My take also on the strength of the dollar and the impact of fuel prices on the economy. On This Week in Money by Howestreet.com, recorded May 5, 2022.
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My goodness, that intro music…..
Imagine how much better off America would be if there was no QE and there was a sharp/quick recession in 2009-2010.
But, trillions were printed so those in power would not suffer at the polls.
I don’t think it had anything to do with the polls, I think it had to do with changing the rules of the game after it was clear that the wealthy special interests were about to take a bath on their bad bets.
All this “FED put” nonsense in conjunction with accounting gimmicks is akin to a football game where, after the winning field goal is clearly wide left, the goal post suddenly swings to the left where the kick goes through and what should have been the losing team celebrates while the team that played by the rules and won fair and square has to go home the loser.
I have literally zero interest in politics, but objectively speaking, it sure LOOKS like they are trying to dial up a recession conveniently timed for political purposes.
Fed Put -> Fed call
Fed Put -> Roundabout Taxation
EX CELL ANT analogy DC! Please keep up with this kind of creative comment in response to the horrible theft the last few decades.
Fact is that this analogy holds true these days for all kinds of challenges for all kinds of folks of all ages and all socioeconomic levels with the exception of the very very small portion commonly referred to as the 1%, though it is clearly not even that many who are literally screwing WE the PEONs and everybody else.
Time and enough to stop this nonsense anyway it takes.
The FED and Congress have adopted a Modern Monetary Theory-based view of the US economy. That’s near settled fact. The only thing left to do is for the FED to be brought under direct control of Congress, as Stephanie Kelton believers it should be.
As such, there still very much is a FED Put in play once the economy tanks with the coming recession. In addition to zero % interest rates, there will be rent & loan forbearance as well as monies given directly to tax payers and eventually illegal immigrants.
That’s the new playbook & call it what you will, moving the goal posts or whatever. The poor win while ultimately lose while Wolf’s Wealth Effect continues. Finally, we’ve entered into the final phase where the power of labor will rise over the next 10 or so years then fall off as corporations & the military move more quickly to AI & automation. The perfect storm has arrived.
AIG was bailed out to save the the CDS positions of speculators who were not hedging underlying assets.
Depth Charge wrote: “I don’t think it (2008-09 QE) had anything to do with the polls, I think it had to do with changing the rules of the game after it was clear that the wealthy special interests were about to take a bath on their bad bets. ”
Bingo. You win the Grand Prize. To collect it you will have to bail out those same Super Rich Villains this time around.
Don’t look for Congress to help. The Special Interests own them (and the FRB).
I thought that Wolf’s comment about Africa (plenty of food, but they have nothing to buy it with) was interesting, I wonder if he knows the American farmers in the early 1930’s were unable to sell their produce for the same reason, and so resorted to dumping it? ? Eventually FDR stepped in with food stamps, and made both farmers and the hungry happy again.
Depth Charge, do you remember that FinCEN regulatory proposal I gave you the heads up to comment on a while back? Well, it seems they have in fact lowered the cap on reporting Beneficial Ownership. At least, so far in the process;
“The ANPRM envisions imposing nationwide recordkeeping and reporting requirements on specified participants in transactions involving non-financed real estate purchases, with no minimum dollar threshold. ”
There were only 150 comments on one period..
This will put an additional damper on big money offshore investments in US real estate. The FiNCEN is underfunded and slow, but with the current sanctions and broad public support of those sanctions they may get more funding. ..(??)
Also, I’m seeing prices start to drop in my very overpriced area.
Lets just hope they keep food stamps funded well enough.. I think the bottom half of the economy has already hurt enough. It’s time for the top part to take a turn.
Some of them must also be aware of the risk of a systemic financial collapse. That was part of the purported reason for what they did and it’s valid. I’m not convinced it would have happened then, but it’s an ever bigger risk now.
Put a new “Ron Paul for President” sticker over an older one on my car 2 yrs. ago. I would guess that the majority of people that see it, don’t get it; they certainly didn’t get it during the 2012 election ;>{).
Both sides love free money and wars. The same lobbyists support both causes for both parties.
‘Put a new “Ron Paul for President” sticker over an older one on my car 2 yrs. ago.’
How Hobbesian. Giving up on civilization so soon? Ron Paul can’t keep his lies and hypocrises straight and is frequently cited as the most corrupt senator in congress.
“How Hobbesian. Giving up on civilization so soon? Ron Paul can’t keep his lies and hypocrises straight and is frequently cited as the most corrupt senator in congress.”
What a load of pure, unfettered horsesh!t.
Unamused,
Ron Paul is the former Congressman. Rand Paul, his son, is a senator.
The apple didn’t fall far from the tree, Ryan S, and it was rotten before it did.
I could quote some of Ron Paul’s most offensive statements from his newsletters, but I would expect it to be deleted immediately. He was a conspiracy theorist years before grotesque alternate realities became popular.
una,
please do quote such ”conspiracies” for my, and perhaps others on here’s education,,, including their later revelations of accuracy, etc., if any
un like una to make such general statements without supporting data, etc.
”generalizing on the basis of insufficient information” does no longer have the ”panache” that it used to have, especially on Wolf’s Wonder, where the data IS THE paramount focus
thanks,
I’m personally voting for Dwayne Elizondo Mountain Dew Camacho until they come up with someone better. I like him better than Vermin Supreme.
‘please do quote such ”conspiracies” for my . . . education’
Google up “ron paul conspiracy” and take your pick. You’ll never actually finish the list.
The last president proved it doesn’t matter who wins, not when it comes to changing any important federal policy.
Everyone has two choices.
Door A: Socialism on the installment method.
Door B: Socialism on the faster track.
There is no Door C.
unamused said: “‘Put a new “Ron Paul for President” sticker over an older one on my car 2 yrs. ago.’
How Hobbesian. Giving up on civilization so soon? Ron Paul can’t keep his lies and hypocrises straight and is frequently cited as the most corrupt senator in congress.”
——————————————–
support please?
Is it true that used car prices are crashing at the fastest rate ever? If so, maybe we hit peak inflation and this is a leading indicator that deflation will return for some things and then disinflation for some of the other commodities affected by Russia / Ukraine?
Hard to say. Manheim auction numbers are coming down some – I wouldn’t call it crashing
CarGurus listing numbers show prices continuing to go up
Isn’t this a silly, crazy world where we have to properly time even the purchase of a vehicle?
CarGuru’s listing prices will remain high until the units previously purchased at higher valuations are sold… or they get long in the tooth and need to be turned due to lot rot.
No, it’s not true and Wolf responded to your bogus ZH claim yesterday. Could it happen? Absolutely, but Wolf is almost like a soothsayer of the auto market, and he pointed out that you fell for clickbait.
Indeed!
Azani,
You posted the same ZH headline clickbait BS here yesterday. And I shot it down yesterday. Next time, I’m going to delete it.
Used vehicle wholesale prices seasonally adjusted dipped 1% in April from March and were up 14% yoy. Not adjusted, the index was up 2.9% in April from March, and was up 16% yoy.
For ZH, a 1% dip seasonally adjusted is a “collapse.” But not here. Here, as I have covered it since last November, the ridiculous used vehicle prices are weakening from their ridiculous levels starting in November. They’re still sky-high, though they’re weakening. There is no “collapse.”
Watching the CL listings for used vehicles in the tpa bay area, it seems clear that used vehicle prices are going UP these days, even compared with a couple months ago.
Certainly may be true that some folks listing are only doing so because they heard about it, but are late to the market.
Pick up trucks especially seem ”over priced” but trying to buy one new these days means committing your first born child, and maybe grandchild,,, or an arm and a leg otherwise!!!
Seasonally, used vehicle prices should go up this time of the year and then go down most of the rest of the year, with maybe a slight bump in later summer.
I was at one of my local Ford dealers on Saturday. 40 new cars on the lot total and many of those were Super Duty and lavishly accessorized trucks. The lot was a third full, but it was their own fleet of classic cars just on show and used cars that made it so.
The manager there told me a woman had bought a Maverick and resold it to them for $15000 more than she bought it. He said they risked that money because they are pretty sure they can resell it for more.
(I had not really understood how wild the market was until this weekend)
Husband is looking at purchasing a truck next year. We want to a Toyota, Ford, and Jeep/Chrysler/Ram dealership. They had 2 new trucks at Toyota, 0 at Ford, and 4 at Ram. We purchased a Jeep Cherokee in 2019 for 28K. They are currently selling used Jeep Cherokee, 2019, with 80k miles for 32K. No one was shopping. Two of the three dealerships sales people will not leave their desk. I asked the one that came out for the Ram how sales compared. He said it was dead. They laid off 50% of support staff. Most sales reps left. Nothing to sell. The truth is most supplies for automobiles are made in China and they just can’t get inventory. I told him it had to do with the prices too. No Jeep Wagoneer should ever cost 114K. The Lamborghini place across the street actually have a few models cheaper then a Jeep. It is a upside down world. BTW. The new Ram 1500 v-8 is 60k. The equivalent Ford was 2 years 80K miles for same price. Just wow!
Don’t delete anybody
It is the outrageous comments that keep people coming back.
To entertain the viewer is Primary.
Marcus Aurelius,
“To entertain the viewer is Primary.”
No, that is CATEGORICALLY FALSE on Wolf Street. Entertainment is a side benefit on Wolf Street. Good data, analysis, and commentary are PRIMARY on this site.
Abusing my site to spread falsehoods or propaganda is a total no-no, no matter how entertaining they may be.
If you haven’t figured this out, you haven’t figured out anything about Wolf Street.
There are plenty of sites that provide wildly entertaining financial fiction. Go there if that’s what you want to read and post in the comments there.
gawd luv ya’, Wolf…
may we all find a better day.
Thanks, Wolf, for keeping it honest. Integrity is becoming a rare superpower these days.
I hope this is because you forget to mark your comment as sarcasm, because it is total ridiculous for this site.
Depends on what kind of used cars your talking about.
Collector cars are definitely up.
By alot.
Of this I am sure.
Things like a 3 year old Honda or Toyota?
It’s pretty hard to tell because there is alot if matching inventory out there.
The 1965 Vette roadster I owned in 1974 that I paid $1,900 for back then (including the removable hard top) can now be had for ~$100,000 in nice (but not concours) condition. When the craziness is over, collectible cars will fall in price with everything else.
ditto my first owned car AA,
a ’56 Triumph TR-3 with the small ”cowl” purchased for $600 and now ”asking” $60-70,000…
Lovely little thing with plastique side windows stored in what we call the trunk in USA, large enough ”back seat” for very very interested folks to ”get it on” ,,,
otherwise, it ”got air” on any serious bump!
only real issue was the twin carbs needing ”adjustment” every day, OR ELSE!!! LOL
Was watching the recap of the Mecum Auto Auction in Kissimmee, FL yesterday for a few seconds. A custom 1950(?) Mercury lead sled sold for $1,950,000.
Yeah. That’s rational.
I’ve been watching used 2019 & newer Ford Rangers, and the lower end has definitely lost $2500 in listing price over the last two weeks. So, yes, Wolf’s next used car prices update should show a small downward trend that will grow over the summer.
Two very big and successful used car dealers around here (been here for years) have lots absolutely jammed with used trucks and SUVs. I would bet they are still high in price, but clearly no one is biting (or very few have). Sooner or later the prices on used cars will come back to earth.
Based upon my annual miles driven, I can actually make my current vehicles last the rest of my driving life. Unless they are stolen or totaled, I don’t have to be in the car market ever again. And with skyrocketing fuel prices, I have cut my trips to the bone. I am buying a new bicycle this year. Those prices are lalaland, too.
D.C., checked the price of bicycles lately? Or even delivery times?
This is starting to look like a textbook broad-based market top. I can’t imagine that many industries will be spared outside of perhaps military spending.
I’ll continue to reduce consumption until this mess is over.
The market top was 4 months ago in early January. We’re now into the 12-15 month slide. It’s hilarious for market pundits to write anything about “are we close to the bottom”. As Wolf says, the FED is only warming up. Everything catches fire in the next 6-9 months.
I have a tendency toward news addiction (not merely financial news) so last year I installed a website blocking app and walled myself off from everything except two independent general news sources and wolfstreet. I’ve been successful with this but, this weekend, just for the hell of it, I searched financial news more widely just to get a glimpse of what is being said on the mainstream sources and it was shocking! All kinds of advice about how “now is the best time to invest in stocks;” ‘we’ve reached the bottom;” “the Fed is reckless because of QT and interest rate hikes (as opposed to them being reckless for years prior to this) and that they should end them and reverse course immediately.. ” Nobody can absolutely predict the future but the spin and outright disinformation from the mainstream publications in many cases felt almost criminal.
Excellent. Wolf you were great. I wish the world could all hear.
I can’t see the video. I’m very sad that such useful information can’t be learned in time
It’s audio only, not video. But if you cannot get YouTube, but can get MP3, let me know, and I’ll post the MP3 link here.
Thank you! Please send an MP3 network link
However, I may not understand. My English is not very good.
I remember once before, you wrote the interview in English. That was the best one.
My browser can automatically translate into Chinese.
What a miracle that is. 15 or 20 years ago, that translation would not have been readily available.
(Some things do get better. It’s nice to remember that.)
yuanshan,
I do transcripts for all my own podcasts (THE WOLFS STREET REPORT) a few days after the podcast comes out, and that’s probably what you saw.
yuanshan: you’re kidding about your English right? As a decently educated Brit, I assure you that the language in your posts more than makes the grade. Maybe your browser is doing the translations :)
wolf，If you send it to tiktok, is it more popular? I heard that there are a lot of online celebrities in the United States who have attracted a lot of fans on tiktok and made money
It’s Howestreet’s podcast, not mine. I’m a guest on the show.
Inadvertently, I opened howstreet and saw your article, but I didn’t find MP3
Try this:
https://www.howestreet.com/2022/05/gold-oil-debt-inflation-real-estate-food-crisis-autos-robert-campbell-wolf-richter-ross-clark-this-week-in-money/
Yeah Wolf! go on tiktok! But first you got to put some purple dye in your hair, distend your earlobes, grow a pencil thin mustache, and get a unicorn poster with glitter.
Also he will have to add some purple eye shadow and a gold ring in his nose to complete the look!
Then he would have to rename the site to ‘WhoseStreet’ to conform to the non-specific standards.
Gonna need a neck tattoo as well.
Just paste some big cardboard Groucho Marx eyebrows and mustache on. You’ll start a new trend, cause most TikTok users have never heard of him (or anyone over 30).
The Fed is 100 years too late to undo the parasitic damage they’ve wrought. All they’ve got left is the pretense of reigning in inflation. Every crisis will be papered by trillions and soon quadrillions. It’s not debt by design, it’s devaluation by design, and what you’re staring at right now is a Fed engineered bargain hunter’s dream at the expense of the buy high / sell low crowd.
Keep up the, “It goes much lower from here” doom and gloom though…it’ll pair wonderfully well with the cognitive dissonance over the coming new all time highs.
I’m not a big fan of the Fed, but things weren’t rainbows and unicorns before the Fed either–intermittent bank runs, banks going under, savings getting wiped out, etc. The Fed does provide some essential services that promote stability. The problem is a government and a duped public who thinks they can print their way to prosperity without facing the consequences–currency debasement with the accompanying inflation.
To the debate of what we will see, inflation vs deflation, I too see inflation sticking for the long term. Early on in the pandemic, I could see that we would eventually have the “soft landing” of inflation as a consequence of the money-printing orgy congress and the Fed participated in. Inflation is caused by increasing the money supply, period. I don’t see the US reigning in spending anytime soon. That said, I would love to see a surprise 1% rate hike tomorrow along with an aggressive start to QT.
One important question I’m struggling to understand is: What happens when the Fed sells assets through QT at a market price lower than what it purchased for during QE?
Is the difference (amount of decline) in market pricing, hence a ‘loss’ for the Fed, simply an indirect quasi-government welfare payment to the seller(s) of debt securities during the old QE period, including the government itself?
Although I feel I have a reasonable grasp of the basics of Fed balance sheet maneuvering, some of the more abstract issues (such as when it would be most advantageous to sell MBS vs. other debt and/or reverse repo strategies) still escape my understanding & I need to study a bit more.
Wolf’s interview answer where he said only 4% short term rates may be needed to quell inflation with sufficient QT seemed logical.
The profit & loss of the Fed goes to the Treasury, so if they unwind part of their balance sheet at a loss, that loss goes to the tax payer.
Normally, the Fed is a source of revenue for the Treasury because in normal conditions it is a very profitable business. After all, they are trading zero-yielding base money for positive yielding Treasuries on their balance sheet (seigniorage).
Theoretically they could incur some losses if they start selling assets outright (rather than letting them roll off their balance sheet), but you can set that against massive profits that they made in earlier years, so it is still not a big deal imo.
Also, seigniorage income will rise on the remaining portion of the balance sheet (if they don’t let them all roll off at maturity but replace them with new, higher yielding Treasuries after the old ones mature).
Outright losses by the Fed requiring the Treasury to compensate for these opens the Fed up to losing more of their “independence”, so they will be very careful to avoid this.
My understanding is the Fed is going to try to hold notes and bonds to maturity and then not replace and there would be no loss.
If Fed technically becomes insolvent I think Congress would vote for bailout as the Fed has been paying interest to US Treasury, so they could spin it to the public that it wasn’t really a bailout.
Heard a bond trader say as far as supply/demand to the market it doesn’t make any difference whether the Fed allows bond to runoff or sells the bonds to the market. A billion dollars in bonds is a billion dollars in bonds. Hurt my head to try to figure out if he was correct
The FED can’t become insolvent. They can lead us down a path to hyper inflation, though.
You are right, the Fed can’t go insolvent…but it/they will sooner or later (hopefully sooner) be irrelevant.
The solution is simple….with every overpriced pizza ordered, there is a free low interest bearing bond in the bottom of the box. For additional special toppings, you get a share of the rapidly declining stock in the delivery people. Beer not included. Gasoline surchage re-calculated every quarter, of an hour.
Pure wisdom dispensed daily.
Is the stock market going lower? It is just the beginning.
Inflation is worldwide.
Food shortages have overthrown dictators.
Short term rates to 4%, QT coming for sure.
Exuberant markets are reversing. It is just the beginning.
Mayhem in capital gains (and asset valuations). It is just the beginning.
Housing going down. It is just the beginning.
Stocks down. It is just the beginning.
Demand destruction. It is just the beginning.
Candidly, Wolfstreet is the only thing I look at, aside from the graphs of the markets. These are the only sources of truth.
We have been through the first dead cat bounce in all markets.
Look out below.
Our Chinese media reports
Bank of America estimates that the current bear market in US stocks will end in October
Michael Hartnett, chief strategist of Bank of America, a Wall Street institution, said that the bear market in US stocks will end at 3000 on October this year. After reviewing the 19 bear market history of the past 140 years, the legendary Wall Street most quasi analyst and his team found that the average price of US stocks fell 37.3% during the bear market period, with an average duration of about 289 days.
Earlier, Hartnett said that the S & P 500 index falling below 4000 would become a “critical point”, which could trigger a large-scale flight of stock market investors. In the past three weeks, the capital outflow of equity funds has reached the highest level since March 2020.
According to the performance of 19 bear markets in the past history, Bank of America calculated that if the US stock market continues to fall and enter the bear market range, the current bear market will end in mid October this year. At that time, the S & P 500 index will fall to 3000 points, that is, it will continue to fall by 27% compared with the closing price of 4123 points on Friday.
Yuanshan-
Good to see third party perspective. BoA might be right.
But, I can’t seem to shake the vivid recollection of Goldman’s perfectly logical prediction $200/barrel oil prices back in 2014.
Goldman’s prediction will be right eventually, though maybe a decade or two late. (For perspective: 2 decades = 1 generation)
S&P futures approaching 4000 already this morning ys, and reading this is the fastest fall ever, so far?
Lots of room to fall, and I am sticking with 1500-1800 as commented here in early 2020.
Believe others on here with similar guesstimate then.
Any guesstimate on the time frame for the 1500-1800? Will we get 2400 by Sept?
KPL,
not at this time,,, but will let ya know when it appears clear, clearly, or even some what more clear, if ever with all the manipulations from SO many these days…
apprentice to one who made his living in the SM for many years, he always insisted that one could maybe know, kinda like a famous cat, where it ”might” end OR when it might end, but likely not ever both
he was a serious student of JPM’s dicta, inter alia,,, and IIRC never ”worked” after a few years out of U of Chicago engineering college except for watching the stock market ticker ”all day some days.”
Great mentor,,, far shore.
“the legendary Wall Street most quasi analyst and his team found that the average price of US stocks fell 37.3% during the bear market period, with an average duration of about 289 days.”
A bear market after a bull market of epic proportion? Funny calculation.
To return to historic median valuation, the S&P500 would have to fall to about 2000.
However, by definition half of the time is spend below the median value, so it would be reasonable to undershoot this value by a fair amount. For stocks to get an attractive value by historical measures, we are talking 1200-1500 on the S&P500.
I’m not saying that we will get there, but in terms of valuation, that would be have been a normal valuation during a run of the mill recession before we entered Clown World.
I know that would be 70-75% drop, which perhaps sounds outrageous, but this simply reflects the fact that the bubble preceding it is unprecedented and a return to normality would simply require a drop of this magnitude.
YuShan, I agree with your comments. I think we will have much greater problems other than financial ones if the markets fell that much.
What is it that someone said, something like man and anarchy is only 9 meals apart from each other or something?
Bear “market.”
There is no “market.” There’s an artificially inflated bubble.
And I’ll bet B of A has the same tea leaves reading talent as the IMF. I have a a hilarious “IMF projections vs. reality” graph I’d like to link to.
So, hurrah, we might avoid bringing about fundamental reality for a bit longer thereby making certain that the eventual trough to be reached quickly or boiled frog slowly will be very deep.
The IMF is a sick joke just like the world’s central banks. We have a banker problem that needs to be addressed.
Technically its not a bear market until the DOW loses 20 percent or more and of all the bear markets this is by far the most overpriced in history dating back to the very first bear market on record.
The Empire has to sell its debt. The Fed buying the Empire’s debt produces nothing to consume. To consume we need our non-productive debt to be swapped for production we can consume. The Military Ind. Complex and its Securiy State and the political class and it’s Oligarch’s are fed by selling that debt to a producer not a non-producer such as the Fed. We the People do not deliver enough tax money to fullfill the Empire’s ravenous needs. To fullfill it’s needs ,which only debt satisfies,the Empire will liquidate any thing or any one to achieve that purpose. At the end of the day the Empire will liquidate its vassal called the Private Sector to whatever level it takes to meet that end. There are two political parties that are enriched by and therefore serve only one Empire. Democracy and its courts always serves the same. The average person and their security means little. Deft Politcal manupliation will keep the masses at each other’s throat while the Empire is liquidating. This bitch bubble of an economy is in the process of liquidation and if it is not successfully liquidated in an orderly manner we will feel the wrath of an Empire. A good outcome is a 401K being a 200.5K instead of a101K. It’s for our own good that we know and understand our position in the hierarchy of the Empire.
The avalanche has started. We pebbles are just along for the ride.
May be we can add…
Recession. It is just beginning
Disclosure- I am now entirely in cash having booked profits in the premarket. Looking at going long TQQQ and URTY for the bounce.
Feel free to get out of URTY and TQQQ at a profit.
Remember, we are in a bear market.
Bear market rallies have always been called “short covering” rallies which has always puzzled me. Humans who make money in bear markets are in cash as new lows are probed, shorting the rallies with confidence that the lows will be revisited.
Harry Houndstooth,
I can see why they’re called short-covering rallies: at the end of a sell-off, sellers are exhausted because everyone who wanted to sell desperately, finished dumping their stuff and the selling pressure slows down. And then dip buyers jump in because they see an opportunity as the selling pressure slows down, and that makes sense, and so stocks begin to rise sharply, which empowers other dip buyers to jump in and drive up prices further… And then panicky investors with short positions, facing asymmetrical losses (theoretically unlimited losses), scramble to cover their short positions, thereby becoming forced buyers in an already hot rally, and they don’t care, they just want to get out of their short positions, and they’d pay anything to get out as they’re chasing prices higher, which provides extra oomph to the rally. I see short covering as a big contributor to why bear market rallies are so sharp.
When speculators like you disappear from this blog for good, wiped out, I’ll know we’re finally getting into a recession.
How do you get wiped out when you are in cash?
“How do you get wiped out when you are in cash?”
You were talking about jumping back in for a “bounce.” You’re speculating.
If you believe Gurufocus explanation on their market cap to GDP valuation levels history shows that each time the valuation measure gets in the top quintile the cycle is not over til valuations fall into the bottom quintile. Don’t know if true, but sounds plausible. If true we are going to sub 1000 on S&P.
The fed can’t fight inflation. They have an army of jawboners strategically placed to talk a big hawkish game but they have only dovish plans. As markets drop at an accelerated rate and the 10yr screams higher (wait for 3.24 to see if that sparks acceleration) the fed will capitulate and print an enormous QE to keep interest rates low. The bottom will drop out of the dollar and metals will explode higher. This will March us towards hyperinflation where politics won’t matter anymore and the fed and DC will only care about survival. Hyperinflation or allow the everything bubble to pop. My money’s on the latter and I’m backing the return to sound money with gold backing the dollar. The fed will have lost all credibility and will no longer be a going concern and Keynesian economics will go down in the history books as a failed experiment.
Food prices are affected by rising energy and fertilizer costs. The price of fertilizers used by farmers has risen rapidly. This is in part linked to rising natural gas and LNG prices. Natural gas is used to make nitrogen based fertilizers. Since natural gas is in short supply, fertilizer exports from China and Russia decreased. Europeans are dependent on LNG and pipeline natural gas for their utilities. They can no longer make cheap fertilizer. Potash fertilizer used to add potassium to the soil is more expensive due to sanctions blocking potash exports from Belarus as Lithuania denies them access to their Baltic Sea ports.
Europe is looking at a very crappy winter later this year, or by that time war will already have commenced. Overthrowing their American overlords will never be a choice. It’s the European dream coming true, they have traded 3000 tyrants a kilometers (not miles ;)) away for a tyrant 3000 kilometers away.
Yippee!!!
There will be one hegemon or another. Some are worse than others. All have their downsides. Never will people just dance in a Jeffersonian sunshine unmolested (for more than about five seconds). Never was, and never will.
US might be the only hegemon ever to rule as a debtor instead of a creditor.
We have both fertilizer problems and septic waste problems with outdated systems poisoning waterways with high nitrates etc.. It’s too bad we can’t match them in some way leaving household chemicals out of the mix. I suppose it would might take too much of an investment of 2 separate plumbing systems..
Canadian real estate agents are threatening legal and police action on bloggers who post critical remarks of “Toronto real estate”. Canada doesn’t have free speech like the USA, but criticizing “Toronto real estate” is somewhat a crime in Canada these days.
In my little hometown in North Carolina population 5000 four young outsiders set up residence a few months ago and are running for city council as a block promoting a lot of what I would consider far left agenda items, but the big one is rent controls.
Has the town stirred up prompting full front page coverage in local paper. Supposedly they are funded by a certain billionaire that I can’t remember his name, but not Soros. I wonder if this is a nationwide thing. Seems strange to go after a small town of 5000.
Has happened similar ”back in the day” OS.
Was involved with a ”cooperative” group called ”Hoedads” after their tool of choice for planting tree seedlings actually all over the globe back in the 1970s.
They had already been able to have one of their folks elected in a fair and open — in the sense they were totally upfront about their focus on cooperative model for ”gettin things done” — and were trying to elect a second person to the county commission; did not succeed then.
Have had no communications recently, but their cooperative model certainly seemed to be a work able model, suppose similar to old fashion ”guilds, unions”, etc…
VERY hard working folks of all genders, and it was a challenge for me to keep up with the chain saw operators who later turned out to be women,,, and very female women at that, when we reconvened at their ”local watering hole” after proving that forest rehab was viable by mechanical means rather than spraying Agent Orange that the US Forest Service had been using before the Hoedads came to plant, that had clearly caused ”miscarriages” to the very healthy young women who came in contact with those chemicals the USA was trying to get rid of then and continuing for many years since, all over USA.
DUH, and some wonder why the cancer rates have gone SO far UP…
In a nutshell it all comes down to can they break the Chinese stranglehold on real estate and implode the ponzi? Anything else you read on the comments holds no merit. The last thing Canada needs is homes selling for 86 times annual income like in China.
The United States is open to the highest bidder, citizens be damned. Allowing foreign speculators, from our enemy no less, to drive prices out of the reach of local workers is more evil than words can describe.
That is rubbish. Why post such drivel?
There is no prospect of any “legal action” or “police action” because people post negative comments about Toronto Real Estate!
You make it sound like you live in a police state. Get real.
You live in one of the freest countries in the world – there is no “legal action” or “police action” possible for posting opinions online!
Come on now. Quit the scaremongering.
In Canada they’ll lock you up for calling a “Paki” a “Paki” It happened to a friend of mine around the mid 1980’s and he ended up in the Don jail. The Pakistani guy made one phone call and they came in and arrested the guy.
Any talk of seizure of bank accounts?
Meant for Gen Z.
Just like the Fed, if you have generated a lot of debt hoping inflation just goes away, you’re in trouble now. Gasoline keeps spiking, no matter the oil price. Fast food is so expensive now. The grand gouge is on, dog eat dog.
The smiling faces of people driving the new high-dollar vehicles are turning to frowns. It just ain’t fun no more with gas $4, you can see the anger in how people are driving.
The supposed safe haven in a 60-40 portfolio, the supposed “hedge,” isn’t working this time, because the Fed spent all that on social peace.
This was money and credit creation to:
1) placate the middle class and rich by propping up asset prices,
2) placate the poor/far left and mitigate riots (which were starting up in ’20),
3) in doing the above 2 items, replace a stalemated legislative branch by non-elected, non-democratic fiat spending,
4) placate first a president who was using his most bullying of bully pulpits to openly twist Powell’s arm, and now one who believes in a more gentle urging to copious free stuff for all,
5) maintain the illusion if not the reality of vibrant, entrepreneurial, market-based capitalism. There was some success but a lot of zombies were created. A lot of phony assets were created, masquerading as innovation.
The bill is coming due. More widely, as in Ukraine, it is the first in a series of margin calls for the hegemon. Ask not for whom the popcorn pops.
In Wolf’s lexicon, the WTF era has not ended, but entered a new direction on the charts.
We’re in the era of WTF^3.
ZIRP was always going to be the end point of the 60:40 strategy, because the unwind make stocks and bonds to decline at the simultaneously (as we see happening now).
It happened one time before in my lifetime when inflation took off in the seventies. Thirty day t-bills outperformed stocks and bonds for a long time, but only kept up with inflation. Those days are gone as t-bills will not be keeping up with inflation in my lifetime I don’t think.
Alternative to 60-40 is 60-30-10 with the 10 being cash. Buffet doesn’t like bonds so he likes 90 – 10 cash. I think he said Berkshire is about 80% equity and 20% cash. He always says if you are in equities the quoted price will get cut in half from time to time.
Food shortages! LOL.
In the Third World, sure – but there are always food shortages in the Third World.
There will be no food shortages in the USA, Western Europe, Japan, Australia, Latin America etc – just slightly more expensive food.
It’s no big deal.
Unless you have to pay for it.
If you go to any large city like New York, Los Angeles, and Chicago, you will find plenty of hungry people, many living in the streets, and their numbers are increasing. They will continue to increase in every city.
Homeless are everywhere here in DC. I bring an extra wallet with me and if I see a homeless Vet I usually hand them a $5 bill for breakfast at Macdonalds.
Don’t hand them the $5.
Go buy the breakfast and hand that to them.
I think that breakfast is more like $9 now
Let them choose what they spend the money on.
Worse than the 2008 almost-collapse? That should frighten you. One could surmise that this time it’s not going to be an almost-collapse.
I agree that The Fed has to push interest rates higher than the rate of inflation in order to get it under control. It makes no economic sense for interest rates to be lower than the rate of inflation anyway.
It only makes sense if The Fed is pursuing a malicious agenda, which it is, because the FIC has long contrived a trapezocracy. They have some competition there because the US will soon have a malignant pseudo-religious kakistocracy, and while the banks will retain a great deal of their accumulated power they will not be in charge.
I did say it would be ugly. I’ve even mentioned that it would be weird ugly.
I am frequently concerned that my jeremiads may fail to convey the proper sense of urgency, but it’s not as if there was ever all that much anyone could have done about it.
War is coming.
GOOD one una,,, and thanks most of all for the ”WE the PEONS” from your last ”round” of comments on WOLF’S Wonder!!!
How some ever, I really really want to encourage you to read ”The Endurance” about the most likely best ever effort of our species to endure.
Surely, WE will face similar challenges going forward, as your comments describe SO well,,, but equally surely, WE will eventually continue as a species until the sun mandates otherwise.
Until then,,, WE the ”PRE boomers” MUST just enjoy our clearly better than before for almost all olde folks who have been prudent and savers and have NO debt and only buy ”stuff” to give away to our ”GRANDS”…
((BTW,,, just to be shore,,, olde just another joke for the asholes using that word to sell more and evermore overpriced RE in flowr duh. ))
Would retiring in Portugal solve this ?
Wolf,
Now you have given us yet another new one:
Ryfo as in “rip your face off”.
The djia seems to be doing Ryfo today again, so far this first half hour.
“Rip your face off” is an old technical term in trading, similar to “dead-cat bounce.” Trading lingo has long been very colorful. I cannot take credit for any of it, unfortunately.
W/R/T food shortages …
baby formula
– WTF Baby Formula!?!? –
is in very short supply. Estimated down 30 to 40 percent of normal.
“It is a transitory inflation”! by Jerome Powell…
And it always will be.
All the lemmings that bought houses at the top of the bousing bubble are going to be SOL (S$it out of luck) as the interest rates on long term bonds continues to go up and the Fed starts unloading MBS right into the bond meltdown to make it even worse. Look for recent buyers who lose their jobs and have to move unable to sell and re-locate. I wonder if they may have second thoughts about those super low interest rates they were suckered into and was figured into the price they paid and that they have on their mortgage as their house goes underwater, while their principle is locked in at some bubble price that no one can afford. We could have a repeat of 2006/2007 all over again for a different reason. Different cause, same outcome.
A new tranche of people will find the Fed put didn’t reach down to insure their level of financial risk. That was those peoples’ choice. Pieces of the former middle class are being chipped off, as in ’08. People complacent about their finances (or buying too easily into the boosterism) are now paying a serious price. “A home is a home, not an investment.” Really? It is an asset and suffers the same issues as any other.
A home is an expense, not an investment. So long as you’re making payments it is the bank’s asset, not yours. Your illiquid equity, if any, is often an impaired asset.
no mortgage does NOT mean you ”own” ANY real estate in USA una:
in fact, it is truly OWNED by the municipality/county that taxes it and lets you stay as long as you pay,,, without regard to any choices WE the PEONs might have or make…
surely one can put off the day of reckoning when the taxing authority forecloses and TAKES the real estate, but only in some places and only ever until one dies
to think otherwise is sheer folly as a result of massive propaganda,,, and the truth of the matter really should be taught in every secondary school and above everywhere
Weirdly, as always, there will be sympathy for people who lose some home equity (while they can still live in their house, so no big deal). But there is never any sympathy for savers or people on a fixed income who lose several percent to inflation, year in year out, and double digits this year.
Yu — so true. And the loss from that inflation is permanent, year in, year out…
I just don’t get it, other than that most people are desensitized to a certain level of inflation. It’s….”normal”.
Exactly. People who panic-bought housing at nosebleed prices deserve whatever happens to them. They are not innocent bystanders
It is nice to see equities and commodities correcting so efficiently and quickly again today and interest rates on 10 year US Treasuries rising so nicely as they move towards the 5% to 6% level. True efficient price discovery in the markets is a wonder to behold and will correct most of the ills of the US economy.
Casino royal for entertainment only : ES S&P futures weekly closed
Mar 29/ Apr 5 open gap, retracing about 50% of the move from Oct 2020 lo.
2) NQ Nasdaq 100 futures retraced almost 50% of the move from Mar 2020 low.
3) A low slog bear market rally might be next.
4) At the top switch table for TLT chips, long term bonds, before acute shortages develop.
SNAP -50% FACEBOOK -41% UBER -40% AMAZON -34% DISNEY -30% TESLA -25% GOOGLE -22%
BITCOIN BATTERED…
Crypto Fad Fades…
My wealth effect…
But absolutely no impact to home prices YET.
Patience. Home prices are the last to move.
We’re already seeing a big slowdown in foot traffic at open houses in San Francisco. Offers coming in more slowly, and fewer of them. That’s how it starts. Prices won’t react until sellers get nervous because they can’t sell at the prices they want. This takes a while.
Dear Wolf,
I am thinking of buying Bond Mutual Funds now. I am based in India, and our 10-year GOI yield has now reached 7.5% from 5.8%. I do recognize that yields can go higher from here, and you may not be aware of GOI yields, but they havent gone too much above 9% in the past peaks, 2007 included. The problem is individual GOI bonds are not liquid, and one has to hold them to maturity. So I am now starting to buy mutual funds and etfs that.buy GOI bonds. They are liquid, in the sense that I can release funds in a couple of days at fund’s NAV. Their NAV has already been wrecked subtantially as rates went from 5.8 to 7.2. You mention that you do not like bond funds etfs etc. My intent is ofcrse at some point we will have a crash may be a year later or two. Then the yields should fall to cycle lows again, whichfor India 10 year has been comfortably below 6 in last few cycles, 2007 crash, 2020 crash etc.
Stocks are getting dumped, but not enough. Our index pre-pandemic was 12.4 K now it is 16.3 which means approx 15% per annum return over the last two years.
Can you elaborate on the problem with bond MFs/ETFs , and is their a way in which I can avoid it. Lower duration yields are same as Bank Fixed Deposit rates here around 5%, inflation is close to 9% based on my own cost of living calculations. Official inflation is 6.5%.
Many thanks in advance for your view.
TweedleDum,
You can buy whatever you want. I won’t try to talk you out of it. I have given you my 2 cents.
But if you want to invest in bonds, why don’t you buy the bond outright at issuance from the government and hold till maturity? If you buy bond funds, you’re taking far greater risks than buying the bonds outright and holding till maturity.
Thanks for your reply. I just wanted to understand your reasoning as to why for example TLT has far greater risks than 20 Yr T Bonds which it tracks? Were you talking about potential illiquidity issues with corporate bond etfs?
As for why not buy bonds outright, holding till maturity. Any duration below 10 year yields sharply negative real rates in India. There is virtually zero secondary market liquidity in individual bonds, especially off the run bonds.
It therefore makes no sense to block capital for 10+ years when in near term there is a good likelihood of a asset price crash. Bond ETF (that hold a bunch of 10 yrs gilts) avoid this issue, as I can sell them at a day’s notice at the prevailing NAV, if market finally decides to crash in late 2022
“Any duration below 10 year yields sharply negative real rates in India. There is virtually zero secondary market liquidity in individual bonds, especially off the run bonds.”
These are among the precise reasons why I would NEVER own a bond fund with these types of bonds. In a credit crisis, you WILL get a run on the fund, and it WILL collapse. Unless the central bank intervenes and bails it out. The underlying bonds will be fine though, if you hold them to maturity.
Thanks for clarifying Wolf. Fortunately, this is not an issue for sovereign bond funds. In a credit crisis like 2008 or a general market.panic like 2020, there is a flight to safety and government bonds are bought aggresively as risk assets are dumped. This is what I meant by cycle lows of yields being around 5.8% ,which was the case during peak crisis in 2008. Of course, there may be tempoary dislocations in government treasuries but it is a matter of days or weeks at max, the yields plummet along with risk assets. The NAV of bond funds and etfs rises. For corporate bonds illiquidity can be a major concern as they get sold along with other risk. Many thanks for your replies, I was apprehensive as to whether I am overlooking some other obvious problem
PS: I did mention secondary market liquidity for Gilts is poor, and that is true for retail trading on exchanges, so it is problematic for me to get rid of indivodual gilts. However, gilts get primarily traded on otc platforms in large blocks among institutions, and also among banks in the interbank markets. These markets are extremely liquid, so the gilt yields are very well behaved during crises, and tend to fall precipitously rather than rise.
Hahaha, that’s funny. You sound like you’re trying to sell me a bond fund holding Indian government bonds. Good luck with that! Why did you even ask me what I thought about it if you’ve got your sales presentation already lined up and ready to go? Fine me with me. You can buy whatever you want. You don’t have to try to persuade me that it’s OK :-]
Gasoline and diesel price increases to date are equivalent to about $200 billion a year of drain from consumer pocketbooks.
Every 10% increase in food cost is another $170 billion.
While these numbers are small compared to Fed’s asset purchases in the runup, this drain is on top of the Taper – much less QT.
As such, I don’t see the effects of food and gas on the US as being only a problem for the poor people.
“As such, I don’t see the effects of food and gas on the US as being only a problem for the poor people.”
Yes, it’s a problem for the poor, and the soon to be poorer, middle class too.
Oh, us older folks on fixed incomes are having to deal with this too.
Consumer staples? Go long dog food.
I really wouldn’t be surprised if Purina or some other big pet food supplier comes out with a product that is specifically formulated for dogs, cats, and humans. What a deal that would be!
Actually replying to AA:
That is available already, but is actually more expensive per gram of protein than tuna or sardines, from what I have been told recently by a friend who works at an ”upscale” grocery store.
Have ”supplements” etc., to ensure a ”complete meal.”
Supply s_it storm unfolding…..
Duly Noted;
“One of my trucks stopped off earlier this morning at a Tyson chicken
warehouse in Arkansas to pick up a load of frozen chickens.
For the previous 2 years we’ve picked up 1 load a week that delivers to a
cold storage facility near Minneapolis.
During the pandemic the # of pallets we’d load went from 21 down to 12-16.
Today,,,,,the # dropped to 4
I called the warehouse manager & he said the reason was due to a lack of product & they’re reducing all shipments to every customer.”
Happy Motoring (*.^)
Remember when chicken wings were thrown away by the butcher, or given away free (years ago). Now, our local watering hole is charging $1.00 per wing for an order of hot wings. That does include a stick of celery and some blue cheese dressing, though.
This is Texas folks, not California prices.
Bird flu
BINGO tck:
Another couple million birds destroyed yesterday, after many dozen millions in and around Iowa alone recently.
IIRC, federal law now forbids use of any antibiotic in chickens specifically, and of course they are housed in very ”controlled climate” situations these days.
“Good data, analysis, and commentary are PRIMARY on this site.”
And this is the exact reason I come to Wolf Street!!
Who in their right mind would still be in the stock market riding down techs today? Amazon is $1500 off highs from just 6 months ago. Talk about evaporation. Could the Fed have at least bought the cow manure from stockyards, piled it and have something to show for all the printed money?
I don’t own Amazon, but I have upped my stock expose from about 2% to 10% over the last eight months or so.
I don’t mind a falling market and I think it’s go a long way to go. But the baby does get thrown out with the bath water and sometimes something gets priced for an acceptable return even at this point in the cycle, but I usually take small bights over a long time period in a falling market as cheaper prices usually come tomorrow.
Yes the Fed waited too long. Rhetorical question. The stock market is beginning to take on the aspect of things that go bump in the night. The Fed PUT is potentially alive, I think it will make a comeback. Short term money is on the sidelines, or selling. The psychology of housing is old Stone’s song, Gimme Shelter. No food shortage unless Trump bombs Mexico.
America produces nothing anymore, yet continues to spend at record levels. When you produce/manafucture almost nothing of value, outside of a few tech, quasi government weapons contracts and beverage oligopolies, then how the hell do you expect to continue to spend at this rate? The answer up until now has been to print more money, but the U.S. dollar will not be the reserve currency forever, especially not after freezing Russian assets. Brazil, India, Japan, China, and so many others are now reevaluating their dollar position – wondering if the woke thugs in the U.S. congress are going to freeze their assets simply because they disagree with some nut job socialist/marxist/totalitarian policy that attempts to treat people as a means to an end, instead of an end in themselves.
Ragnar,
Good lordy, I’ll just go ahead and shoot down the beginning with my hands tied behind my back.
“America produces nothing anymore…” and “When you produce/manafucture almost nothing of value, outside of a few tech, quasi government weapons contracts and beverage oligopolies,…”
The US the second largest manufacturer in the world, behind China, and way ahead of all the others. The problem isn’t that America doesn’t manufacture anything anymore, which is BS; the problem is that America is behind China in manufacturing, when it should be #1.
America is also #1 the world in oil and gas production. America is a huge producer of agricultural products. Construction, which is included in “production,” is also huge in America.
All the gas stations here are posting $4.99/gallon price for regular gasoline. What is so sacred about that $4.99 price? I still haven’t seen a single one over $4.99. We haven’t had any “GAS STATION FROM HELL” yet.
There are sound barriers. Once you go over them, demand suddenly wanes, as people go to gas stations that still sell at $4.99 a gallon. In San Francisco, that sound barrier is $6. Once you go over it, people drive the extra mile to go to another station that’s still at $5.99. It’s really hard to break that sound barrier and maintain your business.
The “GAS STATION FROM HELL” broke the $4.99/gallon barrier yesterday. It’s now $5.39/gallon for regular. The only one so far. There are no other gas stations around it to compete with.
The Fed has two mandates 1) full employment and 2) price stabiltty. The Fed correctly cut interest rates to facility full employment which is 3.6%. The US oligarchs wanted the Fed to raise rates to create unemployment so they have an ample supply of serfs. However, the Fed did not blink.
Also, Fed can now reaise interest rates to cool inflation if they can.
However, much of the inflation is caused by car makers who can’t manufacture cars and home builders who cant build houses. Will high interest rates make those industries do their job? Not a chance.
Inflation has moved into services (and BTW, prices of new houses or any houses are not part of CPI):
https://wolfstreet.com/2022/05/13/huge-percentage-gains-robinhood-soars-25-coinbase-soars-35-etc-that-you-can-barely-see-on-their-uneven-stairways-to-heck/