vehicle, industrial corporation, et al…).
may we all find a better day.
How-…have always wondered if the Pharoah’s ‘help’ pool might have been smaller/less-willing if mass entertainment existed?
again, a better day to all.
91B20, there’s a story that the workers on the great pyramids actually felt “blessed” and joyfully did the work. Undoubtedly there were many slaves (if not all of them, actually), but many may have been conned into thinking they were serving their god.
I get your point that the college degree may have partitioned “hands on” work from managerial fluff or financialization.
Quit using big words like ethics. No one knows what you mean.
There is no “master plan”.
Having a PHD doesn’t mean you have a clue how the real world works.
There is no evidence whatsoever that these supposed wizards can successfully “manage” any economy.
Their impotence will be blatantly evident when market sentiment turns completely against them. No one ever makes equivalent claims for the wizards running the central banks of a country like Argentina.
The only actual “tools” they have ever had are currency debasement and borrowing from the future. Nothing new about that.
“Having a PHD doesn’t mean you have a clue how the real world works”
Obtaining a phd is a long process that typically requires the immersion into academia, immersion into whatever theories they have at the moment, and (in case of many scientific fields) strict compliance with these theories. This not only prevents phd aspirant from obtaining a real life experience, it actually makes this experience a negative asset for phd aspirant. As a result, many scientific fields today from closed groupthink groups, not unlike religious cults. This sometimes leads these groupthink groups to start a quest to re-do the reality (external to this groupthink group, and contradictory to group’s beliefs) to be more aligned with groupthink groups’s views (not unlike the quest that religious cults often do to alter the reality to comply with their delusional beliefs).
How many PhD does it take to screw in a light bulb?
Answer: due to high cost and low supply, there are no bulb to replace with
Three. One to hold the bulb. Two to turn the ladder.
Everyone misses the elephant in the room, the “man behind the curtain”. This is ALL purposeful managed decline of the dollar as reserve currency and reduction of the standard of living for the typical US citizen. The fix is in for CDBC’s. They desire control of peoples lives they can’t obtain as long as cash is around.
CBDC can arrive irrespective of debasement.
All I see here is business as usual.
Inflation is how the West works. That’s nothing new.
Every cycle the wealthy rinse the poor through privatise the profit socialise the debt, because government enable it which encourages more of it.
But that is the depth of their end game, shafting you for your hard earned and making sure you keep quiet about it.
If enough people cared it’d end tomorrow… but apathy seems ingrained in the USA.
Still too comfortable?
Good article. Interesting that there’s never any comments re Fisher Investments. They appear to be another version of the Fidelity or Vanguard ideas but without their own branded funds. What do they actually do besides collect fees/commissions on account churn.🤑🤑
They run an effective marketing and sales program. That is one thing they consistently do well. Never mind that you could do just as well on your own. Now just sign here……
I see them differently than Vanguard. Vanguard puts you in a fund with expenses as low as they can get them. Also I believe the ownership structure for Vanguard is unique, where the interests of the fund holders are aligned with the managers.
Fisher puts your money in a vehicle where they siphon off 1% of your assets yearly, in advance on a quarterly basis, regardless of how that vehicle performs. Up, they get 1%. Down, they get 1%. In advance.
1) For entertainment only : yesterday SPX big red on the same volume,
a higher low, inside Feb 24 fractal zone, inside Apr 16/20 BB #1, under a flatbed green cloud.
2) SPX dma20 and dma50 will invert next week. No good.
3) SPX weekly : a smaller bar on higher volume, inside a green
cloud. Something is wrong.
options :
4) A bullish option : IMF student loans jubilee (not to Ukraine) might
send SPX higher to wave 2 in the next few months.
5) A bearish option : 3of 3 next.
6) SPY PnF x3, 3.333 accumulation might send SPX to a new all time high, at least 110 points up.
7) We don’t know what will happen next, all we know is that lately :
Everything is “REAL” to bend JP will.
1 through 6 are mostly gibberish. No 7. is the KEY (We don’t know what will happen next).
Gibberish: not to him.
Sounds like the Oracle at Delphi: obtuse and portentious. But there is truth in labeling: “For entertainment only”
I take it in that vein. Like music is merely candy-coated noise, and (per Taleb’s mockery) sports merely tamed randomness.
It seems like the majority of people here seem to have a perverse delight in predicting collapse and asset deflation. Obviously that means that most of you guys don’t have many assets to worry about. But I understand the predicament of millennials and younger here not easily being able to buy a home or get ahead, and asset deflation could be beneficial in the long term. My only comment is: be careful what you wish for.
Hi Tony.
Not taking perverse delight on my part, but it seems that for many acquaintances as long as their financial accounts are doing great, then all is right in the world, no matter how messed up it is for everyone else.
I see that also.
Tony
It’s about evenly divided among the commenters.
Some want a financial apocalypse as ” some men just want to watch the world burn”. You know, financial preppers types.
The rest are the sane ones.
Couple of things. While some of it is pure wanting to see others suffer, for a lot of others, it’s a lot more complicated.
a) There are a lot of people who have seen the American dream being pulled away from them, with reasonably priced assets going to the moon before they were at a place in life to buy them. It’s understandable that those people want an opportunity to buy houses for less than a million dollars for a shack or stocks for less than a 50 P/E.
b) A lot of people, even those who do have assets, recognize that the current situation is sustainable, and want it to correct before things get worse. An asset mania is not an economy, and the sooner it collapses, the better off we’ll be in the long run. These are the “rip the bandaid off” people.
c) A lot of others are tired of smug people bragging about how brilliant they are for having gotten lucky and bought assets right before the Fed started printing. A lot of people want to see them humbled up a bit.
Some people just want the world to be rational.
I’ll settle for less irrational.
Einhal
I think in (b) you meant “unsustainable.” Good descriptive categories. I think I am both (a) and (b) in your categories. As for the smugsters – I have been in that position a couple times and was not a braggart – but I understand the emotional need to be one. Therefore, as long as the smugness is tame, I am OK with those folks. You gotta celebrate your skill…OR….luck.
No delight here.
I just know what exists now is the greatest mania in the history of human civilization. It’s totally obvious.
I also know that the modern world has been living under extended fake prosperity (the entire 21st century) as a result of this mania. There is never something for nothing.
You can do the math from this combination.
The 21st century has been unique in its ability to create this false prosperity in that you had a rapidly growing developing world willing, in the short term, to produce stuff cheaply for the West. You can think of it almost as a form of apprenticeship, in that they were willing to trade their labor for less than it’s worth in exchange for a “seat at the table” if you will. Now that living standards have risen in China, and probably will in India and Bangladesh and other developing nations in the next decade or two, the days of the developing world being willing to fill our gullets with nearly free stuff is over.
This doesn’t just mean manufactured goods, but our debt and currency as well. Once that ends, that means we’ll have to start producing what we consume, and won’t be able to buy it cheaply or borrow the money with which to pay for it.
Einhal, sounds like an imbalance is being corrected. Now, if we can just move forward as a nation, without reinstalling an oligarch, there may be light at the end of the tunnel that we haven’t even had to travel through: until recently, we’ve benefited from the years of cheap labor.
Tony-
Apocalypse narratives are traditional and attractive, and for these reasons ubiquitous. They offer a cleansing of the past, cosmic justice, and an opportunity for rebirth. They exist in a lot of different times and places and fields of study and rhetoric, their form morphing to match their milieu. I hate myself for quoting the Doors, but “… the future’s uncertain and the end is always near.” Narratives are very meaningful to people on an individual basis because they give a sense of order to an otherwise chaotic existence. Conversely, the comfort they provide encourages biased interpretations of new or existing data. It’s getting wild out there, and I imagine it’s going to get wilder by the day; yet, I’ll take the under on an apocalypse of any form – might be the safest bet in history. It feels sad, though, like betting against your team in the big game.
Well said, PP. Lest we forget, in the early years after the crash of ’29 and the subsequent economic depression, the thinking in the upper echelon was confident that a “cleansing” was due. So, the Fed of that time felt there was no need to intervene and wanted to let the “purification” take place.
PPidjun-
“Apocalypse narratives are traditional and attractive…”
I’ve seen it referred to as “imminentizing the eschaton.” Wonder if this executive order remains in effect?
“Following a nuclear attack on the United States, the U.S. Postal Service plans to distribute Emergency Change of Address Cards.”
– FEMA (Federal Emergency Management Agency) under Executive Order #11490, 1969
My issue is that all of this hubris has made things that shouldn’t be volatile, volatile. Housing, food, energy, transportation, etc.
Lauren-realtime physical supply and demand will always induce volatility. How much volatility depends how much societal attention/remedy/meddling is paid to the logistics, from source to end user…
may we all find a better day.
@ Tony –
talking assets, aside from dollars ……………….
Some might have a delight in asset deflation because cheap assets are more easily obtainable. Yes, the less assets you hold the more you might like to see them drop so you can obtain some.
Asset holders benefit from inflation, money printing, FED manipulation and interest rate suppression, and money making money. Hence the average wealth of the 1% at $34,000,000. How much of that is from the manipulation, dollar printing, and interest rate suppression ………………… for that matter, just call it what it is, suppression of the non-owning class (or thin-owning class).
So, the non-owning class should wish for a good deflation. It’s not perverse. It’s self interest. No more perverse that the desire of the one % to hang onto what they have.
cb
Well-stated. Self-interest, whether Ayn Rand style or in any other form, is natural and understandable.
When the smoke clears from this manipulated, inflated, mysterious everything bubble, there will be perceived winners and losers. Winners will gloat, losers will hate, but for the most part, everyone will “stay in their lane,” and life in the USA will still be a viable and enjoyable journey for (almost) all.
Thanks Beardawg –
I’m really not a fan of self interest, though I understand it and it’s necessity on some level. Much of it has been used to justify greed and psychopathic tendencies. I find Ayn Rand quite despicable.
Tony, if you’re referencing this: the fact is that “deflation” is dramatically worse, for everyone, than “inflation”. One is tolerable, or, at times, dangerous; the other is economically deadly. Except, of course, for vultures, those with money only.
HowNow,
You’re comparing 2% inflation to 30% deflation. Now compare 5% inflation to 5% deflation. Both are bad, but neither one of them will cause an economic nightmare. Both have their beneficiaries and their victims, with working people generally being the victim of inflation, and debtors being the beneficiary of inflation. And the opposite for deflation.
Ideally, you’d have 0% over the long term, with slight inflation followed by slight deflation. Why should we allow the Fed to decide in which direction the wealth transfer goes? Why do we need to coddle debtors at the expense of working people???
0% Inflation will keep everyone honest, and on a level playing field, and the only way to get there is to have slight inflation and slight deflation taking turns.
Respectfully, I disagree. At 5% inflation vs. deflation, no sweat. But at 10% deflation (vs. inflation), or worse, the deflation will cause much more damage. Going out to 20% deflation/inflation, lots of homes will be underwater as many buyers buy with 3% & 10% down payments, while buyers with 20% down have lost their equity. We’ve seen 20%+ home price appreciation, annually (?) and no one (except renters) are singing the blues.
Yes, you mentioned some of the REAL benefits of deflation though you’re confusing asset price deflation with consumer price deflation. Home prices dropping 30% from here would be a GOOD thing. That should be the goal of monetary policy at this point, unwinding the crazy runups over the past 3 years. There is a housing crisis because of those home price increases, if you haven’t figured this out yet. And solving that housing crisis by causing homes to become cheaper would be a good thing. People who bought 3 years ago will be just fine. And people who bought in 2021 and in 2022 so far, well, they won’t be able to sell for many years, but they’ll be making the same mortgage payments at historically low mortgage rates for years, and so what? They will be just fine. They will learn that a home is an expense, not a highly-leveraged speculative profit-guaranteed bet. This whole idea that home prices must be artificially inflated at all costs is just plain nuts. And after they have been artificially inflated, it’s a good thing when the market is allowed to take them back down.
HowNow said: “We’ve seen 20%+ home price appreciation, annually (?) and no one (except renters) are singing the blues.”
———————————-
Anyone who doesn’t own is crying the blues. Who wants to pay more. Also, savers should be crying the blues, because that broad based 20% house appreciation is no more than a reflection of money debasement and interest rate suppression, Corrupt to the core.
WOLF
Only slightly off-topic, but in your exchanges with How-Now, you explained why real estate is not gonna crash.
You stated:
“…People who bought 3 years ago will be just fine. And people who bought in 2021 and in 2022 so far, well, they won’t be able to sell for many years, but they’ll be making the same mortgage payments at historically low mortgage rates for years, and so what? They will be just fine…”
The real estate market is in stasis (worst case scenario) for the reasons you cited.
What I said was that if home prices go down 30%, then these people listed will be just fine because of x,y, and z reasons.
The view that deflation is much worse then inflation is the official view of the Federal Reserve (at least since Bernanke took control). We are about to see if this view is true or not in the coming years. There is a good chance that we may end up in stagflation (I hope we won’t, but there are some pointers toward it). If we are compare deflation and stagflation, which one would you deem the lesser evil ?
@ AK and Hownow –
Why would anyone buy the official view of the thieves at the FED?
Their goal is to assist their banking cabal masters in creating debt-slaves.
Low prices are good. Opportunity is good. Debt slaves are good for vultures hoping to extract the productivity of those debt slaves. Expanding money from nothing through inflating the money supply is good for the winners close to the creation of that new money and bad for those who don’t get the new funny money, but only suffer the dilution of their savings and productive labor.
In movie Matrix the resistance leader Morpheus offers Neo two pills – the read pill (exit from Matrix) and the blue pill (back into Matrix). The folks that “delight in predicting collapse” are the red pill crowd; they are happy to exit financial Matrix that entire western world has been immersed into, no matter what the costs will be. Hence the delight.
What pill would you take from Morpheus ?
I think you got the two pill colors reversed.
I wish for the complete collapse of the US as we know it, due to its embrace of Leftism and Neo-Con warmongering for benefit of the MIC. But unfortunately, my wishing will have nothing to do with it.
Equally and oppositely: those with substantial assets in stocks and other things wobbling now, may be white-knuckling and clinging to the narrative that everything will bounce back. And reaching for reasons to find the doomsayers (for the moment) wrong-headed.
It is hardest for my pals very deep for a long time in stocks to imagine this week in the markets, and what it MIGHT mean on a downside.
The litany that stock markets only go up, only holds up as long as one is in one of those prosperous periods, and is cherry-picking the data. Now is a moment when alternative narratives are at least credible.
And just a few months ago, the sentiment here included a lot of “to the moon” digital currency fans, clucking with superiority. I don’t hear from that corner now. Apparently they were all in, long, optimistic, etc. So the winds change here too.
Some will move nimbly, some crazily, some will be buy and hold folks. Only fortune itself gets the last word.
phleep
Just sold my last crypto derivative holdings a month ago.
The HODLers will be right if they hold LOOOOOONG. I truly believe that. I don’t have that kinda time.
DW news beat ZNN
SSEC is moving up
Hi Wolf,
You pointed out in your posts above that the NASDAQ imploded by 78% during the 2000-2001 dotcom bust, which I have no disagreement with. What I’m wondering about now, though, is will it be harder for assets to drop that far given the extra $9 trillion on the Fed’s balance sheet sloshing around? In 2000 that balance sheet was in the low hundreds of billions, so a tighter supply of potentially speculative capital to deploy back then.
Even at $95 billion per month QT, it will take 4 YEARS to erase the crazy QE done in a matter of weeks during 2020 COVID times alone, never mind the $4-5 trillion already on the sheet previously.
JJ,
During the dotcom bust there was no QT at all. Just slightly higher interest rates. Now we get higher interest rates, QT, and enduring inflation, which will limit what the Fed is going to do to bail out the markets.
Hundreds of stocks will go to ZERO because the companies are losing money, have no chance of ever making money, and will run out of funding, and will shut down. Other stocks will get bought out for cents on the dollar by some big companies. Selling these hype-and-hoopla stocks to the public should be a crime, but it’s not, it’s just how it’s done, with enough small print in the right places, and people love to believe in hype-and-hoopla. It’s just so much fun.
Tesla will eventually be valued like an automaker. And that will be a fraction of its current price. Other big companies’ stocks will get crushed too.
Look at Cisco and Lucent during the doctom bust. Cisco was the most valuable company on the planet before the dotcom bust. It had good products, a good business model, and good profits. It collapsed by 88% from $82 to $10, and even today is down 40% from where it was in 1999! Lucent got bought for cents on the dollar by a French company.
What’s coming is really hard to grasp, unless you’ve been through the dotcom bust. But this one is far bigger, broader, and more inflated — driven, as you pointed by years of QE, that is now reversing.
Wolf
‘What’s coming is really hard to grasp, unless you’ve been through the dotcom bust’
EXACTLY!
I went thru more than 2 bears including dot com. Many are in DENIAL of reality on the ground. Young investors(45y below) are/were conditioned like pavolovian, BTFD, in Fed’s miracles to levitate the mkts again, soon or near term by turning U turn. They will be sorely disapponted.
If knows OPTIONS fairly well, there is some chance to mitigate the loss. Otherwise many will lose, NOT just the profits but also their capital!
It is NOT the return ON my money, but return of my (initial capital)
money! Jimmy Rogers
There be NO REINFLATION (of the mkts) at the bottom of ‘abyss’ following the bust of this ‘everything bubble’
h/t Charles H. Smith
Wishing you and yours all the best.
I believe Jim Rogers is quoting Mark Twain there. Proving this shit has been going on for longer than we care to admit. The 1800’s were rife with rip offs, scams and general financial chicanery.
WellStoneGhost
You are partially correct. It is from Will rogers (my apology)
Does it matter?
Many quotes from JImmy Rogers online!
My favorite:
If anybody laughs at your idea, view it as a sign of potential success!”
― Jim Rogers, A Gift to My Children: A Father’s Lessons for Life and Investing
Another gem to remind me from my investing years since ’82
” Those who forget the past are condemned to repeat it”
Santayana
All the best for you!
Wolf, thanks for your thorough response, none of which I have any quibbles with. If I had to ask my question to you all over again, I would have placed a bit more emphasis on the slow pace of upcoming QT as opposed to the lightning fast QE from 2020, and how administering QT in small dribs and drabs rather than all at once may possibly act as a moderating force instead of inflicting crippling pain everywhere all at once.
I found Fed vice-chair Brainard’s comment about tightening ‘rapidly’ to be laughable given how much QE quickly took place in 2020.
Have a great weekend!
IMHO the idea that QT can be done gradually is premised on the expectation that inflation will subside by itself fairly soon. If this expectation turns out to be false (i.e. inflation will continue rampaging unabated), Federal Reserve may have to get more aggressive in QT. We will see soon.
No. We have never had such a delusional irresponsible Fed, nor such treasonous politicians. They will debase the dollar and soft default rather than deflate the bubble.
Remember the dollar rule 1$-10 cents before it’s over history repeats pay attention,the rich are getting out in waves,market won’t crash soon just slow bleed to death
Thanks for this concise history lesson Wolf. Concise and really greatly summarizes how this unfolded before, and how it’ll likely unfold again as the Fed supports for this insane everything bubble in housing and equities unwinds. If anything I have to wonder if the 78 percent drop and unraveling of the NASDAQ in the dot-com bust might be gentle compared to what’s ahead with these nosebleed valuations and P to E ratios. Tesla in particular is probably valued even worse than Cisco was then, given the way the legacy automakers are making leaps and bounds in the EV sector on top of their established markets.
When the recession is in full bloom, and many people are unemployed, very few will be paying $60 K for a stripper Tesla.
JJ
Four years as in the crash of 1929-33
Followed by a nine year or so depression
Anthony, the merits of various brands of antidepressants are now being widely discussed on Twitter, including by Elon Musk himself.
The hangover is here, yes.
JJ
Respectfully disagree. For anyone who has “tied one on” and is NOT an alcoholic, there is that pre-hangover (pre-sleep) phase where you start looking around and you are the only one still slammin shots. It is confusing, exciting but just starting to feel weird.
It is the time when (in our youth and in the old days where gender preference was not as prevalent) we tried to pick up the most drunk member of the opposite sex at the bar / party – in hopes of making the hangover worth at least a little sumpin. ;-)
Given inflation and the US savings rate back to embarrassingly low levels at 6%, wouldn’t demand destruction start soon on the consumer front?
Even more so among those on fixed incomes?
Imho demand destruction is the only force able to keep inflation under 15%-20%.
I agree. If there’s demand destruction (buyers’ strikes, substitutions, and borrowing constraints/unaffordable financing) inflation will wither. Unfortunately, employment withers, too. Bill Withers will, too. There just ain’t no sunshine…
Talking heads will be declaring a bottom after the May Fed meeting. Bond carnage Meh…Mortgage collapse Meh…The May Queen will be too dazzling in her brilliance. QT may happen but ignored because the bobble heads will be hyper-ventalating on how the Bubble Market is a forward discounting whizz bang magic machine and all is now priced in,BTFD will be back. Cramer will be whacking his buy buttons. A face ripper 4+ std. deviation Buy.Buy,Buy Rally will be flashing on their Wall Street standard issue homogenized algo-trading platforms. Watchout, The White Squirell was back in my Walnut trees this morning. The White Squirell’s mere appearance has always predicted mayhem and market carnage. I will be hoping the White One’s appearance has fore-told the face ripper rally and subsequent liquidation of the Great Bubbles. If not my wife will not let me near our joint brokerage accounts to buy SQQQ again. She is happy to date but present happiness cannot be banked for the future. She could even collude with WS and get me banned. For the record the squirell does not talk to me.
This makes perfect rollicking sense to me. I gotta wonder as a result if my brain has finally melted here at WStreet ….
As a guy said at the end of our first year of law school, “is this a mind trip or a mind f^ck?” Correct answer: YES.
Prices go up until they don’t
Prices go down until they don’t,
well not really, sometimes they stay low forever, as in Japan and, of course, sometimes they die….
Lots of stocks will go ZERO. And that’s where they will stop going down. People will have to contact their brokers to remove them from their accounts. Been there, done that :-]
Like Coinbase.
Why do you mention Coinbase in particular? (no position)
Because their entire business model is based upon selling items with no intrinsic value that don’t even exist.
I hear the NFT makers, Bored Apes Yacht Club just sold some virtual real estate on the blockchain for a proposed future online space, gathering more than $100m. Great place to be sleep out when one is broke! Be sure to buy a blockchain tent for that.
Ransomware industry won’t like this line of discussion.
All major indices are still up significantly compared to pre pandemic levels. Individual stocks go up and down all the time.
Indices are what really matter. If Fed follows up on its promises then it should fall below pre pandemic level which means at least another 20-30% drop from here. But I doubt Feds masters will allow that.
The S&P 500 is up about 20% from the February 2020 pre-pandemic peak. About half the profits have evaporated in the last four months for those who bought at that time.
Wolf
My apology for duplication of the above post by confusion/mistake
Thank you
“We intended to force the investor take more risk.”
former Fed Gov Fisher…
8 minute mark of “The Power of the Fed” PBS documentary.
“When you drive interest rates down all the way out it FORCES the investor to take bigger steps on the risk spectrum.” (8:00 min mark of this video)
former Fed Governor Fisher.
IN OTHER WORDS, the Fed took away fixed income and forced people into the stock market. They pounded the long end of the yield curve, despite having a mandate to “promote moderate long term interest rates.” (all time long rates are immoderate, extremely low, by any metric)
The Fed reworked risk / return ratios and normal PE evaluations. In short, the Fed led a cattle drive to the stock and real estate markets.
the Fed “forced” (their word) people into this situation….or to sit and witness savings decay due to rates being so far below inflation.
And here we are…… Now what ?
and for that Fisher and his cohorts should see jail time
“conspiracy to damage”
What always happens at the end of a cattle drive?
I dont know if Buffet and Munger are the wise elders of finance or not but they do a pretty good Statler and Waldorf.
Buffet and Munger are investors, and not mere speculators.
Oh my…
The bit when they start off where the performance was great and end up booing is an absolute classic…
Here’s a funny thing: I’ve been trying to log into TreasuryDirect today and the server just times out.
Rock,
I just logged onto my account at 5:16pm PST
Works fine now.
Global assets are now around $550 trillion, and the global population is around 8 billion people. The US owns the largest share of global assets which is around $140 trillion. The US economy is the largest single country economy in the world and is around $22 trillion.
US debt outstanding is now around $120 trillion, based on US federal government debt being around $30 trillion, US state and corporate debt bering around $60 trillion, and US real estate debt being around $15 trillion, plus miscellaneous US debt including consumer debt being around $5 trilion dollar.
Central bank assets, including the US Federal Reserve with only $9 trillion in assets, are miniscule relative to the total assets in the US.
Financial assets such as stocks can plunge around 90%, real estate can fall around 40%, commodities can fall more than 50%, and in facts those percentages were seen in the financial collapses of 2000 and 2008.
All stock equity is always subordinate to corporate debt which has been made vastly worse by stock buybacks purchased using corporate debt. That debt must always be satified before equites have any value at all when corporations become insolvent in which case equity will be wiped out entirely and the value of insolvent companies becomes worthless.
The US is playing a very dangerous game in 2022 which has been building by leaps and bound over the past 50 years during which these core concepts of finance have been pushed aside and largely forgotten.
The day of reckoning is rapidly approaching in the US and globally, and it behooves investors so learn about the core principles of finance.
Prior to 1995 the value of financial assets including real estate in the US was 3.2 times GDP. At that percentage, financial assets in the US should now be worth around $70 trillion at most, and not around $140 trillion. An adjustment back to that range would result in a decline in financial assets of around $70 trillion for a loss of around $80 trillion.
The most critical chart in the US to watch is the yield (interest rate) on 10 year US Treasuries which are the benchmark interest rate which establish the relative interest rate for all other classes of interest rates.
We are now seeing the yields on 10 year US Treasuries near 3.00% and going higher which is slamming asset values in the theoretically safe 10 year 30 year US Treasuries. This will spell disaster for equities and real estate in the days ahead.
“US debt outstanding is now around $120 trillion, based on US federal government debt being around $30 trillion, US state and corporate debt bering around $60 trillion, and US real estate debt being around $15 trillion, plus miscellaneous US debt including consumer debt being around $5 trilion dollar.”
30+60+15+5=110 < 120
Where are the remaining 10T ?
Miscellaneous things.
“Prior to 1995 the value of financial assets including real estate in the US was 3.2 times GDP. At that percentage, financial assets in the US should now be worth around $70 trillion at most, and not around $140 trillion. An adjustment back to that range would result in a decline in financial assets of around $70 trillion for a loss of around $80 trillion.”
Thanks you very much for providing these numbers. I was wondering about the future declines of the markets, and the levels that may stabilize at after these declines. Your numbers provide a valuable pointer for me, I appreciate this.
Also I would suggest that US GDP in 1995 was comprised on a healthier mix of material goods and services than 2022 GDP (USA was still making lots of material stuff in 1995 than today). If this is true, than using 3.2 ratio in 2022 would be inappropriate; perhaps this ratio should be lower, to account for excessive share of services in 2022 GDP. But this is of cause highly debateable.
MSFT is down 21%, but in Real terms 30%.
During the German hyperinflation 1918 – 1924 : in 1918 the stock market was down 50% in real terms. In 1919 it dropped by 90% in real terms.
They lost another 50% between 1920 – 1922. But during 1923, when US investors moved in, they increased by 600% in real terms, for a total
of 35% of 1918.
Source : Harry Browne.
WHY did things fall apart in that February of 2021?
At some point, every bubble falls apart. Why it did NOT fall apart a year earlier or six months earlier is just as mysterious as why it fall apart this afternoon or in February. What’s not mysterious is THAT it fell apart. Why it fell apart on a certain data, seen with hindsight, is the mystery. Everyone can come with their own theory.
I’ll tell you a bit of my story. I am a very inexperienced investor. I bought a little bit (think ~$2,000) of Palantir and Pinterest in 2019 or 2020. I couldn’t understand why they went up so much, but I was certain it wasn’t because of my investing prowess so I sold them. Idiots can’t get lucky forever.
WHOOSH
Yeah, I’ve heard that sound.
Just saw Lael Brainard and Janet Yellen flying off the roof of Eccles Building, straddling broomsticks, heading toward Switzerland.
Wanted to make the sign of cross but could not even raise my hand.Dem damn witches…
Financial Walpurgis Night begins today at midnight GMT, hosted by the Bank for International Settlements.
Oh Ye, of Little Faith !
Strong stock market rally May 2, primed by the soaring Irish-green futures evening May 1.
So what’s not being talked here about how greed and emotions and the Attribution theory is shaping the mad decisions and attitudes in the financial markets… I can not control mine and for sure I can not control the others emotions , greed and attributions theories …
while you understand the greed (we are all familiar with it), emotions (bingo!), the attributions theory says that when one is successful, one is so only so because one is so smart, clever and good. When one becomes unsuccessful and fails it’s only because of outside (out of control) circumstances.
It really sucks to have to call yourself a loser. I personally have no issues with it. But everyone else riding the wave of the mania, is seeing the writing on the wall, they just don’t want to admit they fell for it over and over again. It will take some time, we just have to be patient…
Do you remember the Fab Fav of Goldman Sachs? Well he was a perfect example of how people see themselves all the time: They are too smart to lose… but too bad the system has to survive despite all because chaos is not a solution…
There are so many forces known and unknown shaping what’s happening in the world market today [as usual (!)], that is really mind blowing to think that one can influence the happening. One can only gasp and be humble …
Conspiracies work well, Calvin: they remove doubt. No reason to “gasp”; just make up a well-worn conspiracy and “they will follow.”
1) US inflation rate = 8.5% y/y
2) US productivity rate : 6.7% y/y.
3) Real inflation : 8.5% minus 6.7% = 1.8% y/y, at peak vertical rate.
4) If the annual productivity will be higher than the annual inflation rate, in the next few years, we will be ok.
5) Productivity come from small businesses that innovate, or gov labs.
It seems to me that inflation rate will stay where it is, and productivity rate will go down down down, causing real inflation (as you calculate it) to go up up up.
6) M1 and M2 velocity decline since the 1990’s, but since Q2 2020, for two years, they are flat. The 8.5% inflation was a Stopping Action. M1 and M2
might go up, because there are less reasons to save and more reasons
to spend, as soon as possible.
In making your assessments you should try to distinguish between the Real economy and the Financial economy.
Forty years ago this was a little easier to do. Since then the information has been conflated to make that process difficult, so as to disguise the domination of the financial over the real and the degree to which the financial destructively parasitizes the real. But not impossible.
The results could shock you but may not surprise you. As participants in the economy it should be obvious to anyone that the finance industry wields a heavy hand over just about everything. And sometimes a mailed fist.
Not that it will matter. You can’t change it. And the resource supports to the present economic order are degrading and depleting at rates which will ensure it can only last a few more years anyway. In that context, issues of finance and economics become unimportant except for how they will ultimately obviate any possibility of survival for most people, and maybe all. There’s no money to be made in trying to saw off the branch on which one sits in order to sell it, but that’s how the world works these days.
Hundreds of well-designed studies, if not thousands, have been made of the nature of defects in human psychology:
– wishful thinking
– personal delusion
– susceptibility to lies
– cognitive dissonance
– rejection of facts
– agnotology
– Dunning-Krueger effects
– mass psychosis
– religious enthusiasm
– simple ignorance
The list goes on for pages. All humans possess a psychological characteristic shared with no other animal, the neurotic need to feel ‘special’, and most people, given the right circumstances, will pursue it to their own destruction, especially if that neurosis can be accessed and manipulated by the unscrupulous.
People can be induced to believe just about anything, despite there being only one reality. That people can be induced to spend money on dubious financial instruments should come as no surprise to anybody, insofar as the financial industrial complex has studied and exploited just about every human psychological weakness we have a name for.
Believe it or not, a majority of people would rather electrocute themselves than think. The FIC makes a lot of money off people like that.
“We’re not going to make it, are we?” John Connor asked.
“People, I mean.”
“It is in your nature to destroy yourselves,” said The Machine.
There is more than one reality (for humans). The one true reality of the universe is so far unknowable to any human.
Everyone lives within their own current reality. These realities can and do change as we interact with the world.
The realities are influenced by who and what we interact with, and our actions are influenced by the current state of our realities.
The American media and economic system has developed to breed realities that benefit corporations over people. They exploit the inherent software flaws that human brains have. No design required, just progressive exploitation of environmental opportunities.
But that is evolution.
The end result is not so hard to see. The timing is a bit tough.
As Yogi Berra said – It’s tough to make predictions, especially about the future.
“Everyone lives within their own current reality.”
You’re proving my point about human irrationality. What do you base your alternate reality on? Video games? Teal Swan? CNBC guests? Heated political rhetoric?
“It’s tough to make predictions, especially about the future.”
Nah, it’s easy. The sun will set in the west. Acids will neutralize bases. Two plus two equals four, for everybody, every time. Total entropy always increases. I make predictions for a living and don’t make them if they’re invalid. Not presently accepting applications for new clients, sorry.
“They exploit the inherent software flaws that human brains have.”
Humans have wetware, not software, but yes, flawed. Human cognitive capacities evolved faster than any means to manage them properly, which is why humans are far more nuts than any animal.
You’re reminding me of a great classic: “Escape from freedom” – Erich Fromm. Main thesis: a person will embrace a fascist dictator rather than experience the reality of having to think for oneself. It’s easier to be told what to do, and what to think, then suffer the anxiety and loneliness of doubt.
“Human cognitive capacities evolved faster than any means to manage them properly, which is why humans are far more nuts than any animal.”
Profound thought. In your opinion, what this “proper management” of cognition would involve ? Thanks in advance.
Unamused said: “I make predictions for a living and don’t make them if they’re invalid. Not presently accepting applications for new clients, sorry.”
————————————–
damn
‘Profound thought.’
Hey, thanks. My self-esteem is palsied for lack of adulation these days. Much appreciated.
‘In your opinion, what this “proper management” of cognition would involve ?’
Just take the above list of items and invert them. It’s okay to have your head in the clouds so long as you keep your feet on the ground. You’ll be taller for it too. Don’t be a sucker, even for yourself.
And keep reading wolfstreet.com. Make donations. Get on the waiting list for beer mugs and don’t use them for shot glasses unless the markets turn really REALLY bad.
A 45 mL wolfstreet shot glass in the shape of a beer mug would be cool. Kitten Lopez would have to come up with some new art work and maybe wrap the motto around it a couple of times, the one about how things never go to bleep in a straight line.
I’m bored with my toys. Which you can tell is serious because I have some seriously cool toys. I need an adventure. Something Byronesque.
The above are not knowable; they are axioms/a priori unprovable mental assumptions (2+2=4) or the product of inductive logic (the sun has always set in the west so it always will).
There is no empirical or deductive basis. You need two components: ontology and epistemology. Ontology tries to determine what exists and epistemology tries to determine how we know something.
Aristotle couldn’t figure it out and no philosopher ever has.
Major props to you. I’m sure the Nobel people have you on their short list for figuring out what’s valid.
What’s your epistemological system? Foundationalism, Coherentism, Internalism, Externalism, Skepticism?
What are your justifiers?
Scientific method
Occam’s Razor
Empiricism
Induction
Pragmatism
Probability theory
Abductive Reasoning
Do you also believe in “settled science”?
“I’m sure the Nobel people have you on their short list for figuring out what’s valid.”
There is no Nobel Prize for mathematics or philosophy. Minus two. Now if you said MacArthur fellowship you could have picked up a point.
“Aristotle couldn’t figure it out and no philosopher ever has.”
Aristotle believed eels didn’t reproduce and that we see because our eyes emit light. Next time try Kant or Godel.
1970 Nobel Peace Prize went to Dr. Norm Borlaug. He was Dad’s mentor and boss in 1957, and until 1962. And a dear friend for decades.
His achievement? Keeping millions of human beings from dying of starvation.
Rest in Peace Dr. Borlaug & my father, Dr. Romig.
“ – wishful thinking
– personal delusion
– susceptibility to lies
– cognitive dissonance
– rejection of facts
– agnotology
– Dunning-Krueger effects
– mass psychosis
– religious enthusiasm
– simple ignorance”
Pretty much describes most of my mornings these days….
Some days it’s just not worth it to chew through the leather straps.
LOL!
@ unamused
I agree mostly.
I’m not sure if it is a need to feel “special” though. It seems humans are simply immature, that is they’re still fully animalistic, myopically focused on themselves — read “The 2 Married Pink Elephants In The Historical Room” by Rolf Hefti (free online)
“Separate what you know from what you THINK you know.” — Unknown
‘I’m not sure if it is a need to feel “special” though.’
I’m sure.
Search your feelings, Qakibej.
It loves to hide, but find it you will.
And I’m sure that you are putting words in ‘Qakibej’s head.
And I’m sure the notion (and source) mentioned by ‘Qakibej’ makes much more sense than yours.
If you look at human history over say the last ten thousand years the one common denominator throughout nearly the entire time is humans’ violent nature and behavior having been at war with each other (never mind on other life forms and the environment) somewhere almost continuously. War is about power, control, and greed — selfish motives akin to the behavior of predatory animals.
It has nothing to do with a “neurotic need” to “feel special” but you apparently have a real neurotic need to firmly hold on to and propagate your silly idea, and in a seemingly “friendly” way manipulating others into taking it on.
I guess it was no coincidence that ‘Qakibej’ ended it with “Separate what you know from what you THINK you know.” — Unknown
But this truism went right past you as your neurosis blocks you from recognizing reality.
“But this truism went right past you as your neurosis blocks you from recognizing reality.”
You resorted to an insult when you lost the debate. Bad form.
Minus ten.
Further, your ‘trusim’ doesn’t even address the issue.
Minus twenty.
…reminding me of Carvey’s ‘Church Lady”s favorite utterance…
may we all find a better day.
“….Make Mess….”
Only gets more hilarious with each new article! Keep it up!
Is Powell now almost forced to raise short term rates not only due to his past agenda but now with the war-cession we are in ? this war-cession I expect shall increase Inflation when to raise short term rates are being made to slow Inflation : Is this really Interesting or tragic ?
Stock market is not going to like a war-cession perhaps I hope some can enplane all this ? trying to understand whats happening . All this is a Global war-cession yes ? not a in house thing to sweep under the rug
«Bitcoin = Russia (which tries to use crypto to get around sanctions)»
Nonsense.
How come such a nonsense came to your head? Russia is trying to force Europe to pay in Rubles for gas and other goods so no Western country can freeze our money.
Bitcoin = nothing. Russia = gas, coal, metals, tech (alas, mostly military), grain, fertilizers etc. etc. etc. So – it’s totally incorrect to compare.
BTW – yesterday I’ve bout a bottle of Whiskey and bottle of Bourbon, a few bottles of Chianti in the local shop here in Russia and didn’t saw a big shift in prices. Two months under sanctions – we still go considerably well. The price of Kent blue is still 195R like it was in January. Well, to be honest – I work in IT so I may be not very representative.
probably western suppliers are more than happy to sell these drinks for rubles :)
On a serious note, the currency market there is a joke. The low exchange rates are fake – there is nothing to buy. The only difference with USSR days is that it’s still legal to possess foreign currency.
But let’s see what happens after the May, 3 if Russia will eventually default
Its very rare to see Russians on this forum, so forgive me for asking this (unrelated to economics) question: do people in Russia anticipate mass mobilization in the near future ? I know Ukraine did that some time ago, but not Russia (at least to the best of my knowledge). Thanks in advance.
I believe it’s unlikely since mass mobilization is used during a war. But according to some law in Russia, it is not even allowed to call what is going on now a war.
No. I don’t see any sings of that. Nor reasons for mass mobilization. Most Russians think that we can handle the operation with regular forces. Most people around (I live near the Black Sea, my parents thousand miles away in the Ural Mountains) lead their usual lives – I’ve watched the Gagarin’s cup final (hockey) couple days ago. TV works as usual, concerts, shows – the same. First wave of marasmatic grannies wipe out sugar from the shelves in the first days in February but it didn’t last long. Now I don’t see nothing like that – no shortage of goods. Yet, at least.
Most actions from West like banning local cats from entering international competitions or withdrawal of McDonald’s cause nothing but anger and irritation towards West. People twist their fingers around their temples asking themselves – are they complete *orons? To leave the market voluntarily? No kidding? Are you really a capitalists?
I think that Wolf wouldn’t appreciate that we can turn his resource in a political field or propaganda of any sort but as you asked I’ll answer.
I’m not a military expert but I see simple math here.
Russia/ Ukraine
Population
140 m/ 40m
Aircrafts – a lot/0
Tanks – a lot of new Russian/ much less and old Russian
Antiaircraft weaponry – a lot of modern self-designed/ none
Etc. etc. etc. Russia is a weaponry producer; Ukraine uses old Russian weaponry.
That’s enough reasons already.
In reserve – number of fleets (submarines, destroyers), missiles of any sort and range.
I have a question for you. How people on West legitimize the freezing of Russian assets? On which grounds? Is there international law for that? The opinions evolve around the world but not like – “we should act as we act in the past – listen to every order or directive from States and we will be fine” but rather “we should search for another place to store the money”. How do you think – will it affect the dollar in short and long perspective?
I’ll try and give some coverage as well from the point of much less provided, more grounded wages (as opposed to savvy IT/tech/whatever people).
Posting under nickname, 13 yrs of career as a design engineer and above in multiple fields of Aerospace/Govt. defence industry. Currently Deputy Chief Designer of certain kind of precision systems.
Naturally, many of my good colleagues have been higher ranking officers, both of Soviet and Russian army, of various branches and combat experience. Some of the current ‘warheads’ on my level of hierarchy or above have been keeping up a lot of their connections, naturally, with the armed forces up to a point.
Also, your connections grow in the military complex as years pour on and you get various points of view on the current situation both as a civilian (I’ve never sworn into service, although am currently obliged to certain restrictions from once acquired and continuously used clearance as a specialist) and a comrade of former officers.
With all that said, the buzz is somewhere between averagely chaotic and foobar, so that’s a pretty wide spectrum. The mobilisation is far from certain and, by my account, is still far from being carried out should it actually happen.
However it’s the very fact the *possibility* is real and not a wild swing at eliminating options that scares, through and thorough, many of my contacts. As well as the absolute brashness of the whole ordeal. Not a single one of people I work with day-today have considered the speed of this whole thing unravelling.
TBH I’m just glad I have the governmental protection from being recruited as higher/irreplaceable position in huge Military contractors warrants it.
Question for anyone who cares to answer:
How much does the Fed really care what it’s balance sheet looks like? Don’t they have enough vigorish to make this a moot point?
I’ll give it a shot RR. 30 trillion of debt and a 9 trillion balance sheet does not matter as long as the Military Industrial Complex and the Security State and Congressional Grift from the same keeps flowing and the world hands over its production for our putrid non-performing inflation diseased fiat dollar.The balance sheet is a potential political weapon that can be called another name ,Inflation. I doubt that political weapon will be used because it is damning to both red pill and blue pill. Congress rarely talks about the debt or the balance sheet or inflation.Every talking head you hear all say the same thing. ” Yeah, the Fed will raise rates untill it breaks something”. No one ever counters that bull shit with the statement that the F$&King Fed has already broke “something” with its decade of financial repression. The answer to your question is it will not matter until the average American is devastated by inflation. We ain’t no where near that point yet. We will know when that point has been reached because you will be abel to smell the smoke when cities are burning. Until then it’s all noise,bull-shit and jabber jaws.
The Fed does not care. The fed ultimately is there to make the banks money. End of story. The banks are not doing anything for charity. If there is money to be made by the banks the Fed will allow it. If taking on Trillions of dollars helps support the goals great. It just requires that the US Gov’t makes sure to deposit the interest payments on the money.
SpencerG: “In 1999 the P/E ratio for the NASDAQ was 175X and for the NASDAQ 100 it was over 100X. Currently those figures are 22.6X and 30.01X.”
That’s interesting – I’m trying to make sense of it. If you look at the average share price of NASDAQ from 2010 (16.67) to it’s peak at the end of 2021 (209.33), it had increased by about 1,100 percent.
During the same period, NASDAQ PE Ratio (2010-2022) had increased from 13.34 to 29.69 (122%). That’s a pretty big increase. But compared to the 1,100 percent increase in average NASDAQ share price, it seems like there must have been some incredibly huge increase in average NASDAQ earnings during that time period.
“currentmarketvaluation” website has a chart of S&P500 P/E ratio from 1950 to now. Their overview concludes that: “The current S&P500 10-year P/E Ratio is 32.1. This is 60% above the modern-era market average of 19.6, putting the current P/E 1.5 standard deviations above the modern-era average. This suggests that the market is overvalued.”
Since the mega-NASDAQ players seem to weigh heavy in the S&P500 (Apple, Microsoft, Google, Meta, Intel, Gilead, Qualcomm), one would think that the NASDAQ P/E would also be overvalued.
I recall that Palm Pilot, the company that made primitive handheld predecessors to today’s smart phones, at one point had a market cap exceeding that of the top five U.S. airlines combined.
That’s not the most ridiculous thing about Palm Pilot. When it was spinned off on March 2000, it became more valuable than its parent company!!!
DrifterProf:
I think it is very difficult to make sense of.
One problem is that FAR TOO OFTEN we look to the Past as a guide to the Future. But no two times are truly alike. Should we compare this to the Internet Bust of 2000… the mild recession of 1991… the strangling of inflation from 1980 to 1982… or the 1970’s start of inflation with the Nifty 50 stagnation??? There are ELEMENTS of each period present but…
NONE of those times truly look like THIS time because in this case we are finishing a decade of Fed/global monetary easing bookended by a Great Recession and a Global Pandemic. The closest that I can come to finding a historical parallel is the decade between the Spanish Flu epidemic and the Great Depression… but I doubt that we are willing to go back a century for a guide to how to invest in the here and now.
The other problem is that we try to guess the MAGNITUDE of the market’s direction in order to make money off it. That may be fine when markets are going UP but when markets are going DOWN that is akin to grabbing for a falling knife… in the dark.
To my mind the NEXT direction of equities is clear… DOWN. How much… I do not know… but I do not need to know either. If I weren’t as impoverished as I am right now then I would be going defensive with a goal of hanging onto my money rather than trying to grow it. Real Estate, Gold (precious metals), and Art are how the very wealthy hang onto their wealth across the generations. There is a lesson in that. We have modern tools that make that easier (REITs, mining stocks, etc.)
If you agree that the direction of the market/economy is down then the strategy you need to employ reveals itself. Same for if you think it will go up… or go sideways. And it simplifies your understanding. Trying to figure out how far down or up is pointless because it is truly not knowable in the early stages of a change of direction. More data is required…
But IMHO the most money will always be made by those who can figure out when the direction is about to change rather than by those who think they can guess where the market top or bottom will be. We know that we are in for two to three years of FED monetary tightening… how much and how fast no one can say. But what more do we really need to know right now? They will give us clues later on as to when the direction will change again.
The mania is far bigger today than in 2000.
First, earnings aren’t even real money. It’s an accounting number. No one can spend earnings and 99%+ of “investors” have no option to monetize assets, intellectual property, and cash flow. So, the relevance of the P/E is really the relevance of the dividend yield.
The NASDAQ (100) isn’t the stock market. The stock market today is more overvalued than in 2000, except by the irrelevant P/E ratio.
There is at least as much speculation in the stock market now and there was in 2000.
In 2000, there was no bond mania, no real estate bubble, no QE, and no fake “growth”. Corporate balance sheets had not been gutted either and weren’t stable rags like now.
The historical averages in your post are also distorted by the mania. It’s not like the stock market would miraculously become “fairly” valued if the P/E ratio fell to this average because a mania by definition isn’t “normal”.
To go back to “normal” valuations, it’s necessary to go back to the mid-60’s before the market peaked in early ’66, the dollar’s link to gold was completely severed, and interest rates rose substantially. Mid-1960’s valuations, interest rates, and dividend yields are a much better proxy for “normal” than anything since.
The above doesn’t even include the economic and social decay over the last 50+ years. Even if valuations were “normal” now, the long-term fundamentals in this country are absolutely awful.
The financial excesses of maniacal markets and unprecedented leverage are the result of much bigger problems which can’t be papered over by financial gimmicks.
“maniacal markets and unprecedented leverage”
You will never get rational equity valuations so long as margin buying is allowed, among other restrictions. It would not be enough to ban stock buybacks. And it might not be enough to require players to have skin in the game, rather than just playing with other people’s money.
Those would, of course, help to make markets more rational than they are, which is why they’ll never happen. Chaos creates opportunity, and investors who are crazy/stupid/malincentivized are profitable, like any carnival mark.
As for mania, Jung believed that the human susceptibility to believe things which are not true would ultimately be the undoing of civilization – particularly insofar as that susceptibility can be exploited by unscrupulous persons who are eager to accept the risks of blowing down the whole card house to get what they want, regardless of any cost.
Unscrupulous persons have the built-in neurotic need to feel ‘special’ too, ya know. The real wonder is that they haven’t nuked civilization out of existence already. That would be a definitive way of disproving the maxim “you can’t take it with you.” Now THAT would be ‘special’.
When sentiment gets bad enough, the leverage you reference will be strangled through regulation or banned outright.
The reason will only be evident in retrospect, again.
No, it really isn’t different this time.
Ambrose Bierce said; “The real danger is the crypto market which is the margin call of all time. There is a pile of rehypothecated money which is integral to nothing really, has no collateral value. Should that asset be converted into cash that is wildly inflationary. The value of these imaginary dollars is ten of thousands times leveraged in some cases. The Feds job probably would be to print as many dollars as it takes to allow that bubble to unwind, which they have already done.”
——————————————————————–
The omly way to “convert” crypto into cash is to sell crypto for cash. It is not inflationary. It just moves cash from one owner to another.
Why would the FED print money to accommodate any aspect of the crypto market?
Fed printed the money in the first place to buffer the system from a deleveraging event, and two the xfer of assets into crypto leaves open the impact on the system when crypto is returned as cash, (not reinvested) in the second instance. The 2T crypto market is only 1/10 of the monetary base, and the threat is probably no greater than the imagined impact that China selling their bond reserves would have on the market. Some imagined they could repatriate their bonds to cash. Bernanke called their bond reserve policy sterilization, the process of offsetting the inflationary impact of settling BIS payments in cash. The same problem. Difficulty is we are already feeling the impact of inflation induced by unsterilizing reserves, (and slowdown in China’s exports) while the bond market winds down. Total amount of cash in the US system right now is 2T, so that would basically double, after the haircut the sellers take hitting the exits at the same time, quite a bit less, but substantial. There would be some severe capital controls put in place if the market in cash started to blow up. A lot of that cash would end up in the mattress and then it would hit mainstreet.
They wouldn’t. Craptocurrencies are a ponzi scheme and irrelevant.
As an ominous portent of possible things to come…
At Berkshire Hathaway’s shareholder meeting yesterday, Warren Buffett and Charlie Munger were teamed together speaking to the crowd with one of them quoted as saying:
“We want Berkshire Hathaway to be there and in a position to operate when… if the economy stops.”
(I can provide a link from Twitter showing this, if necessary or wanted.)
Good catch JJ.
1) People are working, earning higher wages. A $500 bank account increased to $3K. A $3K – $5K account increased to $13K.
2) The $1.8T student loans debt were not paid for two years.
3) The gov might write off $200B – $300B and start collecting payments on $1.5T debt at higher interest rates. The gov will collect more revenue, cont to cut employment and capex in order to pay it’s $30T debt at higher interest rates.
4) Higher rent, higher energy cost, higher food prices and paying student
loan debt will hit consumers.
5) Option #1 : more gov stimulus, or JP RRP liquidity to boost the economy
will increase inflation instead of reducing it. It might run out of control.
6) Option #2 : no stimulation ==> recession.
7) Option #3 : with falling prices and higher productivity the economy will
thrive with less gov interventions. Nov 22 2021 to May 2022 was a stopping action.
Michael Engel :
5) Option #1 : more gov stimulus, or JP RRP liquidity to boost the economy
will increase inflation instead of reducing it. It might run out of control.
Don’t forget to factor in War-flation that creates inflation
Raise Short Term Rates slows inflation and War-flation Creates
The Fed is trapped like a Rat
I like your posts BTW thanks for them & Woof of course
Mendecino, the Fed isn’t trapped. It built a $1.9T war chest with a valve to regulate the economy.
I try to keep my comments short, very focused with few options.
Thanks.
@ Michael Engel –
What is this 1.9T war chest called?
What does it consist of?
I think he’s talking about the RRPs, though I wouldn’t call it a “war chest.”
I like your comments, Michael. Don’t necessarily understand them, but I do like them.
1) It cost $35/hr to feed a family of four.
2) The new min wage is not good enough.
3) The welfare system is lagging behind.
4) Option #1 : To survive, more people will enter the labor force, competing with each other and the black market.
5) Option #2 : Marriage will be on the rise.
6) Option #3 : recession, more people unemployed, in the welfare system.
PLEASE DO NOT GO MAKE INVESTMENT DECISIONS AFTER READING ARTICLES AND THE COMMENTS HERE.
I love this site and I greatly appreciate the analysis from Wolf. That said, many of the commenters here are parma-bears (you can generally read the same comments and remarks on an article a year ago).
I strongly caution anyone to make a decision on stock market investments based on fundamentals, particularly over a relative short term period of the next year or two. This is NOT how the stock markets work.
The stock index charts argue strongly for at least one leg higher. The SPX in fact argues for two (one new all time high, another big pull back, then another ATH), but at least one. Then we will finally begin the bear market everyone is talking about now.
I’m not saying this because I “believe” it will happen, I understand the problem with high interest rates, inflation, etc. I’m just saying that the markets have an uncanny ability to follow a sentiment pattern that quite often seems totally detached from reality.
While I am personally short the market right now, and expect the SPX to drop into the 3900s (and NQ could go down to the low 11000s), I do anticipate a bottom being struck in the next few weeks and we begin another march upward, which could be volatile but make new highs nonetheless.
I can’t explain “why”, or what might cause the turn, only that I’ve seen the sentiment patterns play out far more often than any rational explanation.
“I can’t explain “why”, or what might cause the turn”
End of war would do it – due to sentiments
The market bottomed (which is still in place) literally within about 2 hours of the START of the Russian invasion. By that rationale, the market should tank when the invasion ends.
The whole point here is that you cannot use “rational” reasoning to understand the market. It’s a non-linear, sentiment driven entity. This happens all the time, Covid being the best example in recent memory (the bottom occurred before any major shutdowns, with the rally taking place during the 2 year hell we all went through). The sentiment charts showed this was going to happen before it did, and I’ve seen no other analysis methods that were even close.
The most intellectually honest thing here is to say what I’ve said, that the sentiment charting makes a strong argument for a bottom occurring soon, with a new ATH on deck after that.
What is impossibly to say is why this will happen, and it’s usually impossible to even pinpoint why it did happen for something in the past. The task is to stop looking for a “reason” and just position yourself to take advantage of the opportunity if the setup appears.
If the opportunity does appear within the next few months, it will likely be the last one of its kind for a decade or two.
Kick Russia out of Ukraine; China reopens and recovers from COVID. Voila; growth skyrockets again.
By the way; War very profitable for the Beltway set; Biden providing a $33 billion (and that’s just a start) stimulus for American security/NGO companies who will form the vanguard in rebuilding Ukraine.
Here it comes
‘strongly caution anyone to make a decision on stock market investments based on fundamentals”
Wow!
I strongly disagree! I am decidely BEARISH (lower of the highs and lower of the lows includes Bearish bounce traps!)
In the short term the Mkt is a voting machine but in the long term it a weighing machine – Buffett
Mkts are still overvalued by 3x away from the normal!
–
Some thoughts from other pundits not drinking kool aid from the Financial media
“An entire generation of entrepreneurs & tech investors built their entire perspectives on valuation during the second half of a 13-year amazing bull market run. The “unlearning” process could be painful, surprising, & unsettling to many. I anticipate denial.
Previous “all-time” highs are completely irrelevant. It’s not “cheap” because it is down 70%. Forget those prices happened.
-Bill Gurley (twitter)
–
Mish Shedlock:
Which One Of These Does Not Fit In ?
“S&P earnings estimates for 2022(e) have increased from $200.03 to $226.62 and 2023(e) have gone from $246.79 to $248.30. Earnings estimates jump 9.75% vs 2022.
Fed hiking at the fastest pace since the 1980s
CPI up 8.5% from a year ago
30-year mortgage rate 5.41% vs 3.12% a year ago.
Just in time manufacturing morphs into supply hoarding
War in Ukraine disrupting shipping channels
European energy crunch
Falling stock market
Demand Destruction
Recession
Earnings Estimates
If You Think I’m Bearish Please Read John Hussman without recalling that earning estimates went up or having seen the Tweets by Bill Gurley.
The hook now is looking at declines and thinking along the lines of “stocks are down 15% so they are cheap.”
Stocks on average will not be cheap if the S&P declines 50% from the top.
If the S&P declines 70% then we can discuss cheap Both fiscal and monetary policy goosed earnings. That is why Shiller uses CAPE (cyclically-adjusted PE) ratios and Hussman uses MAPE (margin-adjusted PE) ratios.
Earnings mean revert.
Most of the forward earnings are total nonsense. They do not reflect higher inflation, higher interest rates, or trade flows which looking ahead will increase costs.
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S&P 500 Earnings Estimates for 2023 Rise, It Won’t Happen
The Fed’s Preferred Measure of Inflation Jumps to 6.6%, a 40-Year High
If You Think I’m Bearish Please Read John Hussman
The Hook
Nonsensical earnings estimates, ridiculous forward PEs, and thinking things look cheap following big declines are all part of the hook.
S&P 500 Earnings Estimates for 2023 Rise, It Won’t Happen
The Fed’s Preferred Measure of Inflation Jumps to 6.6%, a 40-Year High
If You Think I’m Bearish Please Read John Hussman
S&P 500 Bounces Off Support For the Third Time, What’s Next?
Contrary to Widespread Myth, Imports Do NOT Subtract From GDP
Midterm Election Look Ahead With a Spotlight on Biden’s Polling Popularity
GDP Declines 1.4% in First Quarter of 2022 Sounding Recession Bells
Investigating a Shocking Increase in the Trade Deficit and Economists’ Blown Forecasts
Energy Shock and More Threats on Both Sides to Turn Off Russian Gas
h/t Mishtalk
I agree 100% with Mish!
Other explanations for a “leg up”: PPI or CPI reports that decline, comments from the Fed that the negative print GDP warrants a slower pace of interest rate hikes, appearance of a paisley or lavender swan on the White House lawn. But I’d place my bet on further market declines, now. HIC, you’re talking about technicals and they are, historically, less reliable than fundamental/value investing. Can you please list the names of the great technical investors and their ROI vs. the great value investors whose names you know, ad nauseam?
The speculative mania bubbles have been forming in the US for the past 50+ years since the late 1970s. That does not mean they are in any way permanent at all. All economies are CYCLICAL.
I agree. There will be a sucker rally before things fall apart for real.
Older investors moving to cash. Why lose 3.6% per week vs 9% per 52 weeks?
During the Depression there were multiple sucker rallies (validating Wolf’s Law about straight lines) but eventually the market dropped about 90%. Cash was king, provided your bank didn’t fail.
Since 2009 I’ve been anticipating stagflation followed by recession and deflation. I think the international markets would have blown up 10 years if not for the Draghi “Whatever it takes” comment.
But what’s happened since then is kicking the can down the road, and kicking it all the way back is going cause enormous pain. You can’t treat brain tumors with Bandaids.
Michael Gorback said: “There will be a sucker rally before things fall apart for real.”
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There have already been lots of sucker rallies. You call for one more. Why not two more? or three more?
Are you leaving your money invested in this market, waiting for that sucker rally you see coming?
There were multiple sucker rallies during the Depression as the market, per Wolf’s Theorem, stair-stepped down 90%. I count 7 or 8 starting at 1929.
In this instance I think people will get tired of sitting around being puzzled and find a reason to delude themselves that things are getting better. The media, of course, will break out the pompoms.
As Mark Twain said, history may not repeat itself but it often rhymes. Or maybe that was Gandhi.
I sold all of my bonds in October and bought rural timber land. I still hold some equities, most of them REITs that cater to essential services. I am overweight PMs. I plan to sell into the rallies.
I’m my best indicator. I’ve learned that when the pain gets unbearable for me and I want to exit, that’s the entry point.
@ Michael Gorback –
The rural timber land is interesting. Did you purchase directly as an individual, via syndication, or a REIT like Plum Creek Timber? What states?
I used to follow Plum Creek Timber. Thought it a good idea at the right price. I intend to put it on the watch list. Thanks for the reminder.
Significant sucker rallies usually require an intermediate selling exhaustion, or panic selling. We haven’t seen that yet. So far, it’s been a slow methodical move down, driven by a consistent threat of Fed tightening. People who thought the Fed would reverse course at the earliest sign of trouble are buying dips and patiently losing money.
In my opinion, there won’t be any sort of relief rally until we see several 3-5% down days in a row followed by a high volume day when stocks drop 5-10% then reverse to a gain the same day. That will mark a short-term bottom and suckers rally.
There is tons of fodder for continued downward moves ahead.
Negative GDP report, housing price drops, continued inflation and interest rate increases, job losses at start ups, etc. The negative news could be relentless for a while, and could kick off a longer term negative feedback cycle.
The best thing bulls could hope for now is a quick panic-driven 10% down day. I’m not expecting a sharp relief rally until that happens. The worst thing for the bulls is a continued gradual loss of 1% to 3% per week. And that is what the Fed wants….an orderly asset price reduction in stocks and RE. The Fed holds the cards.
However, anything can happen in the short-term. There is limited transparency in our markets. We don’t know who is trading and what their motivations are. Much of the trading is driven by inside information or information that cannot be effectively accessed by individual traders.
Micharl Gorback & Bobber
There will be more than one sucker rally(ralies) on the way down, while reverting to the mean. This is typical and a characterstic of SECULAR Bear Mkt. Read the mkt history of over 200 yrs!
The hopium is strong with positive SPIN and the narratives from the Pundits at the Wall St ( Jim cramer-CNBC) and other financial media.
Strong denial of reality is natural when one is under the ‘continuous’pavlovian effect, thanks to Fed’s PUT & easy-Money since ’09! There are serious consequences ( CBers) to their insane credit creation, not just her but all over the world!
I agree 100% with Wolf and Mish Shedlock
Happy days are NOT here again!
Nothing that a major and long depression won’t cure.
I wish I could believe that but the dollar will die as if by magic pushing all the indexes back up again. To me its still a 100 percent rigged three ring circus. When my luck is really bad I give someone money and get them to buy a stock for me knowing I’m right but bad luck will find me if my name is on the stock certificate. I haven’t done this often but its never failed yet.
I read the piece from Hussman that Mish quoted – lengthy but absolutely worth reading. Especially I liked this one: “Over the past 5 years, the revenues of S&P 500 technology companies have grown at a compound annual rate of 12%, while the corresponding stock prices have soared by 56% annually. Over time, price/revenue ratios come back in line. Currently, that would require an 83% plunge in tech stocks (recall the 1969-70 tech massacre). The plunge may be muted to about 65% given several years of revenue growth. If you understand values and market history, you know we’re not joking.”
The fun part is this was published on March 7, 2000 :)
Please see my comment above regarding multiple sucker rallies. Personally I don’t think a big one is coming soon but it’s coming. When it does you want to own tangible things.
Buy early, sell late, gobble up the 80% you made in the middle.
Alku
You read just a part of his April 27,’22 market comment ‘Repriced to zero” You just picked a 1% to belittle him.
He has been accused of perma bear but analysis is spot on. Like him, I never expected the Fed to ‘murder’ the Free Mkt capitalism in order to bailout the criminal Banks and other imprudent borrowers and investors!
FYI
1. Fed had NOT never bought MBSs in it’s entire history since 1913 until March of ’09!
2. QE was a plan born from the seat of pant of Barnake Who claimed in 2008 that SubMortage crisis is contained!
3. Fed had NEVER suspended ‘ Mkt to Mkt accounting standard before!?
He reiterates the ‘conditions’ prior to dot com but now the macro picture is a lot worse! He usually includes previous quotes!
Fed (Mr Powell) helicoped 5 Trillions(easy-peasy money) in the March of ’20 to reverse the mkt dip of 35% back to another peak. Why NOT another 5 or 10 Trillions, next right?
Give me a couple of Trillions, I will show you, a good time
Jimmy Rogers
There are serious consequences for Fed’s policies for the last 13 yrs!
Sunny:
I didn’t try to belittle Hussman! On the contrary, I liked this analysis – and I’ve read his articles before as well. And liked them, too. (And I did read the whole article :)
What I was trying to say was that his 83% estimate turned out to be spot on in 2000. By “funny part” I meant that you could easily think the sentence was written today :)
Like I’ve been saying since 2009 whenever the Fed is just about the hike rates all the news coming out just before that is total malarkey meant to drive rates down. Even Canada reported a positive GDP for the month and everyone is broke in Canada.
Today is May 1, International Workers Day, where wage slaves and chattel property alike celebrate the misery they’ve had to go through to generate the wealth flaunted over the rest of us by the billionaire class, largely tax-free.
If you have a wolfstreet beer mug, now is the time to use it. They’re great for root beer floats, especially if you also have some Doritos.
Powell will be protecting his net worth (well over $100 Million.)
What he does and how he does it is the question.
B
Ukraine might cure EU negative rates brain tumor.
Not happy to say it, but WW2 had a way of focusing attention and clearing away a lot of proliferating alternative narratives. It brought a world to (an) order, relatively.
C’mon bro. You’re old enough to remember sitting under your desk during simulated nuclear attacks, Krushchev banging his shoe on the table, Mao starving millions of his own people, the Russian purges, exile to Siberia, Korean War, etc.
Stalin and Mao killed more people after the war than during it.
Mao -1.5 million deaths during the Cultural Revolution, 1 million for the other campaigns, between 35 million and 45 million for the Great Leap Famine.
Stalin killed maybe half that.
Estimates of deaths during WW2 run about 40-50 million.
People thought the Depression would return, that we would have to fight Russia. W2 was a global scrum, brought to focus as you say by the Allied invasion which made it the battle between good and evil that it never was. The US created the Imperial Presidency and destroyed political diversity, (and dissent) and labor unions. We Pogo’ed the Phatchitz. JFK spoke against the Pax Americana which he helped create. We won the Cold War and never eliminated the cause.
There’s rarely an “R” on the shifter when there’s a brain tumor. Mostly misery from chemo and excision. Not a long jump from that to what’s coming.
Look at all the Positive SPIN and narratives from the vested interests in Wall St, Brokerage houses ( GS – Buy-Back shares will beging on Monday!) and other financial media!?
Nauseatingly sickening! This just like in late 2007! persistent enial of the reality. Some one thinks this is all short term and then stocks resume it’s ascent again! Wow! Many newbies are destined to lose, big this time! What goes up and up, will fall harder!
Green in the morning and RED at the end of the day! Traders’ heaven for only those experienced enough to pick puts along the way! Repeat and rinse! Never thought that this could come so fast. But who is complaining? NOT me!
B/w the Bear has just started growling!
Well now that everyone in the world thinks the market is going to hell and the world is ending, is time to step in and buy long, for at least the upcoming massive rally. There is blood in the streets and that is the time to buy. We will drop again after that massive rally and the market clearly has farther to fall, but naysaying like in this thread always comes around when the market crashes. We have been in a bear market since November. We will likely be in this bear until the later part of 2023. Then the market will turn up again. How much farther can we go? Considering so many stocks are already down 40% or more and the great majority of stocks are already trading below their 200 day MA’s, it can still get even more ugly. But big tech is not going away anytime soon. Lots of companies will still make money. The market starting next year will reverse course and head up again.