This crash beneath the surface showed something had broken, that the magic had died, that hype and hoopla were suddenly unable to carry the day (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.
It’s structured like this. The bank could care less if YOU default as they can get a much more stable and valuable asset: your banks house.
You’ve been bearish on the market as long I have been reading your site. Hopefully when thinks near a bottom, you’ll start to publish more optimistic stuff.
I know the boomer coin (gold) crowd won’t like that, but some of us want to keep making money when the markets turn around and rip back up..
Let us know where you decide to park your refrigerator box house after you lose everything.
Good one – Depth Charge!!
It has all been spelled out by Wolf, and many WS experts, and by so many good commentators here – that’s if they actually read, and comprehend, which so many “drive thru” investors do these days.
correction:
“which so many “drive thru” investors DON’T do these days.
Azani,
If you want to read hype and hoopla, there are plenty of publications out there that promote hype and hoopla. If you want to pollute your brain with hype and hoopla, you’re in the wrong place.
It would help if you actually listened to the podcast.
Amen
…which is why we’re here.
But that’s the American way Wolf! LOL
Yup.. gamblers should best stick to Vegas
Depth Charge dropped an ash can with a contact fuse on Azani after WS baited him to the surface.
Any day now the Japanese stock market will rip back up to the 1989 highs. Maybe stocks always go up in the long run but at least sometimes it can take a very long time.
Only for the people who live in Japan as the Yen is getting crushed. The foreigners in Japanese stocks are losing nothing but money on the currency if they’re unhedged.
If the government didn’t exist like the saying goes the stock market isn’t worth 10,000 on its best day of the year. Back before you were born the stock market used to predict the economy 6 to 8 months in the future from the late 1800’s all the way to around the year 1994. Since then its been nothing but a three ring circus sideshow where the bankers take the short side of anything that makes sense and squeeze the longs out with their vast sums of money. This is the reason all the stupid people have made so much money the past decade. Doing the wrong thing turned out to be the right thing thanks thanks to the bankers purposely taking the short side of what should have been a money making trades from the seasoned traders. This is the reason you’re so mixed up into thinking the market is undervalued.
Rainbow, unicorn and sunshine? I’ll take one of each please
So buy stuff. You waiting for permission from your momma?
Azani,
Don’t forget to paint the box…it will last longer in the rain….
Apologies (UK pedantic rant). The banks *couldn’t* care less; they are already at zero care. If they could “care less” they still care. But the bastards don’t.
Now back to impending collapse…
Banks have in general treated me well. I got a home loan, I have credit cards from them. Used prudently, these are wonderful and fairly low-cost net positives. And the banks got me in no trouble in the dotcom bust in 2000, the GFC in ’08 or now. The magic ingredient to suffering is making bad personal choices.
I admit inflation was mishandled for awhile, and pretty consequentially. That is a central bank, not “the banks.” Why should they care? Are some loose undefined charitable feelings supposed to make them forget they are running a business?
My best habit in life has been to blame myself first, then once that has been rigorously done and is exhausted, MAYBE look for other culprits. I think the USA is in deep peril of losing that ethos. Losing that ethos is a loser’s game.
give yourself a cookie, school teacher
phleep- much trouble and suffering we bring upon ourselves. But there’s plenty of suffering brought upon the truly innocent by the inhumanity and lack of consideration of others plight by horrible bestial scumbags, not all of whom are politicians. Just most. They will sell you, your family, your property and birthright into penury and captivity to pay for a pinch of salt to flavor a bowl of rice they won’t bother to taste.
“My best habit in life has been to blame myself first, then once that has been rigorously done and is exhausted, MAYBE look for other culprits.”
I’m trying to learn this habit, and I’ve never seen it so well put.
Peace of mind is underrated.
“Are some loose undefined charitable feelings supposed to make them forget they are running a business?”
Ah yes, those banksters, pure as the driven snow. Humanity’s benefactors, despite the whopping fines:
Penalty Total since 2000: $336,354,784,532
Top 10 Parent Companies: Total Penalty $
Bank of America: $82,901,469,908
JPMorgan Chase: $36,060,746,133
Citigroup: $25,540,645,217
Wells Fargo: $21,874,892,841
Deutsche Bank: $18,341,457,302
UBS: $16,854,236,334
Goldman Sachs: $16,386,580,996
NatWest Group PLC: $13,516,771,857
BNP Paribas: $12,147,863,950
Credit Suisse: $10,732,400,126
“Banks have in general treated me well”
For promoting the Blame the Victim meme?
“My best habit in life has been to blame myself”
Me too, for shilling for the Financial Industrial Complex.
@ unamused –
You have a lot of nerve, destroying perfectly good virtue signaling,
phleep said: “I admit inflation was mishandled for awhile, and pretty consequentially.”
————————————————
yes, like for years and years and years (decades). big of you to admit it though.
If the reports of a Russian tanker hitting a mine in the Black sea are true, they will either have to pay for all losses via their sole, Russian insurer for that and the next, sunk tankers or we will see Russian, Kazack (transported via pipe to Russia’s Black Sea port), and other crude off the market. I suspect the latter will occur if Ukraine is wise and keeps sinking Russian tankers.
That will hurt Russia’s war economy and will raise world, oil prices sky high. At some point, the US will have to ban export of US crude to stabilize US prices and so EU and other countries that see oil prices of $170 to $230 a barrel will plunge into depression not just recession. Prepare for $7 to $9 per gallon gas.
Typically in 2022, banks get paid to SERVICE MORTGAGES and whereas the mortgages themselves have been collateralized into securities not owned by the bank.
No way are they going to keep all that toxic waste on THEIR books, not when they can externalize it.
From Bankrate.com, as of 2020, 62% of all conforming loans are owned by Freddie or Fannie. Fannie and Freddie and backed and insured by the US Government. So in essence, 62% of all conforming loans are owned by the US government. Freddie and Fannie bundle the loans into MBSs and I supposed sell most of them to the Fed.
The last time I refi’d I had to satisfy all Fannie and Freddie requirements and my loan was immediately sold to Fannie.
My loan servicer is a bank but they don’t own the loan. They get paid to track whether I pay monthly, provide customer support, send out statements, and provide EOY tax statements.
When loans were 2.5-3.0%, I don’t know how much profit the lender made after paying the servicer. I don’t know if they also send out foreclosure statements and handle evictions.
Jumbo and non-conforming loans are held by someone else?
Could never understand how “disrupting” and “growth no matter what” and “debt out the wazoo” had folks ignoring profits or ever paying investors back…
The answer we seek, 2b, is found in the School of Psychology rather than the School of Finance & Economics.
The pendulum swings between Fear of Missing Out and Fear of Not Getting Out.
I recommend “The Psychology of Money”, by Morgan Housel. A quick, engaging and informative read.
Wow – “The Psychology of Money” has 22,618 ratings on Amazon, with an average 4.7 out of 5.
Thanks – I’ll download a sample and check it out.
The markets are not nearly that irrational.
Markets ? What pretends to be a Market has being firing on Bathtub Gin for 2 decades.
This is why I like a more objective approach to investing based on projected returns that are baked in the valuations at which you buy (e.g. John Hussman style).
Instead of guessing what the market will do, you just make an objective judgement if the projected returns are attractive enough to lock in at a certain price level.
I use this strategy for real estate.
I buy if the numbers bear out an acceptable return from rents.
If the properties happen to appreciate because I am able to buy in a location that is growing that is a bonus.
Demographics is the only thing.
Back in 2015 WhatsApp was valued at 20 billion. In the same year a major retailer with hundreds of stores, trucks, inventory, large amount of cash on hand was valued at 10 billion. I guess that’s around the time things started going nuts. I guess the same people that stamped MBS as A grade instruments were doing these tech valuations.
Facebook website was Trillion dollars. Trillion! They bought WhatsUp for just few tens of Billions. Meta is still $0.5 Trillion.
To me this sounds like a case of money laundering. Politicians / criminals from other countries routing their illegal gains to the US markets via neutral countries. This is then “invested” over here in the US after the right people are paid off. Some of these tech companies are like the 3 money losing
front businesses Ben Afleck has in the movie the accountant.
Look up Tiger Capital.
Bitcoin is only down 70%. Still not too late to leave with some dignity and self respect.
Bitcoin and its ilk are a phenomenon that I still have never understood, but worthy of an update to Charles Kindleburger’s classic, “Manias, Panics and Crashes.”
South Sea Bubble
Tulip Mania
“Extraordinary Popular Delusions and The Madness of Crowds”
by Charles MacKay
I still have a question…
Who took the money in the Bitcoin collapse? Sure, someone may have been short Bitcoin on some exchange traded derivatives …. but that can only be a small fraction of the “float” of Bitcoins.
When a stock is issued, the company gets the money.
When a bond is floated, the issuer gets the money.
When a Bitcoin is “mined”….then sold….who got the money?
Is it where the flame goes when you blow out a candle?
A Bitcoin block is successfully mined when it is published by a Bitcoin miner and the block is accepted by the Bitcoin network. The block has to satisfy various rules which the other network participants check before accepting it into the Bitcoin blockchain.
When you mine a block one of the transactions is called the coinbase (not related to the company) which is a transaction that pays you a certain amount of bitcoin called the block reward. This is currently 6.25 bitcoin. It is freshly minted bitcoin that, as the block miner, you are permitted to pay yourself to compensate you for the effort in creating the block.
All bitcoin is created in these coinbase transactions.
When the miner sells this bitcoin, say on an exchange, then the miner gets the money.
RE: “When a Bitcoin is “mined”….then sold….who got the money?”
My guess is the guy that did the mining get the money once he sells it.
Who got the money.. the electric company.
Reckless gamblers never quit until they lose it all. Then many jump off the highest building they can find. It’s a mental illness.
The. Windows don’t open anymore
Why worry about breaking a window if you’re going to jump anyway.
For now, I have noticed BTC holders clinging to 10,000 price increments: $30,000, now $20,000. That is a dead giveaway of irrational, superstitious psychology exploitable by the more clever in the herd. The real cleanup artists bought big chunks of BTC well below $20,000. The concentration of holdings is another giveaway of a shell game, with a vast army of suckers defending it.
Leave? And lose the chance to average all the way down? Never!
Crypto is down about as much as all the gold and silver explorers and juniors I sold in the new year.
Anyone who took the fed seriously sold before the real carnage begun.
If crypto keeps dropping, I will be buying at some point. Imo this is the new gold and where all the money will flow back in.
Same with aark ETFs and the kind of companies they hold….
“If crypto keeps dropping, I will be buying at some point. Imo this is the new gold and where all the money will flow back in.”
Bahahahahahahahaha!!!
Azani – keep buying pal, and you will be living under a bridge in a Maytag refrigerator box – LOL
All that cryptotrash is based on a “handful of nothing” – Geeeeezzzzzzzzzz
I am 100% cash since the new year and will star slowly buying back in slowly.
Problem is that people like you have been out of the market since your first pay cheques and probably shoveling money into highly speculative gold and silver stocks since before the internet was invented…
Now that the market is down 20%-30% from the peak, you think it’s going to zero…
Just wait until gold is smashed down to sub $1500, then lots of you guys will parade out all the canned manipulation accusations….
Umm.. he is not kidding. Many are buying the dip. BTC is back up past 20k.
These people have all found religion. I hope they are ready to sacrifice it all for their god.
“ keep buying pal, and you will be living under a bridge in a Maytag refrigerator box – “
That’s a damn nice box….
Neighbors will be extremely jealous…
“Problem is that people like you…”
People like me?
Amount of stock purchased in lifetime…Zero
Amount of credence given to Stock Brokers and other touts…Zero
Once spent a few hours in a boilerroom of D.H. Blair…Priceless
Azani, Bitcoin loses 90% then you buy at 6000, then it drops to 3000 and you lose 50% in a year. Realistic. There is no floor on Bitcoin. If it is around in 10 years I’ll be surprised.
Kind of agree. While there is no actual floor to bitcoin per se… realistically, I think the floor for bitcoin, at least for now, will be when tether is blown out and microstrategy is forced to liquidate and declare bk. I see value in the blockchain and defi. As precarious as bitcoin or any particular cryptocoin is, there’s no other asset class that is as portable/borderless and confiscation resistant as some cryptos. How much that’s worth in the form of some tokens is debatable, since the supply of any tokens is infinite. It’s a value call. Can be invaluable on a short term basis.
The value, of Blockchain, is decentralisation. Not necessarily what is on the Blockchain. There are things known as smart contracts on the Blockchain. Would Michael Burry short housing bonds directly with Goldman Sachs again, or if it was possible short housing bonds with GS using a smart contract?
The difference is that people actually use gold for things and it has been an accepted store of value since Neolithic times. Crypto has no intrinsic value and therefore is MUCH more like a tulip bulb, the bottom is literally zero.
The tulip bulb has value as a source of pretty flowers, but it must compete with other similar assets such as petunias, geraniums, and even the ubiquitous low-value dandelion. In this sense, crypto is still infinitely overvalued as anything other than a synthetic abstract construction that has been arbitrarily monetized.
Gold cannot buy food, clothes or gas. You still need $!
Gold peaked around 2500 in mid 80s. NOW it cannot even hold above 2000! Doesn’t pay any interest or div!
I trade options on GLD both ways. When I sell I get cold hard cash. NOT married to GLD. Same with gold miners!
Crypto is a horror story, still continuing! Making more dough by going against the mkt since March! SRLL the rip but NO. I won’t buy the DIP!
Sunny,
The dollar will be long forgotten, and gold will still be around. Someday the dollar won’t be worth a thing, yet the grams and ounces of gold you have – perhaps obtained at bargain dollar prices back in 2022 – will more than likely still be tradeable for things you want and need. This is true even if you first must make an intermediate trade for the currency of the day. So yes, gold CAN be used to buy your food, clothes, and fuel long after the dollar can’t.
GLD is just another gilded financial instrument of our times, and could easily collapse and disappear in the course of days like so many stocks and bonds. Study some relevent history, then look deep into time and imagine what it takes to have successfully saved for the future.
Crypto will never be the new gold, because it does not have many of the inherent characteristics that gold has always had. For example, 1) inherent value in making useful or decorative products, 2) personal adornment or status at the individual grass roots as well as high socioeconomic levels, or 3) as a beautiful shiny object of greedy lust (e.g., beautifully designed gold bars).
However, crypto could be implemented top-down as a fiat medium of exchange in a monetary system, not at all analogous to gold. When one speaks of “reserves” in central banks, they already are digital, and might just as well be implemented in crypto.
According anthropological theory (“Debt: The First 5000 Years” by Graeber), history indicates that modern style capitalist monetary systems were developed and implemented from top down for the purpose of ruling or wealthy classes controlling their realm, or for generating funds for wars. Graeber’s analysis asserts that modern monetary systems are NOT the result of Adam Smith’s supposed natural evolution of “trucking and bartering” systems. In other words, modern capitalism is not a “natural” outcome of human grass roots tribal cultures.
Some type of fiat digital currency, whether based on crypto or not, will likely blow the private cryptos to smithereens (except maybe for use in money-laundering and other criminal or sketchy activities).
Gold has intrinsic value at some level. Crapto has none.
Being a bit cynical, as Governments want digital currencey, we may find they consider Bitcoin and others to be in the way. The answer is to regulate the banks so that bitcoin profits cannot be traded into banks.( many banks already will not allow bitcoin trades) If you can’t get your money from Bitcoin, into some sort of bank, then bitcoin becomes worthless. That is a clear challenge to none government digital currency… So be careful, there are smarter people (than you) out there, who often turn to the dark side and they all seem to work for National Banks…….
Dollars are already digital currency. Do you think there is really $20 trillion in paper and coins?
Anthony- cynical or not, if crypto had been in governments way, government would have killed it off with no particular difficulty. It’s possible that it functions as an informal Beta until the official digital version is introduced, with a take it or leave it limited convertibility from stablecoins alone at that time, funneling the crypto-cattle through the chute. As long as they must return from BlockchainLand through a fiat gate, they can be taxed, and the government cares only about getting money and saving their own necks. The possibility exists that quantum computing will compromise the security of the Blockchain and may well not be revealed as functional until long after they get it working and milk a few whales. But that’s a separate issue that could nullify everything everyone thinks they know about crypto. Just that possibility is plenty to keep me away. I’m guessing that banks turn away crypto business because they know the rules haven’t really been written yet. And they’re in politics primarily now, banking is just sort of a sideline for lots of bigger banks these days. Plus the funding illegalities is reason to avoid crypto business.
I think that might be overreach a bit….Cathy Woods is not flexible enough to adapt…
but mid term equities years are always down early and rise late….
“Cathie Wood”
“Cathie Would”
if Amani or someone wants to buy crypto they should be able too.
Crypto is not the not the new gold though. Gold has no counter party. Crypto should not be compared to gold. They need to use a different term.
Cryptos will always have counter parties. Computer programmers, the power grid, and easy tracking and thus the ability to almost freeze the movement over the internet. Just ask the hackers Ilya Lichtenstein, 34, and his wife, Heather Morgan who had stolen billions but could not find a way to spend it.
But I am not stopping anyone or dissuading them from buying it. But I will warn them that cryptos were a godsend for hackers.
Dignity? The diehard bitcoin hypers and believers have none. Look at what Saynor is asking for now, for government to help regulate Crypto. Yup, don’t regulate us when price is at $60k but now the house is on fire…we need help…oh the irony
To a legacy hodler BTC is on the backside of a bull. A phenomenon that has reiterated several times. It will rise again after the shitcoin shakeout.
It all depends on one’s basis. My coin has dipped somewhat but still hodling on at about 175 times basis. (+17500%)Many others in similar scenario. BTC has a titanium floor courtesy of ancient hodlers and should prove to be fireproof for a long time. I’m docile, dude.
The rage against crypto on this site is fascinating. I did a small buy of a Bitcoin futures fund in my Roth IRA last year (using the Roth so any gains are tax free). That first buy was equal to half of one percent of my investments. I want a 2% allocation to it eventually as part of a pool of alternative assets in the portfolio. Last week I just bought a second chunk after the 50% haircut from the first buy.
All of this reminds me of early internet. Lots of crap indeed that needs to be flushed out so the ones with value can emerge from the wreckage. But the entire complex isn’t going to fizzle out IMO. And if it does, I guess I lost 2%. Anyone else on this board ever lose 2% of their net worth on an investment? I’ll be kind and not make you include spouses or children.
Good podcast, Wolf. I never understood very well how RRP’s played an outsized role in the beginning of the collapse, even though I already had a rough familiarity with the concept.
It seemed to reach the point of either crush the money markets via negative rates or crush stocks.
Negative rates are next in their toolbox. Official negative rates. We have real negative rate now.
andy,
Nope. The Fed represents the banks, and the 12 regional Federal Reserve Banks are owned by the banks in theirs districts, and negative rates are really really bad for bank stocks — see Japanese and European bank stocks — and that’s why negative rates will NEVER happen in the US.
People who promote negative rates in the US, like you, don’t understand the difference between the Fed (12 FRBs owned by the banks) and the other central banks that have negative rates (none of them owned by the banks).
For the Fed, it’s “zero lower bound.” That’s an expression they use all the time, which means 0% is the lower limit of their interest rate policies.
So forget this negative rate BS for the US.
If real negative rates becomes commonly understood, what would be the difference in outcomes between that and nominal negative rates?
HUGE difference.
Wouldn’t the introduction of CBDC give way for having negative rates?
What’s your hangup about negative rates??? They’re absurd, everyone knows it, and they’re going away. See Switzerland and the Eurozone and other European countries that had them. Japan will abandon them too.
Wolf, I might be too smooth brained to fully comprehend, but would you still be kind enough to elaborate on the HUGE difference? The way I’m currently seeing it is that negative nominal rates, while nonsensical, isn’t too different from negative real rates, once it’s are commonly understood. It seems to me just a sleight of hand and the spread between nominal and real rates being more important ie just accounting formalities.
>What’s your hangup about negative rates??? They’re absurd, everyone knows it, and they’re going away.
Shouldn’t the same be expected of negative real rates? Yet, it seems negative real rates are here to stay.
Rob,
If I borrow $1,000 at +4% interest when inflation is 8%, I pay $40 a year in actual cash interest and the lender gets $40 a year in cash income. But the purchasing power of that $1,000 drops by $80, which means if the lender chooses to buy something with that $1,000 after one year, they get $80 less in product.
If the interest rate is actually negative = -8%: If I borrow $1,000 at -8%, I get PAID $80 a year in cash from the lender to borrow, and the lender lends me $1,000 plus pays me $80 a year in cash due to negative nominal interest, and thus the lender has an expense of $80 a year, after having giving me $1,000. This is just nuts.
Also, negative interest rates will sooner or later blow up the monetary system by generating a crapload of inflation, now happening. So you might have negative interest rates AND inflation, the worst of both worlds. Even the Eurozone and Switzerland are now trying to get out of this nightmare without blowing up their credit markets.
Simple. Trillions flooded the markets from the 2020 low. Thank you fed. Now they all go back to the 2020 break outs. I fully expect a return to 2016 levels. It was all fake. Nft, crypto meta verse real estate, spacs. Obvious parabolic bubble
Fiat is no more than an exchange of labor ,time or theft figure out where you are in the scam
Biotech is 2014 level….look for that area
it will be first sector to push north if energy pulls back a bit
One of your best. Time for me to send another donation.
Send it monthly.
Dogecoin OK for that? /s
It’s not just those hype and hoopla stocks that were/are way over priced. When I see Apple and Microsoft down 50+%, only than I can comfortably buy stocks. Meta already at half the peak and Amazon close to half.
Yes, good point. Even 3M is down 27% YTD.
Watch Jim richards podcast = good luck
Sounds about right. Those two were last over the hump. And berely yielding any dividend.
Be careful, who in a deep world recession can afford to buy an iphone….
Let’s face it! Au has been sanctioned along with all of Russia’s other assets. As long as China’s20k tons & Russia’s 2.5k tons remain inert and until they are weaponized, the invisible hand of free market capitalism(?) Will maintain their stranglehold on Au’s price discovery, no matter how many cups & saucer formations are spun! Aubugs will continue to be mug-ged!
I’m a myrrh-man, and there is definitely price suppression.
Stable sector high value workers (healthcare, infrastructure construction, base stable tech), government workers, retirees (state and federal) backed by tax officials and lastly younger (non government) private sector boomers, gen x with low cash burn, high stable savings. Apple, Meta, Amazon are not going away for these people, the 50-99% income crowd. Won’t say apple can’t go below 100 but unlikely going to 50 either.
What does Apple make that is in any way better, faster, or cheaper than Android and other computer products?
“ What does Apple make that is in any way better, faster, or cheaper than Android and other computer products?”
Brother, was that you I saw on the Kia lot? :)
Note: if you don’t get it, SoCalBeachDude was posting about shopping for new BMW last week…
high value? or highly paid?
The trouble with the “half-off” approach is that it ignores the potential for a 1929-style sequential unwind of multiple layers off speculation. Or even simply a 2000-style unwind of tech overvaluation compared to the physical economy.
From 1929 – 1933, you could buy when the market leadership was “half off”, and still have to live through a 75% loss, before things finally hit bottom!
Wisdom seeker
Half off of Apple and Microsoft potentially could mean 75% off NASDAQ.
NASDAQ fell around 80% in Spring 2000 and could fall even more this time around as the ‘everything bubble’ collapses.
Typo: Should read: “from spring 2000” not “in Spring 2000” (Nasdaq peaked in March 2000)
Ghassan, there’s a chance you could buy Apple or Microsoft at 50% of its high, then watch it drop to 12% of its high, which means your entire investment at “50% off” might have to endure a 75% paper loss before it recovers.
Cisco did that in 2000-2002, it had a 90% off sale.
Amazon dropped 95% before it recovered.
Inflation today constrains the Fed in ways we have not seen for over 40 years, so outcomes more extreme than in 2000 or 2008 are possible.
Remember myspace? They all going there. And another one – I just read about pet rock in 70’s. It’s all manipulation.
“Manipulation”… what do you mean? Everyone tries to manipulate everything around them at all times. If you mean that there was a conspiracy of pet rock instigators, you’re just paranoid. It was the same as Cabbage Patch Kids, Garbage Pail cards, Beanie Babies, et al. The fantasies go back to the burying of weapons, wives, pets, and food in the Great Pyramids or earlier: people believing in stories of wealth or immortality.
People are f*in stupid. That isn’t a conspiracy. It’s the human condition.
What it is is nothing but inane; wild stupid speculation by morons and the classic examples now are the ‘meme’ stocks such as GameStop and utterly worthless garbage like the 19,000 craptocurrencies all of which are lot like the 1637 Dutch Tulip Bulbble!
Thanks to Wolf for this podcast, which gives a new big picture perspective about the valuable information he was reporting in real time as the events happened throughout 2021.
Why is Cathie Woodshed still allowed on financial programs. Doesn’t a more than 75% crash of your fund automatically disqualify you from participating? FAILURE.
Hey, put some respect on that name. It’s not a shed, it’s a full-size *hut*, with all the innovations and tech flavour. Like, the doors lock in themselves.
But isn’t she fun to watch? Like a cheerleader in Armageddon.
With geeky glasses.
Being a huge failure is not a mark of shame. Look at all the Robert E Lee statues.
Amen…as long as your perceived legacy or in this day and age, your hype is not a failure then you won’t be view as a failure and MSM will still invite you to interviews and take you seriously
They removed all of our Robert E Lee statues down south this way. They changed the name of our high school mascot from rebels to mavericks (yuk).
But everybody is still pissed off about something these days.
It’s being done on purpose so you don’t notice what is going on in D.C.
Do you reminisce about good old days, where everything and when every one put in their ‘proper’ place? No protest tolerated. Life went on smoothly, at least for some folks.
Americans are addicted to sales pitches that entertain and cater to their solipsism, flash over substance. Boo the introverted fund manager with the dull TV manner who gets it right, yay the ‘charismatic’ woman who sound so sure and exciting! Yay the Booyah Screamer with his own show full of sound effects! Like a casino they give you a dazzling light show, it’s so much fun to lose money with them!
They let her on so it gives them an easy way to find a stock to short.
Surprised that no one has mentioned this, but Gold has held up well. It’s down only 12 13% from the top. That’s actually very gentle. Remember when people were saying Bitcoin was Digital Gold?
Why does Bitcoin – which isn’t even a coin – use a gold coin as its moniker? Because they want it to appear as if it’s gold to suggest value. If it was named “Bitsheet” and its moniker was a white sheet of paper, do you think the suckers would have fallen for it?
I prefer Bitcrap
BitCON is what it is really all about in this craptocurrency.
How about Bitshjt and a roll of toilet paper as it’s moniker? Reminds me of a George Carlin bit too.
But I thought gold was supposed to go up during times of inflation, isn’t that the main reason for holding gold? As a hedge against inflation?
I bought most of mine at around 1350. I am still up :) Thanks very much.
I happened to be in a coin/antique/card shop today. While I was there, five people came by and asked if any gold was available. Nope. Not a drop. They were telling the would be customers that they had a waiting list (7 people long) who wanted to be called if anything came in.
However. They had plenty of silver. But no one wanted that.
Nobody asked for crypto.
Speaking about a particular asset class that would make a good hedge against inflation, I think you’ll find people recommending everything from Crypto to stocks, to real estate. Everyone thinks that their preferred asset class would be the best.
No. The main reason for gold is its use in JEWELRY which is where 70% of the world’s 180,000 or so metric tonnes is.
I’m asking that same question. In this roaring inflation, why isn’t gold doing better?
Gold had a HUGE run-up in recent years. It DOUBLED between Jan 2016 and Jul 2020. Who cares about 8% inflation when gold doubled in the span of four years? Gold only hedges against inflation over the very long run, not day to day. Anything that doubles in 4 years, and then two years later is still there is a good deal. What do you expect? That it doubles in four years, and that it then keeps going higher at the rate of inflation? No, gold is a traded asset, subject to market forces.
In a recession, gold drops along with ever other asset. Inflation will eventually be crushed by demand destruction of recession.
My understanding is that when the Fed hikes rates it is bad for gold because other “risk free” assets like treasuries become more attractive than gold because of the high yield due to raising interest rates, therefore people take money out of gold and into things like treasuries.
Look at how gold performed under Volker:
https://www.sunshineprofits.com/media/cms_page_media/2018/8/20/2_lkLnx0B.png
Ed C
Gold goes no where or even down, when the US$ is getting stronger (relative to other currency) and the rates are rising, like now!
This is why I believe in trading GLD options both ways, at different time frames and flexible! I am agnostic about gold NOT a religion to me.
@jdog In 2009 Gold went from 700 to 1000 while the market crashed and the economy went into a recession?
with dollar rise gold held up extremely well, enough folks label it as nothing so its soon to be worth more than many somethings
Strong US$ and rising rate work against the gold, at least most of the times! Gold is having hard time staying above 2000!
For the last 6 months, inflation is rising but gold went down from 2033 ( March 8, 22) to current 1843!
Trading GLD options (both ways at appropriate time frames) is a better strategy
Like fishing just keep reeling them in until they stop biting ,sometimes people are stupider than fish
The term “like shooting fish in a barrel” comes to mind.
Tesla is down around 45%. Another 50% to go. After short squeeze rally is done.
Or should I say another 90% to go.
Salivating at that idea, even though I don’t own any put or short. I probably should put in a short position a while back but then again I don’t like betting against cultist. Even now, I can’t confidently say they won’t shoot back up, their true believers can perform market miracle or so I am told…
I hope it goes up. I will gladly add to my position. It’s like picking up money. We’ll make ours in a jiffy.
Shares and every thing else are going down.
Savings Rates are going up.
Why not just put your money. If you have any left? in the bank.
Or am I missing something.
Bank? Buy treasury bills/bonds, good corporate paper, even brokered CD’s!
Anthony, do you really want to lend to the same government that is reaming you with raging inflation?
Be careful who you lend to; they may not put your money to a good use.
A bond or CD cuts two ways.
Remember that in a market crash liquidity freezes and you cannot free up any cash for the deals that pop up. Cash is trash until the crash.
Why would you think savings interest rates will be rising?
They’re already rising. Check the brokered CDs at your broker. I see some 1-year CDs at my broker offering around 2.5%. American Express Bank has raised its savings account interest to 0.75%, and 1-year CD to 1.5%. So interest rates on savings products are still minuscule, but 1-year brokered CDs now exceed the S&P 500 dividend yield.
And this morning, American Express Bank raised its savings account interest from 0.75% to 0.90%.
This is happening. You just have to look around a little.
Banks are doing this to attract cash, as their current depositors pull out cash to invest in Treasury securities which pay a lot more. So now there is some competition returning to deposits, which is a good thing.
Wolf, fair enough, but there’s being too bearish too. I vividly remember back in 2020 when you went short the S&P when it was 3300. Going back to read the comments is funny in retrospect. All those folks talked themselves into not making money at the very least, or losing money going short at the worst….
Anyhow, I’ll start buying at S&P 3300 all the way down to wherever it bottoms. (3100 worse case Imo) By then the fed will be long done raising rates and the market will be pricing in rate cuts.
I, Who Hates Shorting, Just Shorted the Entire Stock Market. Here’s Why
by Wolf Richter • Jun 19, 2020
Azani,
The short is almost profitable. It wasn’t the best trade I ever made, and it wasn’t worst. And it might end up being profitable.
Didn’t you ever make a trade that took longer to get profitable than you thought originally?
My prior published short was very profitable. And after I covered it (published), I went long (published). Until I went short (published). What’s your freaking problem?
Azani, Wolf is neither bearish nor bullish. He’s objective. The US economy has been a house of cards built on easy money for two decades. That’s a fact—and he’s been accurately depicting it. There are very few sources for unvarnished financial analysis. His reporting has helped me buck the trend and preserve my wealth. And I’m sure he’d point out secure, lucrative investment opportunities if there were some. But it’s an Everything Bubble right now—stocks, bonds, crypto, real estate are all tanking. And no amount of boosterism is going to change that.
He’s definitely Bearish. Has been since I’ve started following the site.
So when you don’t do hype and hoopla, you’re “bearish”?
Good lordie, comments like this tell me that this sell-off has a long way to go.
But I agree: I point out issues, I point out hype and hoopla, I point out irrational exuberance and total nuttiness, and assorted idiocies that become financial religion, that’s for sure. And yes, I think assets are ridiculously overvalued, and cryptos are scams and gambling tokens.
I’m also “bullish” — not “bearish” — on the economy. I’ve been bullish on the economy, on the labor market, consumers in general, including consumer credit, etc., I nailed the inflation scenario over a year ago, and I’ve never said we were in stagflation, etc.
Go read my articles on consumer spending, GDP, retail spending, inventories, jobs, job openings, etc. etc. Yes, go ahead and actually RTGDFAs. You’ll see. They’re all “bullish” on the economy.
People who say I’m “bearish” never RTGDFAs.
For example, most recently, I’ve been saying a bunch of times that we’re NOT in a recession but are returning to normal growth, that consumer spending is shifting and returning to normal growth, from the stimulus-fueled growth…
As opposed to a lot of stock-market bulls who said we are in a recession or wish we were in a recession so that the Fed would cut rates again and re-start QE. This is the absurd nuttiness about “bulls” — they want a recession now so that the Fed cuts rates and restarts QE because amid higher rates and QT, assets will continue to be repriced and bulls just cannot have that.
AZANI
Shorting (buying PUT) needs, to be profitable, one has to be correct exactly, TWICE, in TIMING and also in TREND. Other wise loss.
Now I buy puts in short/intermediate time frame and for hedges buy calls at long time frames ( leap calls) in late ’23 or Jan ’24 and adjust accordingly since bear mkt can go longer than, most imagine! Learned by experience (been in the mkt since ’82)
Wolf, for some reason the video is being assaulted heavily by bots, including some ridiculous thread in the comments apparently created by a swarm of bots to discuss helping out each other with earning big on bitcoin.
Pretty ironical come to think of it.
Surprising that these bots slipped through. That’s Google’s problem, not mine. I take care of the comments here, and Google gets to manage the comments on YouTube. Wouldn’t surprise me if the bot comments eventually disappear.
I’ve listened to the podcast twice but I am still confused about this. Wolf, you are saying that the Fed is draining money from the financial system with these overnight RRPs. But it sounds like “investors with deep pockets” started to plow their money in money market funds in the spring of 2021 so didn’t they essentially drain the money from the financial system when they decided to do that? It seems like all the Fed did (and maybe this is a bigger deal than I understand it) is to provide the overnight RRPs to guarantee the 0% interest so that the interest didn’t go negative and blow up the money market funds. But it’s not like people flocked to the money market funds to make a return (since the interest rate was 0%). Rather they already decided to dump their stocks and were just looking for a place to safely store their money and the Fed basically guaranteed that the money market funds wouldn’t blow up. It seems like these investors with deep pockets did their own form of QT by deciding to park their money but this is fundamentally different from how the Fed would do QT.
Josh,
1. Investors plow cash into money markets
2. money markets overflow with cash, and they have to buy Treasury securities with it, and yields drop to 0% and below 0%.
3. The Fed takes this overflowing cash via RRPs — and entices money market funds to send it to the Fed as the Fed is paying 0.05% interest — so money market funds don’t have to by Treasury securities with it, and thereby the Fed drains the cash from the system.
4. This has the effect of keeping the bottom of the yield curve above 0%.
5. This also has the effect that over $2.2 trillion were removed from the financial system, temporarily, and upon demand.
6. This is the opposite of repos (now $0), with which the Fed provides cash to the system.
7. RRPs have the effect of raising the yields at the bottom end of the yield curve. That’s the opposite of the repos and other forms of QE, that have the effect of pushing down yields.
8. If the Fed had not removed $2.2 trillion from the system via RRPs, that cash would have had to chase after other assets. The difference between RRPs and QT is that RRPs operate voluntarily and can be reversed by the counterparties on a daily basis, while QT is forced by the Fed and permanent.
Wolf, just a thought experiment, if you please: what would happen if the RRPs don’t happen for, let’s say, a single night? Would it hit hard enough to move the Fed into doing something out of the grand scheme?
Rudolf,
OK, let’s think this through.
1. This is cash from money market funds. If the RRPs don’t happen, the money markets have to buy Treasuries with this cash, which would drive up Treasury prices.
Or 2. Maybe investors yanked their money out of these funds, and then their cash would go somewhere else, such as bonds or stocks. One way or the other, this $2.2 trillion in cash, if it left the Fed, would chase down other assets and drive up prices elsewhere.
Arguably, the economic issues underlying 2008-9 were papered over by the Fed. What’s to keep markets from falling back to those levels?
SPOT ON! Bravo!
That’s exactly they did, instead of addressing the global banking problems which brought us the GFC. As you said, aptly they just replaced the usual business cycles with ‘insane’ credit cycles with lots of easy-peasy money and kicked the can. Now we are back to square ONE! This 3rd largest ‘everything’ bubble was looking for a pin. It found when Russia invaded Ukraine on Feb 23rd!
Now inflation is popping really strong after 41 yrs of deflation! NOT that easy to contain especially by this Fed, way behind the curve. there are other head winds out there, too. Fed is trapped by it’s own ill thought out monetary policies.
How far the mkts can fall? I don’t know, but usually bear mkts might trace back to the point and BEYOND where this ‘surreal’ Bull began! Fed’s balance sheet has increased NINE fold and the global balance sheets of 4 large CBers has increased SIX fold since 2008!
Read John Hussman blogs
Wait n See!
Send it automatically.
As to all asset bubbles, all bubbles always burst. Folks need to learn about the concept of VALUE before mindlessly creating bubbles.
Wolf, any comment on the slowness of the balance sheet reduction?
I know it is a gradual increase in QT, but it seems that for something that was allegedly supposed to start weeks ago, nothing of consequence has occurred.
And shouldnt the Fed have 0% or negative inflation target …. adjusting their “target” for the 8% spike? Or are they just conceding the 8% spike is now “baked in” and will never retrace?
What “slowness”??? That’s only in the imagination of the clueless who don’t know how the Fed’s balance sheet operates.
Treasury securities roll off at mid-month and at the end of the month. June 15, there was the first roll-off and the balance of Treasuries dipped. The next roll-off comes at the end of June.
MBS are an entirely different creature, as I have explained a million times here, but you never read anything.
The Fed buys MBS in the To Be Announced (TBA) market, which take 2-3 months to settle, so the Fed’s buys that you now see showing up on the balance sheet were made 2-3 months ago.
The Fed cut its purchase schedule way down, but those lower purchases won’t hit the balance sheet for 2-3 months.
The Fed sheds nearly all MBS via the pass-through principal payments, when mortgages are paid off, or are paid down, and the principal payments are forwarded to MBS holders. This is a very uneven flow that reduces the MBS balance. That’s why the MBS chart has this jagged line.
We will very clearly see QT in about three months. Treasury securities already dipped, and they will keep declining. I went through this the last time (2017-2019), so I know how long it takes for all this to show up in large enough a number to even be visible on the $9.7 trillion balance sheet.
Tightening deniers and tightening-denier-trolls have been getting hammered month after month by reality. At first they said that the Fed will never taper QE, and when it tapered QE, they said it will never end QE, and when it ended QE, they said that it will never raise rates, and when it raised rates, they said that it will never do QT, and now that QT is starting to happen, they say all kinds of other stuff, always denying that tightening is now the name of the game. Look at the markets, even THEY are finally figuring it out gradually.
” I know how long it takes for all this to show up in large enough a number to even be visible on the $9.7 trillion balance sheet.”
which was my point
” it SEEMS that for something that was allegedly supposed to start weeks ago, nothing of consequence has occurred.”
So someone looking only at the balance sheet hasnt seen the impact on the “9.7 Trillion balance sheet.” And that gives the impression “nothing of consequence” has occurred. And I do understand how MBSs are treated on the balance sheet.
NOPE. WRONGO. QT is happening exactly according to the Fed’s announced plan, as the Fed published it. But a balance sheet is not giving you the instant gratification of crypto trading, and so you spin grand theories of nonsense out of it — well, maybe not you personally, but these uninformed idiots you’re reading.
“Those involved with the speculation are experiencing an increase in wealth – getting rich or being further enriched. No one wishes to believe that this is fortuitous or undeserved; all wish to think that it is the result of their own superior insight or intuition. As long as they are in, they have a strong pecuniary commitment to belief in the unique personal intelligence that tells them there will be yet more. Accordingly, possession must be associated with some special genius. Speculation buys up, in a very practical way, the intelligence of those involved. Only after the speculative collapse does the truth emerge. What was thought to be unusual acuity turns out to be only a fortuitous and unfortunate association with the assets.” – John Kenneth Galbraith from his book “A Short History of Financial Euphoria”
Liquidity insipidity.
I’m suddenly hearing a lot of individual investors spouting delusional “the bull market will return soon, you’ll see!” wishful thinking.
I honestly feel bad for them. :(
To re-cap: the smart money is still the smart money and the dumb money is still the dumb money.
Max power
Smart money is selling and DUMB money is buying!
What else is new!?
The S&P is down 1,000 points from the high and is giving us a tremendous buying opportunity. But unfortunately you guys won’t be satisfied unless there’s a crash.
So it it hit 5-6,000 in the future in the next rally, you’ll wish you’d have bought around now.
haha I strongly encourage you to take your own advice and buy at every dip, don’t ever want to miss out right?Go big or go home. Crypto present some very good opportunity for you, load up, I am sure Saynor is.
Personally, I enjoy being stupid, I like to see my money erode away relatively slower with inflation but hey at least I can sleep a little better not have to worry about losing 20% overnight
You people always say you should be invested at all times (time in the market vs. Timing the market) and dry powder is losing money – so how are you buying the dip? Unless the dogma is a lie that people aren’t practicing with real money and only spouting off on forums.
“…so how are you buying the dip?”
With leverage, huge leverage, hahahaha… Ooops
https://wolfstreet.com/2022/06/14/margin-debt-unwinds-further-amid-massacre-of-high-flying-stocks-and-forced-selling/
Phoenix obviously my comment is nested under you by accident, it goes to the guy above you
Neil
I strongly suspect that you are one of those young investors(45y or below) who entered the the right after the GFC, right? You have seen only Stocks going up. Never have under gone a real a protracted, secular Bear mkt ( along with expected strong bounces aka ‘bear’ traps).
FYI: Without Trillions of ‘easy-peasy’ and without Fed’s Put, this bull wouldn’t have existed, in the first place.
Now, no more FED’s put, No more QE but QT, rising rates and so is inflation after 41 yrs of deflation + other head winds, out there!
Earnings ‘recession’ is on it’s way with 2-3 weeks.
What kind of growth one expects when the Fed’s balance sheet has already increased NINE fold and the global debt (4 large CBers) by SIX fold. DEBT to GDP ratio of USA is at least 130% if not more! Mkt cap to GDP is still over 160%!
B/w Reversion to the mean is as natural as 4 seasons, can be delayed but cannot be banned! Enjoy the Bear mkt of your life time!
Good Luck!
Where are you coming up with 41 years of deflation,cars ,food ,housing ,clothes gas nothing decreased in value . Geeesh
“But unfortunately you guys won’t be satisfied unless there’s a crash.”
Correct. The bigger, the better.
How many years now has “hype and hoopla” been an investment strategy?
It is the 21st century version of the snake oil salesman. Spend your money on it Sunday, and come Monday he’s long gone, and all you have is a bottle of useless water.
P.T. Barnum was an astute observer: “There’s a sucker born every minute”.
And good old Thomas Tusser in 1573; “A fool and his money are soon parted”
P.T. Barnum would be jealous if he is alive today and see how we are in the golden age of snake oil. The likes of Musk, Mashinsky, Adam Neumann can teach him a thing or two..
These guys have claimed that their stocks have kept going up thru bad news or good, but the gains have come in two places – futures markets (read guv intervention) and stock buybacks.
Since this form of corporate self-dealing was made legal, forty percent of stock gains have come from buy backs.
And think about all the free (dumb) money that 401ks and pension that are invested in markets that underpin this bubble…. so far to fall, but many steps to go….
With the FED – a man and his money, at least his purchasing power, is parted ,,,,,,,,,,,,,,,,,,,, fool or not
I caught your reference to those calling out “cash is trash”, and my mind went immediately to Dalio
Don’t know much about him, but I thought of him as decent ……
maybe not …………………..
I’m not sure of what Dalio really believed when he was talking that talk; I would like to know
Buffet, “affable plain talker”, on the other hand, I’ve thought capable of mis-direction ……….. he is after all a Goldman man and a benefactor of the 2008 bailouts
beneficiary
To me, any of these guys are suspect if their success has been measured in the last 15 years… it didn’t take genius, just a wad of money to throw at crap that their friends gave them…
I think you’ll see more and more of the celebrity financial crowd bailing and leaving their unwashed masses of followers at the empty pedestal saying “;what now, oh wise one”…
The answer from above, echoing through the heavens…”get a job”….
sorry but their will be sectors to take advantage of and go long, there are yield plays that pay better than banks and treasuries. Their will be a market…. everyone hate oil at negative and said the world was ending too, you would be wealthy if you picked up down there today…
still a ton of liquidity sloshing around….every place I went to was nuts full of people this weekend even at 6.60 gas, traffic jams a plenty
if you time the market on bear events your broke….they are rare and short
cd,
People constantly confuse stock prices and the economy. They’re not the same thing. They don’t even run in parallel. Stock prices react to interest-rate repression and QE, and they reverse when those policies reverse.
The stock bulls are now HOPING for an instant recession so that the Fed will cut rates, end QT, and re-start QE because that’s the only thing that will drive the stock indices higher.
Which is funny and absurd, when you think about it, that stock market bulls are now praying for a recession so that stocks can move higher again.
I agree with you: the consumer is out there spending hand over fist, with some spending having shifted from goods (retail) to services. And governments are awash in cash, and they’re trying to spend it, but it takes a while. And the $1 trillion federal infrastructure packages is now getting implemented in all kinds of construction projects… These are among the delayed effects of all this stimulus money.
I just don’t think we’re in a recession. Maybe next year, maybe someday, but not now. But for now, the economy rumbles along at the lower growth rates that were typical before the pandemic, while inflation is red hot.
And so rates are going higher, and QT is moving forward, and that’s bad for stock prices and other asset prices.
Also let me point out to everyone here: the podcast doesn’t address ANY of these topics. It’s about something else, and “cd” doesn’t seem to have listened to the podcast (fine), and his comments are UNRELATED to the podcast.
The podcast was about when, how, and why the sell-off actually started.
I don’t think any of the commenters here that called me “bearish” listened to the podcast. They’re just talking without knowing what’s in the podcast.
Wolf, I think you need add another acronym to your repertoire RDGTFA would go nicely with LTTGDMFP. I’ll let you figure what the MF stands for.
cd
I don’t want repeat what I usually say to young investors(45y or below) who entered the mkt after GFC!
Please read my comment/reply to Neil. thank you.
Been in the mkt since ’82 and have gone thru more than 1 bear!
Good Luck!
Recessions are God’s gift to investors. The “smart” money began scaling out at the first sign of fed tightening. Then they put on shorts after strong rallies. Rallies which fool the “dumb” money into thinking good times be rollin’ again. It’s dumb money because you don’t fight the fed — rule number one — so all rallies should be considered times to sell.
There will be another bull market. It will happen after the first sign of fed easing. But not right away. First there will be more ups and dows by people who need convincing.
One of the more interesting thing I’ve noticed about market cycles is this. After big declines, nobody gives you advice on what to buy and when. When prices are high, everybody wants to sell you something 24×7. At bottoms — SILENCE. This is the time to make wish lists for lower prices, because there won’t be much help when you need it most.
Warren Buffet said it far more concisely and simply when he stated ‘the time to buy stocks is when blood is running in the streets.’
‘the time to buy is when blood is running in the streets.’
That was actually Baron Rothschild who said that in the 18th-century, and he meant it literally. According to Forbes- “The original quote is believed to be “Buy when there’s blood in the streets, even if the blood is your own.””
It’s a bloody cold and extreme sentiment.
I’ve yet to be wrong picking the of the top of the interest rate cycles in over 40 years but generally I can’t pick it more than about more than 3 months away from the top of the cycle. On other forums I tell them the same thing.
The US economy has been levitating on cheap debt since 2008.
Cheap debt has been needed because without it the US economy wouldn’t levitate.
And now that debt will no longer be cheap the US economy will stop levitating.
Inflation has been the favored device for financial extraction since the Roman Republic and has never gone out of style.
There are several proven techniques for controlling inflation, but raising interest rates is the only one the FIC wants anybody to talk about, for reasons which should be obvious.
Raising taxes while raising interest rates would work but would be political suicide.
So would enforcing anti-trust laws.
So would funding the IRS and SEC.
I’ve predicted The Fed would be largely unable to control inflation.
I haven’t explained why.
I’ve also predicted a recession, a severe one.
I haven’t predicted that it won’t really end, or explained why.
Someday the explanations will be more obvious and won’t require much verbiage, not that they will make any difference.
The end is near, hen even insiders cannot invest into anything profitable.
Wolf,
Perhaps you have addressed this, but if not, it is likely its own article.
Care to compare the way the 2008 Housing Bubble played out compared to how you see the 2022 Housing Bubble playing out?
Several “absolutely impossible” events happened at the same time leading up to that crash. Now, supposedly things were fixed, but I know people were acquiring home loans not long afterwards based on self declared income. What are the new “impossible possibilities” that we will discover are possible this time around?
Some are claiming QE will never actually end and QT will never actually happen. Just like the Fed would never actually raise interest rates.
I know you have addressed these topics to some degree.
The answer may be worth a trillion dollars if you are accurate, and don’t want to discuss it publicly, for free.
Many thanks for keeping track of all these interconnected financial snapshots and explaining how they relate to the real world in layman’s terms.
The Canadian housing bubble is imploding but so far I underestimated the total stupidity of people buying at the lowest end of the housing market as the bubble implodes. Before the bubble imploded the lowest end of the housing market was bid to the moon. All the fools buying now don’t understand rents will fall albeit with a lag of about 12 to 18 months as housing prices fall. The people quote “all in” on real estate tend to own at the lowest end of the market or condo apartments. Most of them have second, third and forth properties. They haven’t broke these people yet but when they do the lowest end of the housing market should fall the furthest and hardest as the ones all in are forced to liquidate everything. So far the moral is don’t underestimate the stupidity of the buyers. The lowest end of the housing market has fallen the least and the higher end the most but before the bubble imploded the high end was the least overvalued and the lowest end of the market the most overvalued. Means the buyers buying haven’t a clue what they’re doing. That’s what’s happening so far up in Canada. When I say the lowest end of the housing market I’m referring to the low end of the housing market in all the highest priced cities in the provinces of Ontario and British Columbia.
“So far the moral is don’t underestimate the stupidity of the buyers” Ain’t this the truth..I one up you on the stupidity of SoCalers, probably would give Canadian buyers a run for its money.
The short answer is this: There won’t be a repeat (there usually isn’t) because the conditions have changed.
Now the banks are no longer that much on the hook for mortgages. Most mortgages have been securitized into MBS and investors own them, and many of them are guaranteed by the government. So a housing bust this time will NOT trigger a banking crisis, though it will maul investors around the globe such as pension funds, bond funds, insurance companies, and above and beyond all US taxpayers.
So the Fed won’t need to bail out the banks. If the Fed wants to, it can let home prices go through full price discovery. I’m not sure it will, but it could because banks are no longer at risk of collapsing due to mortgage defaults.
Wolf
What’s happening to the ‘value’ of those securitized MBSs, whom ever holding those, since mortgage rates are NOW increasing, ? Some has to take the loss, right? ultimately Tax payers?
sunny129,
The “values” of MBS have come down hard – and there was “price discovery” recently, meaning no bid at the current ask, but bids at much lower prices, which is kind of rough. Since the Fed has stepped away from MBS, and with CPI at 8%+, folks have figured out that a 5% MBS doesn’t make a huge amount of sense.
But MBS holders get the pass-through principal payments when mortgages are paid off and are paid down, so the MBS shrink constantly and after few years, the now much smaller MBS may get called (the remaining mortgages will be repackaged into new MBS). So you will never hold a 30-year MBS for 30 years. And there are no losses associated with this process.
The “private label” MBS, meaning those not guaranteed by the government, may face credit losses when mortgages default. That’s an additional risk if home prices spend the next few years going lower. But for now, mortgage defaults are still near the historic lows of the pandemic.
Wolf
Thank you
With respect to commercial loans and leases it appears the banks are holding loans valued in the trillions. I believe Chase alone holds over a trillion. Considering the vacancy rates in some of the most high value cities doesn’t pose an existential risk for these banks?
Or are these securitized as well?
There are all kinds of loans. For example, Commercial and Industrial loans = $2.6 trillion. Some banks, especially smaller regional banks, also hold a concentration of CRE loans. Banks holds loans that are backed by securities (Securities Based Lending) which is a form of leverage. Banks hold some credit card loans and other consumer loans.
Banks can choose which loans they want to keep on their books, and which loans they want to shuffle off via securitization to investors. Lending is the primary business of banks. And so they’re going to have some loans. But they shuffled a massive part of the mortgage risk off to investors and taxpayers — and they’re collecting fees for doing so.
Thank you Wolf. This podcast fills in many voids for me that didn’t make sense. I remember when the fed increased the overnight rate to a half a basis point (sorry if not exact) but also that the banks flooded the fed. I couldn’t see at the time however that it was the start of QT. Luckily I have not owned any shares of anything since Oct 2019 when the repo activity suddenly started ticking up. I thought that was some kind of liquidity thing that the fed wouldn’t make public. I bet the elite money people knew. Kind of unfair. Plus stocks were so overvalued anyway. Great job. You should get some kind of award. Cheers
It is called leverage, borrowing until you can’t borrow anymore. Interest rates and inflation were by design by the Fed and other world central banks. They wanted all the investors to borrow, corporations to borrow and but their stocks, shares and then jack up interest rates 2%, 3% points maybe 4% points soon. It was a trap as well for real estate. Give a false sense of money making with ultra low interest rates and make it look like easy money for years.
Our family never owned stocks, shares. We bought a house, paid it off in 12 years, no matter what low interest rates they gave us. We bought our fixed rate GICs in Canada in our tax free TFSAs, tax deferred RRSPs and just kept savings for years, decades now. We don’t do speculation, buying and selling, all that funny stuff. Just saving aggressively, 35% to 39% of our gross pay and reinvesting our RRSP income tax refunds. We averaged a after compound interest rate of 9.23% which is a 5.17% simple rate compounded from 2000 to 2022 and does include our RRSP income tax refunds. Both at 41, our GICs, RRSPs, RESPs, TFSAs worth $986,000, house paid off worth $648,000 even with a 20% drop since 6 months ago. Our house is a place to live and an asset we can sell later, it is not an investment or speculation tool. We can see another $200,000 gone from our house value and being debt free for over 10 years now it will not impact that much for our overall financial plan and family, kids finances.
We have no need to take any asset, price value risks of moving money in and out. Just straight saving aggressively , take tax advantaged accounts, GICs etc. into them and just keep reinvesting them, adding to them yearly. Now, with 4.5%+ GIC rates in Canada and still rising compared to the last 10 years or so 3.1% to 3.4% GIC rates, it is even easier to compound our money in these tax efficient plans, RRSPs, TFSAs for years to come, not RESPs our kids are all grown up now. Simple, slow, steady works for us.
If home prices in Ontario fall far enough I’d bypass parking money into third tier banks like Home Trust, Home Bank, EQ Bank, Great Western Bank. All of them might need a bailout to survive. As of April this year the CDIC is insuring GIC’s longer than 5 years. So far I haven’t figured out why they’d do this. I still think the safest place for the highest return is the Manitoba credit unions. Avoid any Ontario credit unions and avoid any B.C. credit unions.
Nice work, Jack!
..and inflation will take it all away in a few years. The government does not have to move a finger to confiscate it all.
Jack, you may want to consider longer term GICs if rates go higher. I see now 4.5% to 5% 7 to 10 year rates at some CDIC financial institutions in Canada. It may make sense to put some to increase your compound interest rate and fix those rates longer. We have not seen GIC rates this high since 2007 to 2008. It maybe worth locking in longer terms in your TFSAs as it is all income tax free.
I’m not sensing much panic out there, yet…
If I owned stocks right now I’d have a difficult time sleeping considering the meltdown that is well underway. This is when hopes and dreams start to fade into the past for many.
I think the Nasdaq has a long fall ahead of it.
OutWest
if one is reading financial media, there is still a strong hopium and positive spin being rolled along with spiced, kool-aid dolled out to those gullible (even here!) to keep on buying those ‘dips’
The PAIN is NOT enough at this point!
WAIT n SEE!
I think CDIC did this to insure GICs longer than 5 years because they did not want to increase CDIC’s deposit insurance from $100,000 to $140,000. The last time they increased $40,000 to CDIC limit was back in 2005 from $60,000 to $100,000 and according CPI in Canada, it should be $143,000 today but I would say probably $150,000 by years end.
Look at the strong bounce today (as of mid after noon)!
All the negative news out there like new home sales down, more likely 75 basis rate hike next month, Larry Summers more bearish comment + many more!
Mkts don’t care. Strong hopium there. Many are in denial of the reality!
Wolf,
Related to the stock market and your current/previous/future market shorts. Did/are/would you use put options or just outright short the indexes/individual stocks? Just curious.
Both have their advantages and disadvantages. Most options expire worthless: loss = 100%. That’s a disadvantage. Another disadvantage is the premium. If you short a stock or an ETF, your potential loss could exceed 100% in theory, and that’s a disadvantage, but you don’t face an expiration date, and if your general direction was correct, but your timing was wrong, you can still make it work out with a little patience. Really, either way. You just need to think about what you want to accomplish and how you want to frame your risk.