THE WOLF STREET REPORT: Dotcom Bust 2, New & Improved

But we’ve had it so good for so long. And it was so easy, and it made everyone look like a genius (you can also download the WOLF STREET REPORT wherever you get your podcasts).

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  174 comments for “THE WOLF STREET REPORT: Dotcom Bust 2, New & Improved

  1. azani says:

    Sounds like a roundabout episode on why market indexed ETFs are the smart long time bet….

    If you buy individual stocks, you always need to have a plan when to sell.

    At least with the market indexed ETFs you can drip feed every pay regardless of what the markets are doing.

    IMO being too bearish just means you’ll talk yourself out of participating in the next bull market….

    • Halibut says:

      I don’t want to dollar cost average into this train wreck.

      • cas127 says:

        The inherent, low cost diversification of indexing makes it a winner relative to many approaches but there are latent issues/weaknesses that have been inadequately researched.

        1) *Systemic* macroeconomic disruptions/manipulations can poison even indexing – two decades of ZIRP baked absurdly inflated PEs into the cake, distorting almost all stocks – therefore distorting indexes.

        2) The best *weighting regime* is an unanswered question. Market cap weighting is the norm, but it creates self-fulfilling prophecies/pathologies – after a while the heaviest weighted stocks rise because…they have become the heaviest weighted. Price rises when indexes buy, which causes individual momentum investors to buy, which forces indexes to weight higher, buying more at higher prices – and on and on. That’s how you get goofy PEs.

        3) The criteria/methods of adding/subtracting index members can be opaque and poorly understood…despite a profound impact on individual stocks due to #1.

        Indexing is likely the best method (even for 95% of pros) but it still a tool with weaknesses.

        • roddy6667 says:

          “Everybody has a plan, until they get punched in the face”.
          M. Tyson

    • SoCalBeachDude says:

      You must really like losing buckets of money as stocks plummet!

    • Mr. Peach says:

      Index if you are a noob

      • Cas127 says:

        Impoverished troll.

        • NBay says:

          That was nasty.
          It’s not like you post any great financial wisdom here.

          Keep posting Peach, this jerk doesn’t own the site, and that wasn’t bad advice, either, if one decides to invest.

    • Old School says:

      Biggest factor in my mind is when you need the money. If it’s tomorrow the right answer is cash, if it’s in 50 years it’s a widely diversified stock portfolio. I think there has been one time that 10 year Treasury out performed stocks over a 30 year period. So once you get under 30 year time horizon you could make the case you should start having some fixed income exposure.

      One idea I had is when you retire you probably should have at least enough fixed income to run you 10 years as that should allow you to withstand a 2000 or 2009 stock draw down and give you time to tweak your life style downward.

    • Augustus Frost says:

      “IMO being too bearish just means you’ll talk yourself out of participating in the next bull market….”

      That’s because you have never seen a bear market of the size about to hit the US stock market.

      Look at foreign stock markets, most have gone absolutely nowhere or have negative returns since 2000 or 2007. Some with plenty of “growth” too, like China.

      Those who own US index funds will find themselves indexed to a multi-decade bear market with terrible fundamentals. For starters, a current 1.40% SPY dividend yield even after one of the worst starts to a year ever.

      This is the most overpriced stock market in history, except for Japan in 1989. Difference is Japan was localized while this mania is global (credit and real estate) and the most extended ever, over two decades.

      Don’t have specifics for the S&P but the DJIA lost about 23% over a 16 1/2 year period (not including dividends) from 2/1966 to 8/1982. There was no mania in 1966 and the fundamentals were orders of magnitude better.

      • Lisa_Hooker says:

        Augustus speaks the truth. We are way the hell overextended and have nowhere near the fundamental economic backing we had in past crashes.

    • RockHard says:

      Indexing and dollar cost averaging doesn’t mean ignoring the macro environment. My 401k is very passive (not too many options to choose from and by definition I’m $ cost averaging) but I even rebalanced that and reallocated new investments out of equities last fall because I was convinced (partly thanks to this site) that the bottom was going to drop.

    • ETFs will face liquidity issues. The market has gone higher by shrinking supply, at critical mass try to imagine how that plays out.

    • sunny129 says:

      ‘At least with the market indexed ETFs you can drip feed every pay regardless of what the markets are doing’
      Drip feed ($ averaging) works great during SECULAR Bull as it happened since March of ’09 until this February. But NOT so during a protracted secular BEAR mkt (of course with big bounces) when marching towards
      ‘reversion to the mean’ which is as common as 4 seasons. Not making this up. Just read mkt history!

      Today was classic example of hopium re China, narrative spin, DJIA opened above 300 but ended around 16 at 4pm. Wonder how many got sucked into this ‘bear’ traps, which is expected and quite common, in all the previous bear mkts! Fundamentals do matter going forward.

  2. SilentC says:

    Azani, true for most people, but I like to pick and choose because some stuff is obviously over-hyped garbage.

    • Cas127 says:

      That’s true…but part of the reason that indexing works over time is that it *does* benefit from partially capturing the rise in overhyped stocks (relative to inevitable falls…idk).

      Basically the problem with individual stock picking is that *nobody* knows with even rough precision,

      1) *How* misvalued is valuation? Will a 50 PE blow up Netflix…or will it take a 100 PE?

      (As a side note, it would be nice to see ETFs with explicit, pretty precise valuation metric rules – ie, no stocks with PEs higher than 30, etc. Considering there are thousands of ETFs, it is odd that such ETFs don’t seem to exit. Only ones with vague descriptions like “growth” or “value”)

      2) *When* will mis-valuations blow up? The idiot PE orgy went on for years and years, long after it should have blown up. But as the saying goes, “the mkt can stay irrational longer than you can stay solvent” (as a short that is).

      So even an a la carte index (with customized additions/deletions) might undo a lot of real world indexing gains (by failing to capture any amount of irrational overvaluation!).

      I do think that somewhat customized index ETFs are the future – but a lot more academic research is needed.

      • RockHard says:

        Regarding the ETFs – you could certainly build one that could be managed algorithmically for certain metrics, but for that stuff I tend to turn to actively managed funds. IMO for the last 40 years there’s been a trend to manage to those metrics and it really takes a good manager digging into reports and checking to see if earnings are being massaged, dividend payments seem to be supported by debt, etc.

        Obv not perfect, fund managers are fallible, people retire or change jobs, etc. but a really well-managed mutual fund is worth paying the management fees.

        • sunny129 says:

          Well researched ETF is always better than most of the MF funds even if they are from Low exp MFunds like from Vanguard, Schwab++

          I started my investing (1982) starting with MFunds and a few stocks. Since 2000, most of my (my family) portfolio are with ETFs, of various sectors, countries and what NOT, a few MFunds and afew div paying Stocks! I don’t have to depend on whims and emotions of a MF fund manager or his team. I trust my instincts

          1. For each MFund there is ALWAYS an equivalent ETFs in the SAME family
          2. Expense ratio is usually less that of a MFund.
          3. ETFs are traded during Mkt hours unlike MFunds. You have to wait for end of that trading day.
          4. If the mkt is sliding deep, I can get of a ETF but of course one cannot time, if the portfolio is taxable. In order to by pass 30 days WASH rules (most of my $ in IRAs) for taxable portfolios of my family members I buy 2 or 3 kinds of ETFs on the same sectors/subgroups/Country/region. I can sell one by the other or vice versa. Of course Managing is an active role, NOT relegated to some one else. No one is interested in my money, than me! MFund managers are victims of ‘group’ thinking(Wall St herds!) proven over the years!

          5. MOST importantly MFunds cannot protect you ravaging effects of secular BEAR mkt. By their prospectus rules, they have to REMAIN invested by 80-90%, no matter what. They will not time the market. They CANNOT buy any products to go against the mkt per SEC rules. Same with 401k and pension funds! Study those MFunds’s performance during BEAR time frames like 2000 or 2008!
          6. With ETFs I can always inverse ETFs (1x,2x or3x) always matched with it’s long variety as hedges! I have been doing since 2003. Didn’t lose a penny during GFC!
          7. There are so many eclectic/alternate and derivative ETFs for those with guts, to add UNCORRELATED assets in times like NOW. Just Diversification won’t work during Bear mkts!

          Plenty of choices in Energy, natural gas, grains/seeds! Only MFunds I find useful are BEAR Mkt MFunds, again have to be traded with hedges with their opposite variety. All these flexibility IS NOT with ‘garden’ variety MFunds!

        • RockHard says:


          >it would be nice to see ETFs with explicit, pretty precise valuation metric rules – ie, no stocks with PEs higher than 30, etc. Considering there are thousands of ETFs, it is odd that such ETFs don’t seem to exit.

          Sunny129, that must be edifying to get all that off your chest. Let me focus on one part, because that’s what I was addressing:

          >1. For each MFund there is ALWAYS an equivalent ETFs in the SAME family

          I know you got caught up in venting, but would you care to address Cas127’s point?

      • VintageVNvet says:

        surprised that you, Cas127,,,
        ”apparently” don’t know OR ”acknowledge” what IMHO Wolf makes SO clear with the honest reporting on his wonder full site…
        but, PLEASE, keep on keeping on reporting on here,,, from ”where you’re at”
        Thank you…

        • cb says:

          @ VintageVNvet – ” ”apparently” don’t know OR ”acknowledge” what IMHO Wolf makes SO clear with the honest reporting on his wonder full site… ”

          What is it That Wolf makes SO clear, that you are talking about?

        • Cas127 says:


          I kinda have the same question…idk what I’m missing.

          I’ve been writing about the limitations of indexing today (though indexing still better than 95% of alternatives).

        • NBay says:

          So what’s with insulting Peach Cas?
          You just said basically what he did.
          And since when did “impoverished” become an insult?

  3. Flea says:

    Americas economy has mostly been a roller coaster ride since inception. Why.because this country was created by the rich,who sell before asset bubbles pop . Nadella ,Musk,Bezos plus many more in the know . Including corrupt politicians and fed members with no repercussions,just resign.Then when bottom falls out they buy back in simple really. And people wonder why there’s so many billionaires.

    • RH says:

      Amen. The ultra-rich have clearly realized that inflation can only be tamed with their “Federal” Reserve making interest rate increases that are just going to cause a recession or more likely a depression. They are now preparing to crash the economy later this year, buy whatever is on sale at bargain prices after the crash, and to buy more real estate and other critical assets with fundamental value that will bounce back when the economy later recovers: e.g., trains, power generation stations, etc. I think that they will time the crash to ensure no laws abolishing the exclusion of their foreign income from US taxation can pass in future years: teach a lesson to those who dared.

      All this will be enabled by “Fed” lending to its banksters and their cronies that as in 2008 will be done secretly again: “Another Secret Federal Reserve Bailout, $7.7 Trillion This Time” in new american. This will be like California judicial contributions (which sometimes conceal bribes), which are supposed to be public, but the websites that are supposed to allow the public to see the names and amounts of the regular contributors to the most corrupt of judges do not allow such disclosures, so you cannot affidavit corrupt judges that got regular money from the opposing law firms in your lawsuits: check the webpage with California Judges 2011 Form Digitized Data which always shows “error 404” if you try to click on “Click Here to View Data.”

      The other web page with data, “Judges’ Economic Disclosure Forms and Campaign Contribution Information Available Online,” only allows you to download the data of some of the judges, not the most corrupt ones, albeit most people who download that excel file probably do not realize it. This continues and continues. Presumably, they were incapable of fixing the website, for years. Try to ask how you can get the data at any courthouse and expect a lot of hostility. These are just indicia of the overwhelming corruption now ruling the USA, after the crooks took over as discussed in Simon Johnson’s “The Quiet Coup.”

      • RH says:

        There is actually a California Supreme court opinion that requires California judges to disclose their donors, but that requirement is studiously ignored: “Supreme Court Committee Issues Opinion to Judges on Disclosing Campaign Contributions” in the California courts’ newsroom. Nothing is ever done to judges that flout such requirements, so the corruption then continues. In the same way, the “Fed” will keep secret the funds that it secretly lends to its banksters: “Fed Refuses To Disclose Recipients Of $2 Trillion In Emergency Loans” in huffington post. See “Treasury chief refusing to disclose recipients of virus aid” in yahoo news.

    • Kenny Logouts says:

      There is nothing stopping you selling high and buying low.

      Nadella was the canary in the coal mine.
      And then the Fed being hawkish and then going through with it.

      It all preceded the bulk of the recent downward action.

    • Augustus Frost says:

      Most of what you described is relatively recent, since the US severed the link to gold in 1971 and especially with the acceleration of financialization in the mid-90’s.

      • phleep says:

        Insiders had a multi-century heyday in the US economy. It goes far back beyond the whoopee party of the 1920s. That was the crux of political debates going into, through, and following the writing of eh Constitution.

        Financialization? The US revolution was largely financed with printed paper promises (Continentals, as in, “not worth a Continental”) backed by hope and a prayer and bupkis otherwise: it was a speculative play.

        The first crash? circa 1790 when an insider scheme to tinker with the system collapsed. How about when Gould and pals tried to corner global gold, planting a mole right next to President Grant?

        Which is not to say that other value didn’t trickle down to many during this history. But I have to concur with Mr. Flea here.

        • Augustus Frost says:

          Everything you wrote pales in comparison to more recent experience.

          Of course elites controlled the government from the beginning, not just in the US but back to the beginning of known history in the Near East and Egypt.. That’s not a revelation, as there is never a reason to expect otherwise.

          The US economy was not financialized prior to the early 1980’s and to claim it was makes no sense.

        • Harrold says:

          What are the ‘Elites’ a code word for?

        • Flea says:

          Thank you flea,people need to study hist

        • Harrold says:

          Used the wrong alt account did you?

        • NBay says:

          EXCEPT!!!!! for the Bronze Age Collapse, AF, aka the Greek Dark Ages.

          It’s also worth noting that the Athenian notion of Democracy was born not long after it.

          I won’t bore anyone with all I have learned about what happened and why. I have a library Carnegie and Rockefeller would have envied, we all do. Too bad most of you here just waste your last years worrying about maintaining your “lifestyle”.

        • NBay says:

          PS; The actor puppet Reagan didn’t do us any favors, that’s for god damn sure, but those “Elites” bought and paid for him to make things worse for all the rest of us…..and we just dodged another bullet (reality show actors aren’t nearly as good as even a B Hollywood actor, as I’m sure you have noticed from TV content).

    • Happy1 says:

      These people became billionaires because they owned companies that increased in value, they all have cashed in a little but have lost vast quantities on the way down in the last 6 months. I wouldn’t describe any of them as market timers.

      • Kenny Logouts says:

        Well it’s an unrealised loss.

        They have actual realised gains from near ATH.

        I’d say that’s good timing.

    • The Real MVP says:

      Where are you on the information stream? Those ahead of you will benefit, those downstream, not.

      • sunny129 says:

        Real MVP

        Re Information Stream

        All depends upon the QUALITY and TIMELINESS of that stream!
        Otherwise it is garbage in and garbage out.

        After decades sampling numerous information streams (mainly blogs) I have reduced to 3-4 blog articles every morning/day.

        Everything I read will go through the filter of ‘critical’ thinking before assimilation. This will be re-checked periodically. If wrong, by other critiques with valid reasons, it will be discarded. I always lead by the universal rule UNCERTAINTY is permanent and ‘THINGS Change”

    • VintageVNvet says:

      nah small bug:
      from the very first, all of WE the PEONs who understood full well how the economy worked, put our gold in jars in the back yard in boom times,,,
      then took out our gold and bought for pennies on the pound ( or dollar ) when the next crash made stuff cheap and cheaper..
      And THUS, the ”Federal Reserve Bank” was born to make sure WE the PEONs could NOT do that when the banksters went under, as had happened several times in USA from early ’80s,,, in this case 1880s until 1913///
      And, far shore,,, all of us Little OLD Ladies — of all ages and
      ”gender identifying” made out very well according to several ancestors.

  4. Boomer says:

    Yup, I remember late nineties enjoying lunches paid for by a neophyte investing in very risky High Tech mutual funds egged on by Abby Joseph Cohen. I took one look at a graph of her funds and told her she was crazy. Stocks don’t go up exponentially forever. And some of those graphs were on a log scale. Lol. Cash is king!

    • Old School says:

      In the book “Stocks For The Long Run” stocks in most western democracies have been the best long term investment. Many countries had similar long term returns of about 6% above inflation over around a hundred year period.

      I guess that is where the idea of the risk premium for stocks should be about 6% above t-bills. I think 3 sigma annual deviation for SP500 is about 55% so if you are buy and hold that’s basically the price you pay to get a 6% real return.

      • sunny129 says:

        Old School

        In the book “Stocks For The Long Run” stocks in most western democracies have been the best long term investment”

        Past is NOT a prelude to future!

        Go back read that or any book that pontificates the STOCKS always go up in the long run ( in my time. my children’s or my grand children’s time!?) B/w in the long run, we ALL are dead.

        And then compare those BOOKS with these FACTS happened after GFC (2008):

        1. Fed had NEVER bought the MBS any time before (March of ’09) through out in it’s ‘entire history’ since 1913! Also NEVER bought Corp/Junk bonds!
        2. Mkt to Mkt accounting standard never got suspended before!
        3. The QE had no prior research or record. It birthed from the seat of pants of Mr. Bernanke
        4. Prior to 1986, buy-back shares was ILLEGAL
        5. DEBTs since 2008
        Fed’s balance sheet grew from less than 1 T to 9 Trillions
        ZRP rate of 0.25% is/was anomaly in the Fed’s history!
        The combined balance sheets of 4 largest CBers (
        FED+BOJ+ECB+PCOB) was mere 5.1 Trillions but now it is 31.5
        Trillions, a record peak in human history! Is a future for growth
        potential with these kind of DEBTs?

        Is any period in mkt history prior to 2008, DID any one or more of the above FACTS existed? Have you read these ‘facts’ in any book on investing? I haven’t.

        So ALL the comparison to previous periods of BEAR being circulated (by financial media, Wall ST++) along with hopium & kool-aid to make the DIP buyers see the silver lining and push them get into this bear mkt is a BUNKUM and a disgrace! Just sick of this BS!

        If you think I am wrong and prove by your facts, I will be happy to stand corrected.

        • Bricks says:

          We all have to place our bets, I am also a buyer when we approach that level in the S & P

          One point on Sunny129’s post, while mark to market had not been previously suspended, it had also not been used prior to 2007. There is a pretty good argument that the adoption of the rule accelerated the GFC at just the wrong time.

        • Old school says:

          I do agree the future may not be like the past and from the current valuations imply very poor results may be ahead. All I am saying is ownership of businesses through stocks has a history of producing long term returns above inflation of about 6% when you include the booms and busts and wars of history.

          In a way there is a logical explanation for this. Advancement of human knowledge, increased capital and technological advancement allows for things to be done more efficiently over time. Government has to not screw up too badly to keep a free market based system producing golden eggs.

          I agree with many things on your list and like I say below my portfolio is only 5% stocks, but my holding period is about 10 years if you use life expectancy tables so my days of being an all in stock investor are over.

  5. Mr. Peach says:

    Beyond consumers, isn’t inflation a huge problem for the banks? I imagine the banks are a big reason the FED is serious about fighting inflation.

    • azani says:

      I don’t think banks care unless defaults start to go up.

      I think the average person who doesn’t have more debt than they can service should be sitting pretty right now.

      If you factor in paper gains in the equities and housing markets, you should be able to afford cost of living increases.

      If you were living on the margin pre-pandemic, then you’re probably going to have a rough time for a couple of years.

      When I visited Japan or Europe, costs were always way higher. I think the USA is just catching up to the average Western cost of living now…

      • Nick says:

        What a dolt of a comment. Things in Europe are completely different. Public transportation is much more highly available and efficient. Their retirement, medical services whether you like the social welfare largesse, is completely different than America’s. From paternity leave to vacation to sick time. We in America work like dogs and whatever safety nets we had and the increasing taxes we pay are moot at this point. European kids don’t have the ridiculous debt our kids have.

      • Happy1 says:

        Japan is not expensive now, your travel history may be outdated. Much of Europe is also not that expensive.

    • Augustus Frost says:

      No, not really.

      Individually, banks can hedge interest rate risk to mitigate inflation impact on the financials.

      It does impact operating costs.

      • sunny129 says:

        Augustus Frost
        ‘banks can hedge interest rate risk to mitigate inflation impact on the financials’
        Hedging (on any ASSET) cost quite a bit, especially if one is consistently WRONG, and results in NET loss!
        How many banks started hedging against interest rate risk, since March of ’09? I would like to see facts on this claim! Thank you.

  6. ru82 says:

    Talked to a local relator. Below $350k is crazy hot. Mid level, $400k to $700k super cold. High end is still doing okay.

    Looks like the middle class is having a hard time qualifying for the mid level houses. In my city the average family income is $90k so for them to buy a $500k plus house is going to tougher with higher interest rates.

    Currently, taking out a $450k loan at 5.3% will run you about $2500 a month. When interest rates were at 3% for a 30 year loan, a 30 year loan at 3% with a $2500 payment would get you a $590k loan.

    So yep. The middle range is getting hit.

    I am not sure why the high end is doing okay. Maybe this demographic does not need a loan?

    • Enlightened Libertarian says:

      “I am not sure why the high end is doing okay. Maybe this demographic does not need a loan?”

      Higher income levels and secure income streams. Who cares if you have a $10,000 a month housing expense if you have a secure $500,000 a year income?
      Plus the more expensive houses normally have very nice features in very nice neighborhoods. An added bonus if they go up in value every year.

  7. MarketMissing says:

    A lot of paper geniuses out there may find their themselves on fire soon.
    Stuff is straining and breaking in many interesting ways. Been seeing a lot of weird things at work. The labor and supply chains are a crap shoot depending on what you need.

  8. AD says:

    Stocks are not as overvalued as they were in 2000.

    Shiller PE ratio in 2000 peaked around 45, and is now 32

    The PE (trailing 12 months) in 2000 peaked around 44 and is now 20.7

    Most housing is bought with a mortgage, and to qualify, the monthly payment (mortgage, property tax, insurance, and HOA fee) is to not be more than 38% of household gross income.

    So with 30 yr mortgage rates from 2.5% to 4%, typically the home price is to be no more than 4.5 to 5.5 times household income.

    For rates of 4% to 5.75%, the home price is to be no more than 3.5 to 4.5 times household income.

    • Wolf Richter says:


      Yes, by all means, keep telling yourself this kind of stuff — we did too back then.

      • AD says:

        Wolfman, I agree there will be an over correction of speculative assets (stocks, real estate, etc) and there will metaphorically be blood on the streets. There always is.

        So PE will drop from 20.7 to 15 at least as stocks further sink.

        Whoever has cash will make out real well buying depressed assets like those who bought homes for cash from 2010 to 2013.

        • Augustus Frost says:

          This is the biggest mania ever, globally. It’s been in place since the late 1990’s too.

          An “overcorrection” will require a complete market meltdown, much bigger than GFC.

          There are always intermittent bear market rallies, so an opportunity to make use of timing but not as long-term buy-and-hold. The actual fundamentals are mediocre to terrible which will be evident once the bear market progresses.

        • sunny129 says:

          Augustus Frost

          “There are always intermittent bear market rallies, so an opportunity to make use of timing but not as long-term buy-and-hold”

          They are called BEAR traps for a reason!
          Just like today. DJIA open at 300+ ended around 16!
          This scenario will be replayed ( on many variants) on the way to ‘Reversion to the mean’ It is usual and expected!

      • sunny129 says:



    • SocalJimObjects says:

      The stock market looks ahead 6 months right? Perhaps it’s seeing that in 6 months time that E will be a LOT smaller. Also, we weren’t printing as much money back then, and households were in much better shape. In 2000, we only had a stock market bubble. Right now, we have a bubble in EVERYTHING, and it’s not like the bubbles aren’t connected. They are.

      Monthly payment does not matter if you don’t have a job. A recent Bloomberg article says that a very significant percentage of people earning 250K a year are living month to month.

      • Augustus Frost says:

        No, the stock market doesn’t discount anything. The stock market doesn’t have a collective mind to anticipate the future.

        Not every economic fundamental is psychological but it’s bearish psychology which causes market participants to sell stocks (which happens first or at most concurrently) and reduce economic activity, such as extending credit.

        The idea of discounting the future comes from the Efficient Market Hypothesis which is nonsense.

        • phleep says:

          > the Efficient Market Hypothesis

          … did seem to fit the data during the long sunny heights of the postwar period. And everybody and their dog was looking for a theoretical framework that was easily calculated, so, “looking for the lost keys under the streetlight.” This simplifies things for everyone (fund managers included: sound smart and park the clients in indexes or closet-indexing with fancy trimming and enhanced fees).

          Everyone looks like a genius being in (almost any) equities in an authentically growing economy (or a speciously bubbling economy). Throw darts blindfolded and hit a winner.

          But if the risk pools and gathers everywhere but where the key-searchers are looking, and complacency sets in (inflation will never happen, it was finally thought), you find huge numbers of folks parked in portfolios that get wrong-footed, as now. Indexes did not diversify away this drop. Suddenly market timing of some sort becomes a reality, like it or not.

        • Efficient Market Theory presumes there is an egalatarian information system, or a news driven market, makes one point. A wide and diverse financial blogosphere, is another. The decline of technical analysis, self reinforcing behavior, could be another. The evolution of the Fed’s market “stability” mandate is another, including their goal of using stock purchases to maintain asset values. They aren’t doing that yet. When market information is fully integrated, returns will diminish over time. The real difficulty is the upside. It’s not the Fed’s intent to guarantee 20% YOY returns, but to indemnify losses. One day the Fed will be targeting S&P returns they way they target interest rates.

        • Old school says:

          I like the concept that the stock market rises on the narrative and puts in a bottom based on fundamentals (discounted cash flows).

      • Tom10 says:

        Living month to month on 250k….

        Trying to live and run with the 10 percenters.

      • sunny129 says:


        ‘The stock market looks ahead 6 months right?’

        May be under our good ole genuine American Free mkt capitalism, but not under the current CRONY kind or Predatory Capitalism. with Fed’s Put and spigots of EASY-Peasy (Heli cop $) ever other Qtr!? All those prior statements are NOT applicable.

        See my above comment to Old School. For the facts I listed there, many retail investors will lose by the end of this bear mkt. NOT a surprise for me since I have experienced more than one bear by being in the mkt since ’82!

        • NBay says:

          “..since 82″……I don’t doubt your market experience.
          I just hope to hell you retired VERY early…..or maybe were a Radiologist.

        • sunny129 says:


          You are right. I was a Diag Radiologist ( Board certified 3 including a sub specialty) but pushed out just after 50y! b/c of politics, jealousy, A.. holes and what not.
          All hospital based specialties are ‘cursed’ unlike other clinical specialties. Hosp Admin can fire you at their will! I am repulsed by what’s going on in Medicine and Hospitals. Medical ethics and Business are like night & day!

          Within 3 yrs after entering my practice, I read 2 books – ‘Your Life or your money’. The other was ;What’s the color of your parachute’. Then I started studying about money, investment, taxes+ It paid of 2 decades later. Got away from that TREAD MILL!

          I am retired now. My trading is for fun. My advice to my children is one should get a check at the office and another one in the mail. One should control one’s financial destiny or else some one will!
          Again. To each his own. Good Luck!

        • NBay says:

          Yeah. I dropped out of Pharmacy School (Oregon State 78-79) after the first year when I saw where it was all going. Luckily had older Profs with tenure who weren’t happy about it either. But I am still current on what Big Pharma is pushing and how they derive their biochem and molecular bio crap, including techniques and machines. (made most of my living in electronics and other tech) FDA is now all but useless. I worked with an NMR in the mid 70’s, which they let me do because I had been at the school for 10 years and could calibrate their spectrophotometers from a previous job.
          Thanks and good luck to you too.

    • John H. says:


      “Stocks are not as overvalued as they were in 2000. Schiller PE ratio in 2000 peaked around 45, and is now 32”

      You make an interesting point about valuations, but is it valid to compare peak PE ratios in 2000 cycle to “post-peak” now? Comparing 45 PE ratio to 32 is comparing apples to oranges, I think.

      • Wolf Richter says:

        John H.

        Yes, good point. At the peak in Dec 2021, the Case-Shiller P/E ratio was 40.0 before the P started dropping, which brought down the ratio to 32.

        The E is based on 10-year average inflation-adjusted earnings, which has its advantages, but it doesn’t and cannot reflect the earnings recession we’re now in.

      • Einhal says:

        Not to mention that the “E” from the past year was based on excessive stimulus that is not repeated.

        • sunny129 says:


          Don’t forget ZRP, QEs, twist and what NOT! NONE of these existed before 2008!

        • John H. says:

          Sunny 129-

          Operation Twist was first used (as far as I know) in the early 1960’s. It was named after the Chubby Checkers dance rage from a few years before.

          Your general idea that the Fed’s antics have become broader and more pronounced than ever is sure accurate, though.

          One can only hope we’ve seen the worst of what means they might resort to in their quest to control the economy, bend market prices to their will (in particular interest rates, the “price” of money), and reward their favored constituents.

    • Old School says:


      My base case is stocks in Jan were the most over valued ever based on price to sales ratio. If P/S returned to normal SP500 would be around 1400.

      My alternate thinking is that with the debt being so high the 10 year treasuries will not return to long term average in my lifetime so price to sales ratio will stay at a somewhat elevated rate compared to the past. It’s a little counter intuitive, but we know Treasury yields are the big alternative to stocks.

    • The Real Tony says:

      Creative accounting and cost cutting have to be at peaks today. That wasn’t true in 2000. The dividend yields versus treasury yields today is also a complete mismatch.

  9. Dano says:

    This took me back. Thanks!

    • Steve Sovring says:

      Yes that was a stroll down memory lane. I was one of those unfortunate rookies who got wiped out in 2000. I’ll never forget day trading broadcom with big money. The stock was at 600 and the famous Mr Blodgett said buy buy it’s going to a thousand. Well it went to single digits. Anyone remember AETH? So many like that valued over a thousand just disappeared. I was so disgusted I didn’t start trading again for almost 20 years. I feel very bad for all those who will get wiped out this time. If you factor in all the debts in everything now 2000 was just a warm up. One thing I learned from that bear market was either be short or stay out all together. Or if you must stay in, in 10, 20 or 30 years some stocks could be much higher. But many, possibly very many, may just disappear. You Pandemic stocks know what I mean.

      • Lisa_Hooker says:

        The Boomers holdings will never recover for them. They do not have the time.

  10. Anthony says:

    When inflation takes off there are forces that can ruin any market but especially bubble markets. This is simple mathematics. At my local UK Lidle, many food prices have gone up 20% since Christmas, the same appears to be happening in the USA. Gas and diesel prices are roughly £1.81 a litre (3.84litres to US gallon) up from roughly £1.47 at Christmas. Heating bills are up 60% since October last year. With prices like this, do you really expect me to rush out and buy a new iphone every year, don’t be bloody stupid. Netflix is toilet paper and who the hell needs microsoft…. As far as Tesla is concerned, most Brits are now buying the new, much cheaper Chinese versions of EVs. Saying that, I’ve not seen that many 22 plates this year on any type of car.(Mr Wolf’s chip shortage?)

    The result is a recession, high inflation always causes one and from the way most people talk in the US a large part of the population is already in one. As far as the charts and numbers go, the US is still spending. Well if you have ever lived through 20% inflation you know that charts can be a load of piffle. You actually have to walk around and talk to people to find out what is really happening. In Britland a good way is to go into the pub and talk after they have had two or three pints only then will they tell you something close to the truth.
    I remember in 2016, when every chart was saying Brexit will never happen and Trump will lose. So, I just listened…I realised the BBC pollsters were going up to people and saying it was racist to vote to leave Europe and tell me sir how will you vote. Not to seem racist (they were not, as only Racists use the term racists) the voters said they had not made up their minds… Utter tosh, yes they had…as a result I put a decent bet on at 8-1 for the UK to leave Europe. Same quite remarkably for Trump, they asked the same dumb question and got the same dumb reply. Funny enough, the English bookies were paying 8-1, same as Brexit. My only regret is I didn’t do double on Brexit and Trump. (roughly 8 times 8)

    So, will the US slip into a recession, of course it will but maybe not on the charts, not at first. Go into a pub or bar, get people a bit drunk and they will tell you how shist things really are and then and only then will you know where things are going. Regarding food prices, the powers that be are talking about another 40% rise by Christmas. Well, Looking at the world price increase in fertilisers of 400%, add the price of diesel(farming lives on fertiliser,diesel and good weather) and I think that food price rise predictions may be another load of tosh.(the world economic forum oppos, did a war game in 2015 with food prices going up 400% from 2022 to 2025) Just think what another 40% will do to certain stock markets, that are propped up by the price of another food group, one called Apple. NB, as Mr Wolf said, the charts looked so fantastic, at the start of the year 2000………..

  11. Double D says:

    The markets are run and manipulate by shills looking to screw you at every turn. The fraudster bankers have forced those seeking yield into the casino to try and make money. You can’t save for retirement and everything is designed to separate you from your hard earned money.

    I day trade the ES futures and I’ve never seen the kind of blatant price manipulation that is prevalent now. The ES could be down 50-60 handles and then unexpectedly rally 100 handles up just to wipe out as many traders as possible. This has happened countless times over the course of the last 3 months.

    I’ve traded it all and had great success trading stocks over a 2 year period before Covid and then it all fell apart. Then I discovered the reason why. As part of the “benefit” of receiving zero commissions with my broker, my data is being sold. So now the big players in the market i.e the hedge funds can see everything and place their bets accordingly. The deck is literally stacked in such a way that it’s impossible to win in that arena.

    You can win trading the Futures markets, but you have to be very adept at reading price action, pick your spots and minimize risk by keeping losses small. It’s a very tough game and it can destroy you if you’re not disciplined, just like a gambler on tilt.

    • Lisa_Hooker says:

      If you want to dance in a room full of elephants you must be quite nimble on your feet.

  12. Harrold says:

    Tomorrow quantitative tightening begins. BEGINS. Fed funds and mortgage rates have just barely started going up. Gas, diesel and rents are at WTF sticker shock pricing. Yet we already have wall streeters saying the correction is over.

    Buckle up. It’s over when the fed panics and starts easing again. Not likely for a year or 2. Unless we get a major depression -ike stock market crash, with mass layoffs. The banks are in a stronger position now, so don’t expect anything like that. Stagflation is miserable, but not a risk to the overall system.

    • SocalJimObjects says:

      Well the Wall St guys have a big pile of poo to get rid off, so of course they’ll say that the correction is over. They’ll keep raising estimates till kingdom come.

    • Old School says:

      Read an article that at 4% real economic growth rate it would take 17 years to grow into the central banks balance sheet expansion. That kind of fits with the idea that when you blow a stock bubble it can take you 10 – 20 years to hit new highs.

      I listened to a lot of smart people yesterday. The best thing I heard is the Fed is going to always have somebody to blame their failure on. When the financial system started locking up from last QT, the pandemic was the excuse. It’s shifting to Russia now. You have a faulty economic model if it forecasts a world without hiccups.

      • sunny129 says:

        Fed’s Blame game

        Nothing will beat, what they said during 2008:
        No one saw this coming
        (this includes our current Tres Secy Ms Yellen!)
        Now they have PUTIN and Covid!

    • Old School says:

      If I am not mistaken I saw that the average retail investor has about 65% stock exposure which is near record high. I am at 5%. One of us is very wrong,hopefully it’s not me.

    • phleep says:

      > Stagflation is miserable, but not a risk to the overall system.

      Allow me to interject: how about zombie risk, social risk? Before the stimmies went out, riots were stirring up. Turbulent as the 1970s were, I think the streets are alive with a new level of dysfunction and armament.

      In the 70s, dislocating as it was, it all played out a lot slower (recall the slow crawl of Watergate, versus the wrenching shifts following a simple election this time). Things are frayed, and we are coming off the tail end of the WTF times, adding a special twist of unpredictability. I think despite our best hopes and wishful psychology, we are not out of the woods of sudden changes in major variables. Late spring is a time of sunny optimism: wait for the heat of high summer.

    • Old School says:

      I have been watching some videos of traders that used to be professionals or ran hedge funds. These guys are using such complicated strategies and leverage to pick up pennies in front of the steam roller that I have feeling that something is going to break pretty fast as QT starts. Powell may not care til it’s a big, big hedge fund or a small country.

  13. banjerism says:

    No, the Fed won’t bail out stocks and crypto, but it will bail out semis and any other AAA.
    How do you know these won’t liquidate?

    • ru82 says:

      Agree. FED will not bail out stocks or cryptos. The top 10% own over 80% of the stock market.

      Inflation hurts the middle class and lower classes the worst. They also own very little stock

      So the FED will go after inflation and this means removing froth from the stock market as one example. A continued drop in stocks only hurts the top 10% and not the bottom 90%.

      Inflation hurts the bottom 90% and not the top 10%.

      So the democrats need inflation tot drop prior to the elections or they will be in trouble.

      FYI…Larry Summers this weekend said everytime you have unemployment under 4% and inflation over 4%….a recession will happen with 2 years.

      • Old school says:

        Saw a chart today of new mortgage originations. Housing market is freezing up it looks like to me. Ten year at 3% is all it took to kill housing market until prices reset.

  14. Enlightened Libertarian says:

    Wolf, AD:
    Yes, real estate crashed in 2007-2010, but then RE took off like a skyrocket. People who held on through those years doubled and tripled their money. Some beat the Dow and S&P 500. RE is not a day trading type of investment.
    Does anyone doubt that, if there is another RE crash, whether the Fed will jump and rescue the banks again? It should be obvious to even the MMT crowd that printing up money drives up asset prices like RE. Are they going to do the same kind of bailout for crypto, unicorns, SPACs? I doubt it.
    I know there are a lot of people out there who are pissed off at RE [and I don’t blame them at all] but don’t get confused between what you want to happen and what will happen. Keep at least one eye on reality.
    The reality of RE is; they are not making anymore of it and everybody has to live somewhere, it is a huge huge part of the economy, and federal, state, County, and city governments are heavily dependent on it. Right or wrong [and I vote wrong], there will be a bailout if RE implodes.
    Just my 2 cents.

    • David Hall says:

      This past year I saw a vacant lot for sale for $40,000 that was sold for $45,000 in 2006. Florida suffered peak real estate speculation in the mid 2000’s. The real estate market hit bottom about six years later.

      I met a man who lost retirement funds in the 2000 dot-com NASDAQ crash. Then Hurricane Charlie tore up the neighborhood in 2004.

      The stock market started to recover, but crashed again bottoming in 2008-2009 and was down sometime after that. 2000-2012 was a bust, blame it on irrational exuberance. If you had dividends or bonds paying decent interest rates, you had something. If you bought a home during the dotcom crash and held it since, you have unrealized capital gains. Holding a stock market index fund since peak stock market prices in 2000 also produced gains.

      2012-2020 was a good time to be in the market.
      2020-2022 has its ups and downs.

      • Enlightened Libertarian says:

        David Hall
        Remember you have to live somewhere while you are managing your portfolio.
        I was born in FL in 1954, went through a couple of hurricanes as a kid, parents moved to the PNW in 1965.
        RE is local. I wouldn’t be investing in FL or CA right now or in the near future. PNW looks good outside Seattle [at least until the next earthquake hits]. I bet there are some good investments in flyover country, near a good university. RE in Tennessee is hot.
        There is as much variety in RE investing as there is in the stock market.

        • cb says:

          @ Enlightened Libertarian –

          Can you buy low cap rate, cash flowing properties outside Seattle right now?

          The bloom might be off the rose in Tennessee. Their cap rates have moved down and returns have moved down.

          Washington and Tennessee both have the attraction of no State Income Tax.

        • Enlightened Libertarian says:

          Opportunities are certainly fewer now than when I bought in 2017. It seems to me that a lot of investors have moved into rental real estate, at least here in the PNW.
          Sound Transit, our local rapid transit boondoggle, took my investment/retirement property in Seattle thru eminent domain and I had to look for one or two replacement properties.
          I assumed that Seattle [as a rental market] would go down the toilet, with the exception of housing around the University of Washington [it is].
          I bought two buildings in Bellingham very close to Western Washinton State University. I figured that people bailing out of Seattle would see Bellingham as a good alternative [they did-single family houses doubled in 5 years, rental housing almost as much].
          Cap rates dropped from 4.5% to 3.5% from 2017-2022. But look beyond cap rates and factor in market appreciation.

          But as for Bellingham pluses as an investment:
          Very close to British Columbia, shoppers from BC
          Port city with nice waterfront amenities, nice marina, boating
          Good state funded university, a good affordable option to UW
          In 2017 it had affordable housing compared to Seattle/Eastside
          Low crime, low homelessness [although getting worse
          No rent control, reasonable landlord protection
          Seattle is landlord hell compared to Bellingham
          No income tax
          Popular with retirees from Seattle – only 90 minutes away.

          So Bellingham was great in 2017 but might not be the best now; those same guidelines should work in a similar environment. I would look for something like Bellingham as a good investment.

          BTW Students are in and out in 4 years and on their way up the ladder. Parents can step in and help if they get into money trouble. The kids have an investment in a good rental history and a good credit rating. Overall my favorite rental class.

        • PilotDoc says:

          My TN real estate has TRIPLED in value since 2014. All luck, not skill or timing. Had I known, I would have bought 30 instead of paying them off as I went. Most of the gain is in the past 2 years. Rental rates up about 40% as well. Selling off 6 of 16 homes. Hope it is the right call, but I am content with the gains. Make a decision with the info in hand at the time and move forward. My suspicion: in a few years, my sons can use the funds to buy 12. We will see…

    • cb says:

      There has already been an ongoing bailout of real estate, and real estate owners, for over a decade, continuous to this day.

      • Enlightened Libertarian says:


        I am sure that is true in some parts of the country. There are a lot of places I wouldn’t invest; CA and NY would be at the top of my list to avoid. Stay away from big government if you are a property owner.
        But I regularly get unsolicited letters from investors wanting to buy my apartments in Bellingham. Latest was double what I paid in 2017.
        My buildings were built in 2014. But I see multi-family units 100 years old getting snapped up. And at low cap rates too.
        So I am not seeing any bailout in RE in my area. Quite the opposite.
        But who knows? I just think…. good…. RE in a good area is a viable option to stocks and bonds [and crypto :) ]

      • Enlightened Libertarian says:

        I think I misunderstood your comment.
        I was thinking in terms of investors bailing out of RE [which I have not seen here] vs RE being bailed by government, which has even going on for a long time.
        My mistake.

  15. Old school says:

    I use a lot of common sense calculations to try to determine relative value. Using 10 year Treasury as a benchmark, if the current yield on the 10 year is 3%, how many years before sp500 dividend yield at 1.4% and current dividend growth of 7% equals payout of treasury. Works out to about 12 years til cash pay out is the same.

    That’s a vastly different situation than when dividend yield on sp500 exceeded 10 year.

    • NBay says:

      When I sold my (a 16 year project, still unfinished…actually with 84 acres you never “finish”) off grid ranch “empire”, as Wolf says, in ’06 I put what was left after I paid off everything (Heloc, etc) in T-Bills, (might have been CDs, can’t remember). So the guy in the bank said I could get a lot more than a measly 5%….and in an uppity way that pissed me off. I didn’t know a stock from a bond, so I decided to learn. Watched CNBC, read, and finally ended up here, after a 7-8 year off and on thing with a girl in Tucson who liked travel, exercise, hiking, and music fests and adventures as much as me…had nasty fights, though. Plus helping sister take care of Mom at sister’s, fixing place the up, and started container home project that killed my back
      But I did get to watch the REAL S&P bottom live, 666 and change…..thought the religious folks would get excited about that, but no, (all their talking heads were probably losing too much money..Ha-Ha). The CNBC folks however were really losing it and that was funny to watch them go off script and especially the looks on their faces.

      • Old School says:

        I was 85% in stocks when it started crashing. I put remaining 15% in about half way to bottom and had a tough year.

        I was already retired, divorced and had my kids through college, so no matter what I would take more than 3.5% of my portfolio to live on. Lived frugal and was generally very happy, but was happier when bottom was put in.

  16. John H. says:

    Standout article Wolf!

    In analyzing the supply of labor and tying it back to easy money, you offer an explanation of what the hell might happen tomorrow based on what the hell happened in past economic cycles. Your honest self-examination really helps bring home your points, too.

    “History should encourage reflection and teach caution. It should convince today’s macroeconomic thinkers that modesty should be the hallmark of the profession, for in many cases they are only repackaging ideas that have long since been discovered, and in other cases they are presenting ideas that will end up in historical dustbin.
    – Antoine Murphy, The Genesis of Macroeconomics

    It’s all a guess, but you support your guesses exceptionally well.

  17. drifterprof says:

    Powell may put on his tighty-whities, but things may really be different this time. The old grey mare, she ain’t what she used to be, many long years, ago.

    • phleep says:

      It’s easy to write checks, at any age. The old grey mare needs new tricks.

      • phleep says:

        What was with Powell and Biden sitting so woodenly in (presumably) the oval office, about 16 yards and one empty chair apart? Powell looked severely constipated, being posed like that. The back curvature looks like osteoporosis. Not robust staging.

  18. unamused says:

    I am standing by my earlier prediction that financial distortions are so severe, and fundamental bases of economic activity are so strained, that The Fed, with its blunt tools, will be quite unable to either control inflation or prevent recession.

    Well, sitting, actually.

    The Fed and other central banks knew that a regime of low interest rates, all things being equal, could be sustained indefinitely to positive effect, and for the last few years the models more or less succeeded. Unfortunately for their models, all things are not at all equal.

    Their models discounted, incorrectly assessed, or excluded decisive risk factors, for example, the high probability of a serious pandemic, endemic weaknesses in supply chains optimized for short-term profitability to the detriment of reliability, failures in social expectations management, the effects of resource depletion and environmental degradation, the absence of any effective financial and other systems regulation, and the likelihood of significantly disruptive war.

    Risk-assessment techniques and practices are weak and still evolving but have long been sufficient to predict that central bank policies, and excessively exploitative economic practices generally, would inevitably result in unmanageably high inflation and severe systemic economic failures. Worse, trends in the emergence of despotic political systems promise to make mitigation of the above risk factors, and eventual economic recovery, perfectly impossible.

    The word ‘unsustainable’ has specific, concrete meanings. It’s all downhill from here, but not, as it were, in a straight line.

    You guys have no idea just how bleeped you really are.

    • phleep says:

      Echoes of the 70s: a president went out with some turbulence (after arm-twisting the Fed further into inflation), oil spiked, shortages and price hikes were here, Iran went off the reservation, the Soviets invaded Afghanistan. Folks proclaimed doom. Weirdly, we came back from all that. Which does not guarantee this go-round.

      It was roughly this bad, then. But not a complete novelty now.

      • John H. says:


        “Echoes of the 70s”

        Echo the 1930’s too: things were so bad in the thirties that trading around the world was heavily restricted as described in Time Magazine, September 28, 1931 –
        “In few nations nowadays is there a ‘free and open market.’ The Berlin Bourse closed from July 13 to September 3, opened with short-selling banned, then closed again. In Great Britain all trades were put on a cash basis which practically eliminated short-selling as did restrictions imposed on the French and Athenian Bourses. On the Paris Bourse a seller must deposit 40% margin, also 25% on the amount of the stock sold which makes bear activities a rich man’s privilege. One of the most dramatic events of the present crisis occurred in Amsterdam on September 21 when after a terrific slump in prices, all transactions were cancelled, the Exchange closed in status quo. Montreal and Toronto met the British crisis by banning short-sales and establishing ‘minimum prices’ for securities, but both last week were open with no restrictions. The Tokyo Exchange has been closing and opening repeatedly during recent weeks. Tokyo stocks broke badly when the shares owned by interests who operate the Exchange collapsed.”

        Optimism-cleansing corrections have been drastic in the past. History repeats…

        • SoCalBeachDude says:

          The Nikkei exchange broke badly on 12/26/1989 when it started plummeting from 39,000 and it has been on a downward trajectory ever since as Japan’s government debt has snowballed upwards to the highest of any country in the world based on debt to GDP and both now continue to worsen.

        • Harrold says:

          I’m sure you can go back even further to the Panic of 1873. It was known as the Great Depression until the 1930s, when it was relabeled as the Panic of 1873.

          NYSE closed for 10 days in September of that year, most railroads and insurance companies folded, riots in the streets, etc.

        • Augustus Frost says:

          The future is going to be worse than the 30’s. Yes, the future that many reading my comments will live through.

          The disconnect between asset valuations and economic expectations versus reality has never been greater. The actual fundamentals have been mediocre to “sucking” for years now and the end of the asset mania hasn’t even been confirmed yet. The asset mania most either don’t know or pretend doesn’t exist.

          Some of the fundamentals look bad more recently, but the worst (much worse than now) will come (much) later when the multi-decade bear market is more mature.

          For starters, the end of the credit mania (presumably in March 2020) means the beginning of the end for cheap financing and lax credit standards.

          The entire global economy is addicted to both. Without both, living standards fall or plunge and asset prices collapse.

          Stagnant or declining standards will create major political and social “blowback”, as factions compete (or openly fight; yes, military conflict) over a shrinking economic “pie”.

        • Swamp Creature says:

          Unlike the 30s when people stood in soup lines and peacefully protested their poverty, if they did at all, the current “Everything Crash” which we are about to experience will be totally different. Look for food riots, sacking of grocery stores, massive chaos in the cities and an end to the civil society. Look at Weimer Germany in 1922/1923 for an exact parallel to what’s going to happen here. I see it already starting.

        • cb says:

          @ John H –

          to add –

          as reported: “On Friday, March 4, it cost about $29,000 to buy a ton of nickel on the futures market of the London Metal Exchange, the primary global clearinghouse for metal commodities. By the following Tuesday, the price had reached over $100,000, leading the exchange to shut down the nickel market for a week”

          The exchange also nullified billions in trades that had taken place.

        • NBay says:

          Weimar complete with DolchstoBlegende (aka USA alternate facts), Swamp…..and plenty idiots to eat it all up.

          Wolf mentioned Wagner so I thought I’d read up on him.

          Never know what you’ll learn here.

      • unamused says:

        “It was roughly this bad, then.”

        No, it was not. Neutron Jack had not done his worst, the economy had not been financialized, half the population had not been radicalized with gaslighting, tens of millions had not been reduced to debt peonage and rent slavery, there was no ‘social media’, and baseball was still a game.

        Here is there, and high is low.
        All may seem undone.
        What is true, no two men know.
        What is gone is gone.

        • Augustus Frost says:

          Anyone who thinks the 70’s were that bad doesn’t know actual history.

          There is absolutely no parallel between the 70’s and now.

          The actual fundamentals today are mediocre to awful, not so in the 70’s.

          Psychology was somewhat pessimistic then compared to the ridiculously inflated expectations in place now for both living standards and asset prices.

        • Swamp Creature says:

          The 70s were much better than today. The country didn’t have 30 trillion in debt. The country was not so politically polarized as it is today. People generally got along pretty well back then as I remember. The Vietnam war was history. I remember being frustrated with the Carter administration but forgave him when he appointed Paul Volker as Fed Chief. That appointment cancelled out a dozen blunders that he made.

  19. Old Ghost says:

    unamused wrote: “The word ‘unsustainable’ has specific, concrete meanings. It’s all downhill from here, but not, as it were, in a straight line.

    You guys have no idea just how bleeped you really are.”

    When it is all over and the Great Crash is in the rear view mirror, people will have a lot of things to look back at, and laugh.

    To me it looks like the bottom is far far far away.

    Pity the poor artists who are having their art stolen and sold as NFT’s, Who the H is buying this stuff at $10 K each ? ?

    “Late last night, Fedor Linnik discovered that any crypto enthusiast’s nightmare had become his reality. The NFT collection he was planning to launch — 8,888 unique Goblin Asses — had been hijacked.

    Just as Linnik and his friends were planning to launch, they discovered a scammer had copied their thousands of cartoons of goblin butts and posted them as their own collection on OpenSea…..”

    • unamused says:

      Of course, some people are strangely confident that all risks can be mitigated, that all externalities can be isolated, that all resources are infinite, and that gold makes a fine feast if prepared properly.

      “The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane.”

      Marcus Aurelius

      • VintageVNvet says:

        gotta DISS A GLEE, for once una,,, in spite of my considering your posts ”second only to our Wolf.”
        Really and truly in my now very clear and clearly becoming ever more clear in my clear senescence, ”THE ((Lesson)) of being human is to be the very very best ”human” WE, in this case the entire species WE, CAN BEE…
        SO FAR, it appears to me that WE may possibly, just possibly far shore, be on some wheel, no matter ”what wheel” that will take us as far as WE can imagine…
        Simply a matter of physics,, specifically the so called 2nd LAW of Thermodynamics that says all matter just continues to be recycled unless some ”atomic” level change occurs…
        According to that, your child’s atoms were probably your parents, etc., etc…
        Really comes down to the physics and other ”hard” sciences we have available, in spite of their obviously early stages….

        • Anthony A. says:

          You forgot to add that baseball is still a game.

        • VintageVNvet says:

          correct AA, thanks

        • NBay says:

          Oh come on VVN……you don’t even have the same atoms you did yesterday……why do you think sex exists, anyway?

          Don’t feel bad, the physics guys have way more questions than they do answers….I mean “laws” or models or approximations.

      • NBay says:

        How in the hell did Marcus Aurelius get ahold of a copy of Nietzsche?

    • Lisa_Hooker says:

      Karma. At the speed of the internet.

  20. breamrod says:

    Wolf this report should be required listening in every Econ. 101 college course. It would be of great benefit to all of these little snowflakes

  21. dishonest says:

    The FED will do whatever it can to dampen down rate hikes and weasel out of QT.

    Expect statements like: “The economy is to weak at the current time to implement these tools at the present. Rest assured that we share your concern about these temporary dislocations and be aware we are continually monitoring the situation and will be acting with vigor when the condition warrants.”

    • Wolf Richter says:


      Wishful dreaming. But if it makes people feel better, fine. For instance, the “pause” comment was made by a non-voting member on the FOMC (Bostic). All the voting members want nothing to do with a pause. Those are the people that count because they get to vote on it. But all the rate-hike deniers dragged out Bostic, who doesn’t matter this year because he doesn’t get to vote. This is how rate-hike deniers and QE deniers operate. It’s part of a Wall Street propaganda trolling system.

      People still don’t seem to get what a huge massive economic problem this raging inflation is — and that the Fed will try to control it over the years to get the soft-ish landing, rather than all at once, so this repricing will drag out for years. Hence the relatively small amounts of QT ($95 billion a month, rather than, say, $300 billion a month, including outright sales) and the relatively slow rate hikes (50 basis points instead of 100 basis points or 200 basis points).

      • Halibut says:

        Thanks, Wolf. I’m, once again, reminded why I read what you write.

      • jm says:

        Out of curiousity just browsed Zillow listings for NW suburbs of Chicago — not a very economically robust area nowadays.

        Asking prices for homes of all sorts are up 30% (even from pre-pandemic levels), but now with 1-2% reductions in last few weeks. And some sales have clearly fallen through (re-listings). About half are either clearly vacant or redolent of staging. Asking rents are up 50% from pre-pandemic levels, though number of vacancies is not low.

        With mortgage interest rates higher and fuel, electricity and food costs rising faster than wages, somehow I think these asking prices and rents are fantasy, and there’s going to be a reckoning.

        I suspect that one of the prime metrics on which the Fed will base its decisions regarding interest rates and QT will be the “Chicago Fed National Financial Conditions Index”, a graph of which you can get on the St. Louis Fed site. The graph shows the correlation with recessions. Interesting.

        • Halibut says:

          “not a very economically robust area nowadays.”

          Historically, the NW burbs have always been booming. Haven’t been there in several years; last trip was to see what all the IKEA hoopla was about (Shaumburg). It was still booming then.

          It’s a shame. Downtown and the NW burbs used to be great places to visit.

        • Happy1 says:

          Chicago is headed for major trouble. IL is essentially bankrupt and people with income are fleeing. It is also far and away the most politically corrupt state. Downstate is far worse off economically. And the powers that be still are trying to raise taxes.

  22. simjam says:

    Wolf, there is an alternative. Move out of US stock market and US fixed income investments and into commodities (food, oil, etc.) which have world wide pricing.

    • John H. says:

      Not trying to be critical, but aren’t US stocks and US fixed income investments also subject to “world wide pricing?”

      Beyond that, food and oil (and most other commodities…even oft-maligned gold) seem destined to be better performers than many other stock sectors over the next decade, as the readjustment process grinds on.

    • Wolf Richter says:

      Commodities are NOT for “investing.” Their future contracts are used for commercial purposes by the industries that produce these commodities and by industries that use them, to lock in prices, etc. And they’re used for short-term high-risk speculation by others. And if you don’t sell in time, you get your face ripped off, as the spikes turn into declines — see many commodities recently. It’s fun to speculate in commodities, and I do some of it, but it’s NOT investing. So if you get out of long-term stock positions and move the proceeds into commodities, you’re massively dialing up your risk, and you’re going from investment to trading.

      • sunny129 says:


        My 2 cents:
        If one looks at the chart(s) of various commodities, they spring from decades long bear mkts! After 40 yrs of deflation, ugly inflation has popped up to 8%. Will it be sticky or will inch higher. to be seen.
        Historically it is NOT easy to contain inflation ( more so inflation expectation) once it gets rooted in Consumers’ mind. I read an article which ‘claimed(!?) that it will take a couple years to control it. Our Fed is meditated on the ‘transient’ mantra all through last year. It is every one’s knowledge that Fed is too late and too little to contain inflation train heading towards us.

        We need fossil fuel for at least a decade before dreaming green sources. Global demand for natural gas gone sky high since March! There is prediction that demand will NOT go down in the short term. NO new production going into OIL exploration or building refineries!
        We are in uncharted waters. Nevertheless I do have long frame (leap) protective puts on oil and natural gas.

      • sunny129 says:

        ‘you’re going from investment to trading’

        With crazy volatility of indexes going on lately, investing is tricky if not impossible. For long term I do invest Div paying stocks/ETFs. But the rest is just TRADING with hedges. I used to be a ‘investor’ by the old term (since ’82) when our good ole genuine American Free Mkt capitalism was alive and functioning. But it is no more after March ’09.
        Mkts are CASINOS run by Fed)CBers) with rolling coaster almost every day. I am using (have) used all the available risk managing tools including option trading. When our good ole, Free Mkt Capitalism returns, I MAY become an a traditional investor.

        Right now these mkts are for nimble traders ONLY and NOT for long term investing. I know NOT many, will agree with me but with my decades of investing experience, behind me I am comfortable.
        TO each his own!

        • Wolf Richter says:

          Yes, after I wrote that, I got second thoughts about it, looking at the volatility of the stock market, and the losses of individual stocks. Might as well trade lumber and pork bellies.

        • sunny129 says:


          Lumber prices went down by 50% last week!
          No nothing about pork bellies!

        • Lisa_Hooker says:

          Here be Dragons.

      • John H. says:

        Point taken on physical commodities and futures contracts.

        I was thinking more of stocks like CVX, DVN, NTR and MOS , and metals miners, but, as happens too often, wrote sloppily.

    • Augustus Frost says:

      Commodity speculation is part of the problem with modern finance, even worse than the financialization of housing.

      Nothing like running up the price of essentials for profit. Just wait, it’s going to lead to “blowback” from some (supposedly) obscure corner of the world later when millions can’t afford to feed themselves.

      • sunny129 says:

        Augustus Frost

        The USA which has 5% of global population been utilizing 25% of global resources over decades!

        Food riots are going on in many countries. Famine continue to persist in Africa and many other countries! Did any of it made an impact here?

        • Augustus Frost says:

          None of what you describe is geopolitically relevant.

          Just wait until one or more US Middle East “ally” governments are overthrown (like Egypt of Saudia Arabia) and see what dominoes fall after that.

        • sunny129 says:

          Augustus Frost

          Mideast Arab spring has already happened! Has any thing changed. ME is more chaotic and unstable since the USA/West marched in to spread freedom and democracy. 2-3 Trillions later, over 5000+ US soldiers dead, millions refugees created. Afghanistan back under Taliban. Iraq wants US troops out!
          What changed here? Nil. Business as usual!
          Many want immigrate to America and US $ is still the king!

        • NBay says:

          For what it’s worth I read a lot of retired central bankers go to Vienna….maybe not true, was a long time ago.
          Anyway, that world map islands project in Dubai is on hold, as are most of the palm trees.
          Last time I looked at Credit Suisse High Net Wealth report, most all the really rich ($50M+) are in the US.

  23. SoCalBeachDude says:

    The US Dollar is doing wonderfully today and is at 102.34 on the DXY.

  24. Kunal says:

    Does anyone REALLY believe that Bay Area RE will have any impact in sale prices if mortgage hits 7% which most experts agree that will be the case. If thats not enough will Nasdaq dropping by Another 20% finally break the back?

    I doubt it will happen even though it sounds illogical.

    Last 6 months, mortgage rate have gone from 3% to 5% and NASDAQ dropped by 25% and bay Area RE has only grown all this time. Homes are still selling at higher prices than the previous equal home in equal location (do not argue with this date, I can show you 100s of examples). All this tech stock crash and mortgage rate bump has literally had no impact, so why will another leg have any impact?

    • Wolf Richter says:


      In the Bay Area, the volume of home sales has plunged 18% year-over-year in April, according to the California Association of Realtors (going to get May in a few days). Inventories are rising, population has declined, and new construction added supply on top of it.

      Sellers have started to cut prices, as buyers aren’t buying at those prices, hence the decline in sales. And the percentage of listings with price cuts has tripled year-over-year, to the highest in at least four years, according to Redfin data.

      At first you were a taper denier, starting last year, then a rate hike denier, then a QT denier, and now after having gotten run over by reality on all three denier-counts, you’re a Bay Area RE downturn denier. What are you going to be denying after that? Go start looking for it. You’ll need it. This type of trolling was kind of fun for a while, but it gets old after about 10 months, no?

    • Augustus Frost says:

      You used similar illogical reasoning previously and I gave you an answer.

      It’s not rising rates alone that will tank the Bay Area housing market.

      It’s tightening credit conditions that will suffocate “tech” and “disruptor” companies’ ability to lose money forever, use stock incentives as a main form of compensation, and maintain or expand payrolls.

      The Bay Area is one of the primary recipients of the greatest asset mania in history.

      If the credit mania ended in March 2020 as it apparently did, the Bay Area’s free ride is over and unlike the bust, it’s not coming back any time soon because this credit cycle will also last for decades. The last one was 39 years.

      Good luck

    • sunny129 says:


      Evidently, I suspect you are one of those (45y or below) who has NEVER experienced a protracted secular BEAR mkt in your life time! So you keep on assuming a lot of things. B/c you have only seen stocks going up. Once it falls to 10-20 or even 30% it is a buyable price, right? That’s NOT the way a secular BEAR behaves after 13 yrs of surreal BULL backed by Fed’s put++

      Now there is no Fed’s put. QT is about to start. Inflation is raging after 40 yrs of deflation. It won’t go away with a few months or even after a year!
      Study mkt history of over 200 yrs, first. You are going to learn a lot within 2 yrs, if not earlier. Good Luck

    • Happy1 says:

      Wait until NASDAQ is off 80%.

  25. Nathan Dumbrowski says:

    Great summary. Question. Did I hear you say miracle stocks and crypto blessing? I replayed it a couple of times and believe that is what terms you used.

    Yes, back in the day I used to trade before jumping in the shower and sell after the shower on the way to my day job. It was like shooting fish in a barrel

  26. R2D2 says:

    Everyone has a job, their feelgood house price is going up, debt markets remain buoyant, and people are sitting on $2 trillion of extra Covid savings. Things are nowhere near as bad as we think.

    • sunny129 says:



      Shocking Consumer Credit Numbers: Everyone Maxing Out Their Credit Card Ahead Of The Recession
      zh 6/7
      That myth is a mirage NOW!

  27. sunny129 says:


    ‘people are sitting on $2 trillion of extra Covid savings’

    A myth being perpetuated by Financial media! Bottom 50-60% don’t have $400 in savings. Many go by one pay check to another. May be the top 10% mat have that kind ‘loose’ change but not the rest of our society!
    Who are peddling this myth – JPM, BOA ++
    -Americans’ Pandemic-Era ‘Excess Savings’ Are Dwindling for Many
    The drop in cash reserves has vast implications for the working class and could dampen consumer spending, a large share of economic activity.
    NYT Dec 7 .’21

    Big picture: Piles of savings have been the secret weapon of the pandemic recovery. The personal savings rate in the United States hit an all-time high of 33.8% in April 2020
    NOW: But that mountain of savings is starting to get drawn down as bills rise. The personal savings rates as a percentage of disposable income fell to 4.4% in April 2022, its lowest level since 2008. High inflation is also eroding the value of those savings, since a dollar doesn’t buy as much as it used to.
    Read outside the BOX

  28. Phil says:

    after reading all these posts about the apocalypse, over the last few days, it would be great, Wolf, to lock down all these predictions, and save it on your site. Have all the main contributors summarize their views on what will happen in the next year, two years, 10 years, and memorialize it, and revisit later. It would be great fun. Truly, we all will be able to look back and either laugh and/or gloat, or weep.

    • John H. says:


      Along those lines:
      “Mr. Market delights in smashing cream pies into the faces of the overly confident.”
      – James Grant, Grants Interest Rate Observer, Feb. 11, 2011.

    • sunny129 says:


      ‘posts about the apocalypse’ vs Happy Days are here again:

      Just read the posts on the above issues since 1900, which is available on line. You will see who got ‘naked’ once ‘the tides recede’ . Historically Mr. Mkt never accommodates the majority, until Fed & CBers stepped in and created their version of the reality.

      If you read reply/comment to Old School (above) , I have 11 bullet points which point out the ‘conditions’ existed before March ’09 (since 1913) vs what happened after wards. It is NOT apocalypse but cold hard facts.

Comments are closed.