The Fed will tighten “Until Something Breaks” and then pivot? Wait a minute… (you can also download the WOLF STREET REPORT wherever you get your podcasts).
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Just saw in my Google News feed the following Wall Street Journal article: “Fed’s Inflation Fight Has Some Economists Fearing an Unnecessarily Deep Downturn”
Economists are advising no more than a 0.5% increase at the next Fed meeting.
Hahaha, yes, it’s everywhere. They don’t care about inflation because they’re wealthy enough to where inflation doesn’t matter. But they’re losing their shirts with these falling asset prices, and they want the Fed to stop, and to heck with inflation. That’s the main topic of the podcast.
In the podcast, I call these people: “hedge fund gurus, bond kings, stock-fund apostles, and other crybabies on Wall Street.”
Surely they’re not so dim though?
Inflation might not eat their shirts, but it’ll eat everyone else’s, and no one is a financial island.
Not islands — more like archipelagos of cufflinked crybabies wringing their hands collectively.
These buffalo billionaires just wanna get back to the days of yore when they were picking off cash cows from the windows of their runaway gravy trains. There were times there when I thought it might never end…I guess I’m still not always convinced.
As long as assets hold or increase value the 1% will borrow using the assets as collateral.
Add in price gouging to inflation and the wealthy will increase their wealth.
Too bad, so sad for the rest of us.
@josap
Assets are not holding value. The stock market is down big this year and housing is on the verge of a collapse.
I have been critical of the Fed for a long time but will give them credit now. Perhaps it’s too late but they do not have the “too bad so sad” attitude you describe. They have even spoken out about how inflation makes life difficult for the poor and working class. It might not be easy or completely in their control but I believe they sincerely want to fight inflation.
“I have been critical of the Fed for a long time but will give them credit now.”
For what, finally doing something in a futile effort to prevent complete collapse due to the damage they have already done over decades? How many trillions in interest income have been lost by savers in order to allow speculators to buy that second mansion on beach front property?
“they sincerely want to fight inflation”… A tight labor market is causing demand for fair pay, decent working conditions etc. and this is what must be halted at all costs (I suspect)
They just don’t really care what happens to everyone else.
This time around is so unique that it’s anyone’s guess if & when real job losses will begin. Same thing goes with housing. Nobody would have thought that existing home sales would holding up like they are with above 5% rates for four months now. Now, they’re back above 7%, and the Fed will most likely be forced to start selling MBS late this year or by January, which will keep the 30YFRM above 6% for as long as they sell MBS. In the early stages, 8% isn’t unreasonable. Housing, broadly has to fall 20% for the Fed to declare victory. I don’t see core PCE inflation dropping below 4% all through 2023 without real job losses and that 20% dip in housing.
We really are in truly unpresented territory. But keep in mind, if you include the nearly $2T approved this year in deficit spending, we’re looking at $13T in the last 30 months on top of the usual $4.5T annual federal government spending.
It’s going to take a lot longer than most people would have thought to work through all that liquidity that will be flowing into the system for several more years. And keep in mind, most counties around the country are still flush with cash from grossly inflated property tax revenue.
The Dow is down 20% YTD. Big deal! It’s possible the Fed may be raising the FFR all the way through next spring up to 5% which, if we’re lucky, is when it will meet PCE inflation.
Instead of stock market paper loses, the super wealthy should be more concerned with the 20 million people laid off during the pandemic, regardless work ethics, performance, loyalty, etc. Without those wage slaves perpetually increasing productivity, paper wealth via the stock market could stagnate as P/E ratios do actually matter over time, and productivity is a huge part of mega corp profit margins. As productivity is plummeting right now due to a phycological shift of the entire global work force society, the elites need to do something fast to scare the bottom 99% into “living to work” as this new “working to live” simply won’t suffice for the elites perpetual paper wealth trickle down “economy” without the continuously increasing energy expenditures of humans trapped in the debt cogs of Wall Streets “Financialization of Everything” version of capitalism…
Strap in folks, because at some point, the top 1% are going to have to Halloween spoke the bottom 99% into working much longer and harder, and I bet they get real creative this time…
I will happily go shirtless if that mean the billionaires get put in their place. No more buying politicians, DAs, judges to advance their agenda.
Keep in mind, Kenny, that if you own a business or are a beneficiary in a trust that owns a company that owns a company that owns a business, in the case of the ultrarich families, inflation can be good for you. Your liabilities are decreased by every day that inflation exceeds what you pay your bondholders, creditors, suppliers, gambling creditors, drug dealers, etc.
Your workers’ salaries are also reduced by inflation, so their labor becomes cheaper. Your costs, albeit increased by other companies raising their prices due to inflation, may still decrease in real terms.
I submit that the (mostly crooked) ultrarich, who control our economy and most of the world’s economy, knew that inflation was coming as they knew before the 2008 financial crisis that such an inflated real estate market was not going to continue forever, so they bet that it would collapse while selling pensions and other “dumb” people junk, subprime bonds that their cronies rated AAA. Watch ABC Australia’s “The Pandora Papers” and the Financial Times documentary as to how London became a laundry for dirty money, albeit (contrary to their self-aggrandizing claims), not the largest dirty money laundry.
The largest laundry is in the USA, laundering drug money, CCP member bribes and profits from selling Fentanyl ingredients to kill Americans to drug lords, human trafficking profits, LA judges’ secret bribe-savings (best judges money can buy, and they will stay bought, which is why so many drugs come through there), etc. We are number 1 in at least something, baby! Yeah! LOL
By the way, I predict that the “Fed” banksters will NOT raise interest rates significantly, because the CCP cadres are making huge profits from the fentanyl and other corrupt businesses with the bed buds, the US/EU banksters (who launder everything and control the “Fe” by indirect ownership of the “Fed” district banks) and any increases in the “Fed” interest rates are sucking money right out of mainland China as it stumbles more and more economically.
Let me see. Everyone’s shirt gets eaten except mine. Do I care? Of course not. That is how Wall St works.
History teaches us that once a central bank facilitates a bubble it’s a difficult thing to manage a soft landing. They basically are trying to manage sentiment, but if panic starts it’s a stampede to sell risky assets.
Yeah that’s the thing these privileged wealthy idiots still don’t seem to understand, along with their lapdog mouthpieces in the financial press (esp the Murdoch-owned Wall Street Journal and the squawkers on TV and streams)–they’re whining about these asset declines causing their net worth to drop by a few billion dollars even though they still have many more billions to play around with, still more money than they could ever spend. What they fail to realize is that if US inflation continues uncontrolled like it’s been, then hundreds of millions of Americans will be impoverished, unable to afford food and shelter (since the QE and ZIRP fueled housing bubble is a big part of the Everything Bubble), then social unrest worsens in an already bitterly divided United States, the US dollar and society collapses and the rich lose all the value of their assets as the country comes apart, including their heads if history is any indication. That’s bad enough in any country but in the USA with 400 million firearms circulating around, not even the most fortified gated community will be enough protection for the wealthy classes if Americans in general see their savings and buying power dry up from raging inflation, as history has also painfully shown.
So the choice for the American oligarchs and plutocrats is simple–restrain their insatiable greed for once and take a relatively minor hit to their asset values now (and still have billions left over), or stay greedy and try to weaken the inflation fight, and then lose everything as the US economy and society comes apart at the seams. Even if it’s been late in-coming, the Fed knows this and JPow has studied history, and he knows that inflation has utterly crushed far more great empires and major powers than any war ever has. He has no choice now but to fight inflation aggressively and without stepping off the gas. Paul Volcker is the model of what to do and that’s how it’ll be for the foreseeable future. It does mean a deep recession ahead likely in early 2023, but that’s the only thing that’ll pop these dangerous asset bubbles and bring inflation under control, and it’ll be followed by a strong recovery, just like Volcker himself realized with the 1983 recession and recovery later that year.
Miller-
IOW, you either peacefully redistribute wealth downwards, or violently redistribute poverty upwards.
(Not my quote but can’t find the source right now)
The smart ones have already sold their assets. In real estate at least. I’m seeing some high value RE that sold a year or 3 ago listing below their previous sale value because of price reductions. Low value rentals are listing to sell lower as well- although a lot of those seem to have been held a while.
Miller-Lune, et al.
Great thoughts and VERY concise summary.
Being a quote lover, Lune’s quote is going in my WS folder.
Great podcast, and again sorry I doubted Wolf’s mission, especially collecting smart people.
“The processes of life are like a drama, and I am studying the actors, not the plot. There are many actors, and it is their characters which make this drama. I seek to understand their habits, their peculiarities”
-Albrecht Kossel
So around the time of the 2016 election, the S&P was around 2,200. That means that your average crybaby with $5 million in the market at that time saw the “value” climb to $11 million or so at the peak in January 2022. This was coming after a pandemic that upended life for many people in many different ways.
None of these people are able to articulate why that new value of $11 million was the “right” one that the government should defend and prop up at all costs.
5 years is not THAT much time. If the $5 million was enough in 2017, why is it not now?
It’s an animal instinct : When you keep giving something to someone, they consider it as a right. When you withdraw, there will be aggression.
This holds for QE given to wallstreet and big banks, free food given to wild bears, peanuts given to squirrels, bonus given to unions, etc.
Hi,
Funny reading comments here and other financial sites you’d swear only rich folks make $ from stocks. Just because 1% have 50% of its wealth (value) does not mean there are not a lot of middle class people who get a non trivial amount of $ from stocks, both dividends and capital gains.
My average income has been a meager $16k the last 22 years and the last 10 years has been mostly from the stock market.
I’m not typical,, but don’t think I’m all that unusual either.
Different note I’ll be brief: Yes consumer inflation has gotten much worse the last year. However its NOT like consumer inflation was insignificant in 2014 to 2020… for many RENTERS at any rate.
In many Pac NW medium and large cities rents went up I’m guessing at an annualized rate of 5 to 10%, apartment complex dependent. I live in one such complex and so am somewhat familiar with the increases here.
Yes I know the Rule of 72, this implies rents doubled (or would) in 7 (to 14) years. This is significant shelter inflation. The unethical media and politicians LARGELY ignored this issue.
Why ? My guess is that because homeowners outnumber renters almost 2 to 1 (65% to 35%) politicians don’t want to jeopardize losing votes to these folks… hence renters are invisible, only homeowners concerns need be addressed.
FWIW: I read somewhere that just over 59% of housing structures are owner occupied, just over 30% are rented, and 10% are vacant.
Some countries have much higher homeownership rates than the US.
Admittedly their homes might not be the greatest, that i don’t know.
Many eastern European countries, Norway, Singapore, Taiwan and a few others 80 to 90% homeownership.
US at 65%. There are a lot of countries in the 60 to 80% range.
China, which I understand is having some RE difficulties, has near 90% homeownership. Sure some of these homes are quite small but then our alternative to McMansions has not been 800 to 1200 ft² homes… rather it has been tiny homes, 400 ft² or smaller.
Einhal,
That is the time I got 90% out of stock market. If I am not mistaken we were at 95% plus percentile valuation on P/S at that time.
I have a good friend that has ridden it all the way up and is going to ride it all the way down no matter how low (at least that is what they say). They are a true buy and hold for 40 years. Needless to say they have a fat account to show for it as of now.
Many got wealthy speculating. Meaning they are heavily leveraged. This could be much more of a survival rant than just maintaining their wealth.
In the aftermath of the 1929 crash, there were a lot of suicides. People get addicted to Free Money that flowed into their pockets. The Pavlov’s Dog syndrome of the Fed Put to protect them. The ability to live outside of the real world became their norm is the means of how they got to these elevated towers above the clouds.
I just do not think they understand that the system that put them at such elevated positions above the rest of us was not sustainable. That the system of *free money* creates its own demise. Minsky was right.
“I just do not think they understand that the system that put them at such elevated positions above the rest of us was not sustainable. That the system of *free money* creates its own demise. Minsky was right.”
Quite well said. Speculators like that are going to have to learn a painful lesson that dangerous asset bubbles like this have a harsh price when they pop, especially when they spread into essentials like shelter. It’s one thing if the speculation is limited to frivolous things like Dutch tulips, British South sea investments or crypto’s–dumb but not something that threatens basic pillars of the economy. It’s quite another if the bubbles spread to basics like housing, healthcare and college education, which they have throughout the USA. The housing bubble has caused a lot of pain for hundreds of millions of Americans with soaring home prices and rents, and it was never sustainable if the USA is to remain a viable nation. Those prices have to come way, way, way down if Americans are to be able to afford homes and start families, in many markets by 50, 60, 70, or even 80 percent or more in the frothiest markets.
Why is it few here ever mention TAX SCHEDULES? Especially Estate Tax…..aka “death tax” by the various “crybabies” mentioned, or their minions.
They have a lot more to do with our ridiculous wealth inequality than the Fed, at present and in the past.
I would put the whole Real Estate Industry as another inflation lobby. They love inflation. Bigger commissions, more turnover of property, etc
What did Bernanke, (who never did any manual labor in his life let alone the 2,999 other people who work at the Fed) about contagion from the real estate crash to the conomy at lerge “Bernanke told Congress on March 28, 2007 that subprime defaults were “likely to be contained.” The Fed chief, who declined to comment for this story, changed his assessment in July 2007. Also isn’t there a class action against the 5-6% uniform sales rate. For a few years, their fudgery was incredible. Pocket listings, bidders with sealed bids, waiver of appraisal, no reserves for damages just 10 days right of inspection. UGH!
Yep, a $100k Mercedes driving realtor scumbitch was pointing at the decrepit 1965 built, never renovated kitchen in a house off of Amador Valley Blvd in Dublin CA saying just 50-75k of renovations should make it livable. That after paying 800k for that shithole. Followed by; think of the equity you will amass due to the location. I guess she thought I shit gold coins every morning. I hope she falls off of a building and lands on a railway track with a 1 mile, 5 engine freight train bearing down.
Bob Doll on CNBC talking about price stability and waiting for an “accident” the will cause central banks to pivot back to easy money.
Hmmm…sounds very familiar. CNBC should invite you for comment instead? Credit where credit is due.
Got to love your Crybaby moniker for the bleating sea of investors on Wall Street, Wolf. The Fed has been spoon feeding these self-absorbed, entitled entities for decades now via backstopping monetary policies that have placed Eternal Fed Puts below stock and bond market prices such that bull markets are to be eternally expected. Mr. Bear is back in town, and he is one big and nasty Grissly.
We have not had free and efficient financial markets since about 1987 when Greenspan came to the rescue when the stock market crashed on October 19th, Black Monday. The Fed truly needs to be reinvented or reduced to the trash bin of history. When a privileged few benefit at the expense of many, this is not a condition that can last indefinitely in a democracy.
Bank bail-outs this time around are going to be very hard to sell to the majority of Americans, and I think there will be financial institution failures based solely on the rapidity with which economic and financial market conditions are changing.
Yeah, saw an article on MSN (from MoneyWatch or similar) with similar views, saying inflation is going to come down quickly and the Fed will pivot, so buy stocks now!
To avoid the wrath of Wolf, I’m not posting the link, especially since I think Wolf is right.
Wolf, couldn’t we just call them bloodsucking parasites in sheep’s clothing?
The US Fed has 2 purposes- a) the public one — stabilize the value of its fiat currency and promote economic health and b) the real one — to condition the public to tolerate recurring periods of purchasing power devaluation, promoting repudiation of the national debt (via monetization) so the govt can have the means to maintain the illusion of ‘caring mother’ who provides economic security and comfort. But walking that tightrope is tricky, because the Fed’s credibility with the public is vital to maintaining its control. So, the Fed must attack excessive price escalation intermittently before returning to its usual monetary expansion.
I’ve been watching the CNN series on Murdoch. Last night was about how he wanted to own and, as always, got what he wanted, through hook or crook…….the WSJ.
I imagine it’s editorial policy has changed, along with everything else added to his huge media empire. Kinda like a family of very very smart Trumps, that are “…..preying on the prejudices of the people….” as Abe Lincoln warned us.
As Trump blurted out at an early rally, ” I love my uneducated people”. I suspect he was immediately advised to change it to, “You are the smart ones”, which he did. As any good salesman understands. People love praise and affirmation……a LOT.
The other thing they love is the bonding that comes from a group’s persecution. Jim jones used it. I know a lot about him. One of my HS running partners was in the first wave of gunmen at Jonestown airport. Robert (Bob) Kice.
To anyone who looked him up, a conspiracy guy wrote a book, said CIA or someone did the killing, blah, blah, blee. The pic is NOT him, the other Kice who died there was not “uncle or cousin”, but his older brother who got out of the Army about when “Fingertips” by Stevie Wonder was on am..63?…he bought a brand new light green Lincoln Continental which he sometimes let us sit in and listen to the radio, which we thought was cool. I know a shitload more, but frankly was amazed at how “thorough” the damn google data base is getting….even if incorrect.
Even my posting on WS was there, so DON’T post names here.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Is inflation not best fought by lowering all government spending? Please push this concept as the best way to defeat infaltion with the least amount of damage to people and the economy.
Yes, just stop welfare payments and let people starve in the streets, and let retirees starve there too, and let them die because they cannot get healthcare, and that way interest rates can stay low and asset prices can stay high. The perfect F-U economy.
There is a lot of fat that can be trimmed off….useless wars, foreign aid, bridges to nowhere, ppp loans, green boondoggles, etc. The answer is actually yes without even touching Wolf’s sacred cows.
Green boondoggles? Like just the opposite of an oil rig blowing up and spilling fossil fuel all over hell or a nuclear meltdown?
You obviously don’t give a shit about the planet or it’s future human inhabitants….so what’s your beef with 5 year olds?
Or do you just ignore it because some diety will show up and “fix” things?….or because we are all going to live forever in the clouds, anyway?
“Fed’s Inflation Fight Has Some Economists Fearing an Unnecessarily Deep Downturn”
They are the same clueless nitwits who believe the FRB and government have learned to “manage” the economy to perpetually increasing prosperity.
Fake “growth” measured by artificially inflated GDP and an asset mania isn’t real sustainable prosperity.
And these same people refuse to understand that we need real production for wealth.
The only real production we need is Amazon vans. The rest we can get from Amazon.
Edit: Amazon bought Rivian (electric vans). So back to ‘only need Amazon’.
No Foreign Enemy was so destructive to the U.S. economy as the Fed and prolific government spending.
As money was conjured from thin air and no-interest debt was handed to the skimmers and churners, real value-creating businesses withered and died; money went into speculation/trending instead of creating new value and real jobs.
Nero has brought in the fire department but he has already burned Rome to the ground.
yes and to have sustainable production you need a healthy middle class.
That is the part of their models that they don’t agree with. Too Bad. Such a false model is going to crash.
They are not clueless… you are naive if you believe that. These are the evil scum “movers and shakers” middlemen that don’t contribute anything to the society but believe they are entitled to the gigantic share of everything that gets produced. This is them moaning because their daily share of 100 gold bricks has reduced to 95. Imagine what happens when it goes down to 50. This is a crucial time to put an end to the vermin that has infested society. If the government / Fed backs off right now, we will know what side they stand.
Pavlov’s dogs!
Core problem currently is excessive debt (exacerbated by high leveraging = greater risk) all fueled by QE, negative real interest rates and out of control gov’t fiscal policy/spending. Fed adjustments, as noted by Wolf & others, are arriving late in the game. Commercial and private bankruptcies are a lagging indicator – my guess is that these will be a firewall sometime early next year to further Fed tightening. The Fed, of course, does not control gov’t spending so how this plays out is anyone’s guess.
All “doors” lead to declining living standards. That’s how it ultimately “plays out” but virtually no one wants to admit it or is aware of it.
As for the core problem, I describe it as extended economic and social decay, from the top of society on down. Exponentially increasing debt and an asset mania are only symptoms which didn’t occur in a vacuum. A combination of elite greed and hopeless sense of public entitlement, in the form of expectations for current and future living standards that cannot possibly be sustained or met.
Augustus,
Many poor are now buying Teslas, or 10-feet tall lumberjack trucks. Middle class work-from-homers go for Mercedes SUV, or an Audi. WFHers have their lunch sandwich delivered to the door. All complain inflation is getting in the way of living standards.
Poor buying Teslas? LOL.
You will live in a cardboard box and you will like it!
Naw, just too many people trying to live off of too few resources. Original story being wrapped in new clothes.
Most of the retirees and seniors will see as huge windfall as interest rates rise. Soon the retires will outnumber the workers so hyperinflation should be the end result. The majority of the population will see their standard of living increase immeasurably!
Declining living standards for the “wealthy” west. Increasing standards for 3rd world poor. It’s a zero sum game. I saw this coming in the late 80s — everyone should see it by now.
With 8 billion people in the world, there can never be enough well paying work for everyone. Businesses will outsource around and around the world until things even out. They have to in order to survive, the competition will force things.
Hear, hear. An unemotional comment at last.
Fed pumping out $ started with Great Recession. Measures to avoid collapse. But that ‘loosening of the belt’ needed to be repaid by some ‘tightening’. The Fed allowed pressure from Congress, etc. to convince them to keep the firehouse on.
Federal debt interest will soon become the biggest budget item. So have they only delayed the collapse?
Pfft! Sammys delivered! The outrage! Teslas?! Those self-driving suppositories should only be allowed to be sold the uppery-crustiests!
Yes, let’s reserve our barely veiled hatred for the general population and their undying fetish for status symbols. After all, say what you will, billionaires at least live well within their means; they know their station and don’t try to live above it!
Yeah. Time for someone here with a big house on a golf course and a Benz to tell us how they suffered to get all their “hard earned money”….and lifestyle.
You know bullfinch is right….but maybe not. Self image is pretty important….. “unemotional” is important to their “professional image”. Except when chewing out a waitress or some other by definition lazy economic “loser” servant.
Or a stories about big Lexus SUVs, etc, seen at a Wal-Mart or food bank. What you don’t see is the plate that says “Joes Used Cars”. I saw LOTS of them trying desperately to pass smog when I was in Auto Shop at JC 2010-2013. We had a BAR Referee there.
These same “economists” weren’t sounding the alarm that decades of QE and ZIRP would lead to an unsustainable market, and that some day “the piper would have to be paid”. Why? Because they were making money. Politicians and academia (these days) are only worried about keeping their jobs and making money.
I don’t like to quote other blogs, BUT… this line sums it all up…
“…Collapsing stocks are not the “cause” of an economic crisis, they are just a delayed symptom of a crisis that was always there….” – Brandon Smith
Bernanke wins Nobel prize. Are this people that stupid? WOW the creator of your current inflation and misery is a Nobel prize winner. Now really this world is FUP.
@AD
“Fed’s Inflation Fight Has Some Economists Fearing an Unnecessarily Deep Downturn”
What a bunch of crappy Economists!
Why weren’t they worried about the damage being done to the economy when interest rates were being held down?
I don’t see this. I had a friend that has a transmission problem with his older Toyota and a rebuilt at the dealership is around 5000-5500. I’ve had this done about 15 years ago and it was about 1500-1700 for an older pickup. That’s a lot of money for that Toyota. He went to look for a new Toyota and they’re sold out of the hybrids. The sales guy told him to wait until the end of year and maybe a break then. They have markups on the MSRP of 4 grand. He went to transmission places too and same high price.
Real estate by me is holding. Some little drops of 5%, but it’s still selling and this is an area where I have rentals. There were a couple of bigger drops on some real dumps that someone was looking to make a killing. Still wouldn’t pay what they want on that dump, but overall pricing holding or slightly down.
Went to two grocery stores yesterday. One is an employee owned one and first time there. You do your own bagging there. Canned goods were less expensive, but not impressed with the other food prices nor selection. Found better deals on a number food items at the local, publicly traded store. Number of things still pricey compared to couple years ago.
Service inflation i.e. mechanics, plumbers, car repair, etc is still expensive. I think this is baked in and not going away as Powell is worried about. What about gas? Anyone drive regularly? Gas here in Northern California $6.59 for gallon of regular. That’s insane.
I don’t see the drops and neither do others. Nice try.
I moved back to Southern California in July this year after making a killing on my place in Bozeman MT. I agree the price drops here in So Cal have not been more than 5-10%, but nothing is selling… take a look at Bozeman and you will see what is about to come. House drops of 100-200k and still no one is buying.
The show as just started in real estate.
You need to wait a year or so for deals to come through unless Fed pivots.
Real estate is one asset class which needs to fall for people to be able to afford homes.
The home prices have gone up ridiculous high.
Jon, same here. The market has completely seized up. New construction in developments is still selling however, which kind of makes sense. The people willing to pay today’s prices want brand new, much like the phenomenon that Wolf noted with office space. The top-tier towers are still full (although at lower rents) while the lower quality ones or those in less desirable locations have lots of vacant spaces.
In Southern Orange County it’s now normal to see a home originally listed in the 1.2 – 1.6 million range with price deductions of 100-200k (5-15%), and basically nothing is selling. The comps are still quite high because there are essentially no comps since like May or June.
A buyer purchased a home around the corner in April for 1.66M (sold 15 months earlier for 1.06M). That home came back on the market in June for 1.75M. A month later it was reduced to 1.66M. Another few weeks it was 1.5M (a 10% loss). In mid August they took it off the market.
Consider that home was purchased in Jan 2021 for 1.06M at probably 3% or less. At today’s rates the payment would be close to double.
In my opinion, the average home owner buyers are waaaay below these prices, like maybe in the 800-900k range. That may even be optimistic with the interest rates.
It will take time for this to work itself. The sellers at this point are not required to sell yet. The market isn’t crashing because nothing is selling. It’s the early stages of price discovery and this will likely take years to play out, possibly over a decade.
The economy hasn’t seen the impact of the rate hikes yet, but it’s coming.
It only takes few homes in the neighborhood to bring the comps down. In a low volume environment like today, just 1 home sold for low price may set the price low for all homes.
I hope you are right. At 8% interest, volume will be extremely low, and so will prices.
Stop buying and prices will come back down to earth. Not everything is toilet paper.
There is a good article from a Professor at University of Michigan called Where Has All The Liquidity Gone? They did a study and found that liquidity is evaporating during QT. But the bigger question is if sustained QE is the reason for this lack of liquidity when the pump of monetary stimulus is reversed. Of course, we all know that the answer to that question is yes.
Scarier are the empty ports in California.. With shipping prices falling at record rates, the number of container ships waiting offshore at the Port of Los Angeles–Long Beach has fallen to fewer than 10 from more than 100 in January. The risk of a global recession is rising, according to analysis from experts.
According to Nomura Research Institute, in the first week of September, shipping a container from Shanghai, China, to the U.S. West Coast cost $3,959, down 23 percent from the previous week. That’s a drop of more than $1,000, the biggest since 2009.
John,
Now wait a minute… container port congestion is finally close to normal-ish — and you’re complaining!?!?
Containers rates have come way down but are still multiples of where they were before the pandemic. Huge congestions persist at US railyards and warehouses, with a gazillion containers stacked everywhere, due to chassis shortages and other issues. The US economy is still a long ways off from bringing its transportation and supply chain issues back to normal.
These following Financial “Experts”, either have no idea what they are doing, or they know exactly what they are doing. Both of those prospects are terrifying:
May 17, 2007 Forbes Federal Reserve Chairman Bernanke Believes Housing Mess Contained
Bernanke telling us not to worry about housing, mortgages, or car companies in the years before the recession, like denying a train wreck that is coming down the tracks.
October 11, 2022 US Treasury Secretary Yellen: “I’m not seeing anything in the markets that cause me to be concerned.”
AGelbert NOTE: See Orwell.
Wolf, I can’t agree more on what you told in your Podcast. In case the FED thinks and acts rational and responsible there should not be a Pivot any time soon.
However, the big question is what will be left of the FED’s rational and responsible thinking in case pressure of Markets and Politics become immense?
Yes, political pressure has been a problem for the Fed in the past (see Trump-Powell, 2018/2019), and the Fed caved on occasion in the past. But this time, INFLATION has become a political nightmare for the White House, and consumers totally HATE it, and consumer confidence is very low because of inflation, and Republicans are making hay with it. So for now, the White House wants the Fed to crack down on inflation and get it out of the way quickly before it does more political damage. This White House isn’t that concerned about the markets, and if markets tank, fine. But it is concerned about unemployment, and if instead of 6 million unemployed currently (very low), there are suddenly 8 million, then this would be problem.
I would wait till either Deutsche Bank or Credit Suisse goes to hell. DB in particular is very worrisome. The Germans are in for a big economic and energy shock, they are probably in no position to bail DB out.
Most of Europe will have a very, very difficult winter. People will be cold, heat will be unaffordable. Factories will cut back, jobs will be lost.
They are preparing for the worst.
Heat may be more of an awkward situation than unaffordable. It might simply be unavailable at times. Being rationed, in effect.
All people should buy sub zero sleeping bags ,might save many lives .
…and find a bunk buddy😴 to cozy up!
“They are preparing for the worst.”
They are preparing for energy rationing.
I am very confident they are not expecting an economic depression and the financial conditions that go with it.
Energy rationing is an economic depression/recession as bad as any, it is just measured by a different yard stick.
Energy rationing reduces unnecessary travel. Going to theater or out to dinner is unnecessary. Those businesses and their employees are then in danger. As those businesses fail, the depression begins.
Remember the old saying: “It’s a recession when your neighbor loses their job. It’s a depression when you lose yours.”
Europe companies are actually giving out bonus to help their employees pay for higher energy and food prices.
– –
LONDON (Reuters) – Plans by European companies to hike wages and pay one-off bonuses to help staff cope with a torrid winter are raising alarm among investors concerned that the extra cost could hurt profits and undermine the region’s economy.
Trade unions have called for better pay too to reflect euro zone inflation which hit a record 10% in September. Italian unions representing workers at Stellantis (STLA), Ferrari (RACE), Iveco and CNH Industrial (CNHI) will ask for a wage increase of over 8% in 2023 in talks starting this week.
24 hour bowling alleys, 24 hour casinos, 24 hour bars, 24 hour cinemas etc. They can all take their pick the cheapskates. They could also take a vacation and come back in the spring.
Decent podcast. Thanks.
It’s not the vested interests that propagate a self-serving narrative that influence my thinking that a pivot to QE will occur at some stage when inflation is still meaningfully above target.
It’s the abundance of debt – government, corporate and individual in this environment of QT, rising rates and failing collateral.
For me, this constitutes the epicenter of the counter argument to the Fed won’t budge because the biggest thing it’s in charge of has already broken.
I overwhelmingly appreciate your clarity, research and opinion.
It’s just that I personally and on this occasion have a different outlook on how events, yet to fully unfold, will influence the Fed.
More QE, like past QE is not a remedy.
We have bankruptcy courts to re-solve at investors’ expense the debt overhang that businesses, consumers, and municipalities might have. Works pretty well, at investor expense, as it should be. And then they emerge from bankruptcy with much less debt — and more vibrant. A wave of bankruptcies is the best thing that could happen to this economy because it would finally eliminate the debt overhang.
States cannot file for bankruptcy protection, but they can restructure their debts outside of bankruptcy courts (see the model of Puerto Rico). So that might be something that is coming.
Free money led to the debt overhang. The debt overhand is a “financial stability risk” for the Fed. Debt restructuring at investor expense re-solves this financial stability risk. The Fed knows this too.
You are right but with one error: the real value in bankruptcy is in freeing up assets for more productive use. This is how recessions seed recoveries and sustained growth.
But Wolf, historically this is not what happens when nations are absurdity indebted. They don’t strangle themselves with austerity, they print their currencies into oblivion. They ALWAYS choose this route. Why do you think now will be different?
You’re confusing federal government dent with debts owed by businesses, consumers, and municipalities. My comments were about business, consumer, and municipal debts, mostly business debts, where the US has the biggest problem right now. Those entities always had to use bankruptcy to shed debts since they do not control inflation or money printing. And bankruptcy doesn’t cause “austerity.” on the contrary, it gets rid of debt at investor expense, and so these entities are then less burdened by debt can then spend/invest more.
“Austerity” – even the term is BS – could only be caused if the federal government were to cut back drastically on its deficits. But I wasn’t talking about the federal government, which cannot file for bankruptcy anyway.
The federal government can default, albeit with potentially nightmarish consequences.
Bancruptcies removes rentier income and rentiers lose easy income. Those rentier are well connected or in power, removing their income they will lose it all. That will not happen without troubles.
Once government/the Fed gets involved with intermediation between borrowers and savers, then price discovery is destroyed. But more importantly, cheap (costless) money makes every insane project/business look like a winner.
And that money is lost, gone forever.
Now the debt, both public and private, needs to be paid or revolved with no real earning assets/income to support it.
Every Economist has become a politician.
Re “Every Economist has become a politician.”
Every economist has always been a politician, or at least a political thinker.
The original name of the field was Political Economy, once it was no longer an unnamed subset of of Moral Philosophy.
Economics is just a shorthand term.
Wolf, are you promoting careless financial hubris? Bankruptcy should be outlawed. If you are Stupid to run a business THAN you should pay and loose everything and not bailed out. GM Chrysler should have been out.
A bankruptcy isn’t a bailout. In a bankruptcy, the owner (shareholder) generally loses the business, and the creditors get the business or get the assets, during a court-supervised process.
GM and Chrysler owners (shareholders) lost everything. Many unsecured creditors lost everything. Secured bondholders got a haircut. The government did provide a Debtor in Possession (DIP) loan, which a bank could have done too, but the government also got a big ownership stake that it later sold for a profit. The bad part was that it more or less changed the priority in the capital structure, as to who loses what, and the pension funds were given some preference over some bondholders. I don’t remember all the details, but you can do some research on it. Interesting story.
Wolf – Have you ever looked at how long interest rates need to remain much higher before the additional interest payments on bonds becomes an issue for the Federal government? I know that it takes a while to make a difference since only a portion of debt re-finances every year. But isnt the government using alot of short dated debt to finance the deficit?
It seems to me that the only real thing to force fiscal discipline on our government will be if bond markets begin to question repayment and then force rates much higher. That would be a real endgame for all the financial manipulation, because the government would be forced into a balanced budget.
I think that the Fed is hoping that a shock and awe program of rising interest rates will cause a rapid change in the trajectory of inflation – so they can claim that inflation is no longer a problem for the coming elections. I have little trust that the elected officials will maintain this new fiscal focus on inflation after the elections.
The average duration of US government debt is only about 5 years.
I think we need 10 years of at least 10% on the 10-year yield in order for Congress to re-learn that it cannot throw money around at everything. 14 years of free money has totally ruined an already ruined Congress. So it will take some radical interest rates for Congress to be forced to re-learn the basics.
Agree completely. Hyper-inflation hurts profitability in the long run. Germany post WW1.
I’m not sure our 8% YoY inflation is comparable to the 700% inflation experienced in Weimar Germany…
The fed is right to take a strong stance and nip it in the bud. But it doesn’t need to completely tank the economy to do so.
You’re right – people who post here don’t know the difference between what is called “hyperinflation” and “inflation”. Hyperventilation is the reason. There’s a lot of hysteria, anger and hatred among the commenters. and it’s sooo easy, to blame “them”. “They” are everywhere, and nowhere. Easy thinking for the lynch mobs.
The real inflation on the ground is 20 percent or so
Government manipulated metric shows 9 %
Old govt metric no more used shows 15 percent
Agreed. Inflation is 15% to 20%. I noticed mini tissue boxes just went from 1$ to 2$. Many items are doubling in price.
7% inflation is not anywhere close to hyperinflation.
But it’s not really 7%. It’s much more: Ask anybody who bought *anything* lately.
7% inflation is the average. The biggest problem for the working poor and the middle class is that inflation is much higher for things like groceries, electricity, gas for the car, childcare and getting a plumber or electrician to come to your house and fix a problem – all the spending that is difficult to avoid or postpone.
Per month,
STOP BUYING. SIMPLE. YOU DO NOT NEED THAT NEW CAR. BUY FOOD ONLY FROM ONE GROCERY STORE. THE REST WILL BEG YOU TO COME BACK WITH 50% DISCOUNT OR MORE. STOP CRYING ABOUT INFLATION. YOU ARE THE ONE CREATING IT.
I’d like to believe that the Fed has no choice but to do the right thing after so many years of deliberately trying to enrich the rich via interest rate suppression. However, a number of politicians on my team have been chattering nonstop about recession as if: (1) everyone loses their job during a recession or (2) a person who loses a job during a recession will never work again. Even during the Great Depression, most people kept their job. Perhaps what I’m seeing and hearing are politicians owned by Wall Street crybabies.
Interest rate suppression makes everyone but the poor a lot poorer.
Not if it is done with capping the amount of money;)
Interest rate suppression worked out well for a lot of leveraged speculators and for a lot of large asset owners.
Section 8, ECB, socialism. WTF is going on? You people are really clueless and prisoners of the media.
What else needs to go broke before the fed pivots?
1. Pension funds. As long as the retirees are getting their money and investments worth, its not broken for ~50million older people
2. Housing collapse. People purchased homes and still keeping them, living in them because they see the value, which did not fall (or even raise). so, if the housing is not going to collapse forcing people to be out of their homes, its OK right?
3. Bankruptcy. Is there an uptick in bankruptcy? if people are paying their bills, everything is fine
4. Jobs. The job market is tight. People can find jobs everywhere and the salary is creeping higher.
As long as these trends continue, nothing is broke.
“3. Bankruptcy. Is there an uptick in bankruptcy?”
The Fed would welcome that. I’ll just repeat what I said elsewhere here:
We have bankruptcy courts to re-solve at investors’ expense the debt overhang that businesses, consumers, and municipalities might have. Works pretty well, at investor expense, as it should be. And then they emerge from bankruptcy with much less debt — and more vibrant. A wave of bankruptcies is the best thing that could happen to this economy because it would finally eliminate the debt overhang.
States cannot file for bankruptcy protection, but they can restructure their debts outside of bankruptcy courts (see the model of Puerto Rico). So that might be something that is coming.
Free money led to the debt overhang. The debt overhand is a “financial stability risk” for the Fed. Debt restructuring at investor expense re-solves this financial stability risk. The Fed knows this too.
Most pensions are not inflation adjusted. High inflation benefits the companies, not the pensioner.
So why have so many companies terminated their pension plans in the past 40 years?
Because ultimately, the companies are responsible for paying them, and market conditions and life expectancies introduce uncertainties. Why wouldn’t they want to terminate and move to a defined contribution plan where the companies don’t bear any risk?
Anon, “why have so many companies terminated their pension plans…” Uh, how about cutting costs?
Good podcast, Wolf. You made an insight I have not heard before.
Many people understand that central bank inflation is theft, transferring wealth from one class of people to another, and this theft triggers disruptions that ripple through the economy. They also understand that price inflation hits savers and fixed-income earners the hardest.
But you boldly observed a direct link: the interest rate repression actually reduced consumer spending, which helped hold down price inflation, at the same time it made practically “free money” available to “hedge fund gurus, bond kings, stock-fund apostles, and other crybabies on Wall Street” through the repo market.
“Free,” indeed. Taken out of the pocket of savers!
Keep the good work coming.
Pancho, did you just emerged from your BASEMENT?? INFLATION means you buy too much toilet paper to wipe your but after you buy too much FOOD. Stop buying.
Nikolai Lenin once pontificated “The best way to destroy the capitalist system is to debase the currency.”
Sounds like something Vladimir Tesla would say.
Lenin said a lot of things. And, if you ask his wife, he probably said a lot of things that were crap.
In the seventies there was some kind of Vietnam, Intel fabs beaten by Japan, issues with HP park, TRW, Raytheon, Hughes Aircraft, hippies, SF brothels and RE bleeding.
To put a barrier under the RE collapse Ronald Reagan Prop 13 became law
in 1978. The bleeding stopped. The price stability was not broken, San Mateo and Palos Verdes popped and never stopped.
Prop. 13 was sponsored by real estate interests and passed by California voters in June 1978 as a state constitutional amendment. Local property taxes were becoming so high that middle class homeowners were having difficulty paying them. Reagan was no longer Governor and had yet to be elected President and had little to do with Prop. 13. Give credit (or blame, depending on your politics) to Howard Jarvis and Paul Gann. The US had two bursts of inflation, from about 1974 to about 1982, with some stability from about 1976 to 1979.
My feeling is that Prop 13 (and its analogues in other states) are symptoms of a problem, not a solution to them.
The problem is property taxes that go up faster than the rate of inflation. That’s ultimately what caused retirees and others to start to be priced out of their homes.
The reason that Prop 13 is a bad solution is that it only affects current homeowners, so you have frequent instances where a person who bought in 1974 is paying 1/5th (or less!) the taxes that a neighbor with an identical house purchased last year is paying.
It also introduces negative externalities, like incentivizing people to play games (like keeping the houses in their names and “renting” them to family members) and provides disincentives to downsizing, especially if the new “smaller” house will have a higher tax bill than the previous one.
A better solution would be to constitutionally cap property taxes at the rate of inflation, regardless of whom is living in that house.
“A better solution would be to constitutionally cap property taxes at the rate of inflation, regardless of whom is living in that house.”
Oh, hell no. You’d still price plenty of people out of their homes when inflation rises faster than homeowner earnings growth/Soc Sec (and or wealth tapped to pay for a bigger house than Soc Sec could cover).
I don’t love some of the consequences from P-13, but the alternatives seem worse. I have no issue with the dude from ’74 paying 1/5th that of the newbie next door. Mr ’74 has been paying for 48 years, and when you PV those payments into 2022 bucks, what he’s paid in probably looks much more respectable.
“The problem is property taxes that go up faster than the rate of inflation. ”
I’d say the actual problem is perpetually expanding government, especially with policies that encourage people to move here illegally and then support them at taxpayer expense.
Prop 13 is the best voter initiative that was passed in California. Imagine all the welfare benefits being sucked from working homeowners property taxes, and the high rents being charged to offset property taxes.
For once, California got something right.
Whats wrong with Prop 13? If someone paid $100k for a house in 1975 and their taxes are capped to that base, it fine. The problem is that $100k house should not be “valued” to 1 million in 2020. Not unless it is gold plated in a renovation. If someone is stupid enough to buy it in 1975 condition and pay 1 mil for it, that 1 mil becomes their base for property taxes. No one put a gun to their head to buy it for a million.
Somethingstinks, what exactly are people supposed to do? The days of the $60k houses are over.
As someone else pointed out, allowing people who were lucky enough to be from an earlier generation to pay 1/5th is generational warfare.
Prop 13 has become a form of generational warfare and creates a lot of friction in the real estate market.
Prop 13 is rent control for landowners, which is and always was a stupid idea. Even the Supreme Court said as much. The few good outcomes could have been accomplished with a more narrowly tailored measure with far fewer distortionary side-effects.
Those in favor have a lot in common with the deadbeat “master tenants” who live off San Francisco’s rent control ordinance by renewing the same lease for decades at repressed rents while charging dramatically higher market rate rents to a revolving door of “roommates”.
Phimbleburg, exactly.
Let’s assume that a town has a fixed 10,000 houses, and let’s assume that it costs $40,000,000 to provide all services, the problem is the $40,000,000 going up by 10% every year. The solution is to cap municipal spending, not to cap the taxes of SOME of the 10,000 homeowners, while allowing others to subsidize them.
If old-timer California homeowners don’t have enough earnings to cover newly-inflated assessment values without Prop 13, why couldn’t they take out a small HELOC or reverse mortgage to cover the shortfall?
Of course if valuations collapse in the near future, so should the assessments and taxes paid.
I feel cynical about those whining about property taxes when you’ve already made an equity windfall. Borrowing a small amount against equity if you really can’t pay larger tax bills shouldn’t be a problem if you’re sitting pretty with 400% gains or more on a major residential investment.
Zerosumgame, they’re not whining about taxes generally. They’re only whining about their own. That’s what Prop 13 has become. “Keep MY taxes low, but to hell with all younger people moving into the neighborhood!”
Replying to Einhal above; MOVE. The more people participate in this craziness, the crazier it gets. The USA is a beautiful country, and there are lots of desirable places. Take your money and help those places thrive. But whatever you do, leave CA politics in CA. Blue state devisive policies are killing this country.
The other side blame Jarvis, R/R and Goldwater Prop 13. Repeal in stepping stones.
No, they don’t, ME. You’re making up facts “on the spot” as Steven Wright might say. How much of what you say is just your opinion wearing the Emperor’s Clothes. B.S. comments. Perfect example of partisan crap.
Remember 15-20 years ago when Warren Buffett suggested to Gov. Arnold Schwarzenegger to repeal Prop 13? Arnold couldn’t blast poor old Warren out of the room fast enough over that.
I still don’t understand why people, even if cash-strapped, couldn’t simply borrow a small amount against home equity if Prop 13 was repealed. I’d be ecstatic as an old-timer Californian watching my home grow in value from $100K to $1.5 million or even more over decades’ time. So what if I had to pay an extra $100K in taxes for that privilege?
It’s probably too late to repeal Prop 13 anyway to have any meaningful long term effect. That horse will have left the barn long ago given the likelihood of collapsing real estate values for the years ahead.
Lessee. $100k in taxes over 15 years is $1.5 million.
What makes you think you’ll stay ahead?
Oops.
Wolf nails it again: “Wall Street Crybabies”. Love it.
Not Wall Street, Fraud Street.
Great summary!
If the Fed’s hyper-covid-QE hadn’t accelerated inflation to break price stability throughout the global economy, how else would the Fed and the U.S. have been able to change its course? The way I see it, the Fed cemented a new secular era of higher rates by breaking price stability. Inotherwords, the Fed engineered an orderly de-globalization of trade flows to reign in the transnational vectors of power that had hijacked the “rules based order” that created toxic imbalances and monopolized ecosystems.
That’s a point I’ve been thinking for a while now. That the status quoa prior to March and April 2020 was just as bad, but it was happening slowly enough that its negative effects didn’t manifest themselves in a way that was readily apparent.
The absurd printing that took place starting in April 2020 and until earlier this year brought the problem to the forefront, and quite possibly caused its reversal (and hopefully, its permanent retirement!) earlier than it would have otherwise.
It also thoroughly discredited the idiotic ideas of QE and MMT, and hopefully they’ve now been relegated to the dustbin of history.
Covid was a great excuse for the huge printing of money to cover who???
Yup, I’ve been wondering if the current process might finally bring about the elusive policy normalization that Fed has utterly failed to achieve since 2008.
You’re giving them far too much credit.
The measurement of fear in the market is starting it’s acceleration. The vix has been rather lame relative to the stock market, but it looks to be starting its engine like an angry sentient robot derivative.
…. I say this because75% (15 0f 20) 0f the past 20 days have been green for the vix. This never happened in any 20 day period since the stock market started going down in January on the daily chart
Vix can’t get out of 25-33 range. Down hard one day, then climbs slowly for few days (hence your 75% observation). Perhaps 20 is the new 10 until bear market is over.
The real acceleration with the vix starts when everyone runs for the exits covering their vix shorts. It is over, and goes vertical when the shtf.
It is the reverse of the put-covering rallies that make the bear market rally, except intensified by the vix rising 00%.
It happens during every bear market thus far. In April of 2020 it went up to 315.36 from 53.68 in 4 weeks-5.87 times
Decay has eroded the Vix to the new low of 17.3 on 1/10/22.
Therefore I would expect the vix to probably reach at least 101 at a minimum during this bear market (5.8 X 17.3)
Vix did hit 80 in the recent cold virus panic on 2020. I happened to have a bunch of puts (too early) waiting for this bear market. Most decayed to nothing, then boom – sp500 down 30% in three weeks. Unloaded too early and kept some. Still made 6 times initial bet.
This time I already got initial money out, and will unload all/most puts if vix hits 60. However I do not need high vix to make money as long as prices keep grinding down at this current pace.
When the job numbers came out Friday the crybabies on Fox Business were complaining how they can’t get a plumber or electrician to come out and do a job for them. It must be tough having a slave revolt during a Fed tightening cycle. A millionaire just can’t catch a break in this country.
🤣❤
No one on Fox Business knows how to turn a wrench.
I have a friend in “finance” who paid $200 to have a broken GFI outlet in his bathroom replaced. When I told him that they’re $30 at Home Depot and that I could have replaced it in under 5 minutes, he was incredulous.
I have a brother in law that insists you have to hire a contractor to do anything. Seriously! He insists that he is being prudent to avoid the potential liability of DIY.
General contractor and I were staking house out on rural lake lot. His tech employeed client listened as we debated on well location…tight lot.
Frustrated by all the measuring
Asked us what’s the big deal,
I just turn the faucets on.
I have no doubt this person earned more than the contractor and I combined.
Did you get load/line right? Anyway, I’m glad the punching down by you and the usual suspects seems to be over and you have now proudly aligned yourself with the punched.
So funny no help ! These mansions landscaping, golf course, beach house, multiple vehicles, restaurant, and other services all need lots of folks to service the rich. No wonder one can’t get the plumber.
I love the bond guru whining . My bond guy wants me to quit buying the 0-3 month tbill and let him by long end of the curve at 3.5 dove perfect that have already dropped in value. Remember nothing goes in a straight line and we can easily miss on the cpi number slightly and then the bear market rally
I agree the Fed has to fight inflation. However, besides Wallstreet, there is an Investor Class. That is people who’s only asset beyond a house is a stock portfolio which is their retirement (savings?). Beyond the cry babies on Wallstreet, these people will yell too, and they vote and contribute to political campaigns. Not sure if the Fed will stay the course on inflation or “pivot”, that is cave as Wallstreet wants. Wallstreet will blame the Fed and tell their client’s, the Investor Class and the poor that it’s the Fed’s fault whether its inflation going up or stocks going down. Wallstreet doesn’t really care about the poor or the Investor class, except using them or their money. Wallstreet only cares about itself. Not sure where this is all going to go.
“That is people who’s only asset beyond a house is a stock portfolio which is their retirement (savings?).”
All yield investors were totally crushed and ransacked during QE. These include retirees and near-retirees at the time, that did the right thing, having invested in conservative strategies, and QE robbed them of their cashflow. This also includes pension funds and the like. They’re now finally started to see a little cash flow again.
QE benefited the speculators while conservative investors got wiped out. Who gave the Fed the authority to impoverish prudent conservative investors and transfer their wealth to speculators? Is that the Fed’s fourth mandate? No it’s not. Now the cash flow is reversing.
“These people” that you cite could have protected themselves by not believing the toxic hype and by selling their speculative bets in time and buying short-term Treasuries, CDs, etc. Or at least by diversifying away from stocks. They’d be just fine now. But they didn’t want to because they believed in endless QE.
There are lots of people who now finally see some light at the end of the tunnel. Many of them here in the comments. Because QE was the most insidious thing that happened to yield investors, and it drove many of them to take huge risk, and now those investments are unwinding. QE was a terrible thing.
Hear hear. I’ve seen comments on here and other sites saying things like “Why should people who take no risk expect to get any returns?” These people are sociopaths. They don’t see any moral problem with effectively requiring an 80 year old retired lady with a modest $200k in savings to either take risk or suffer 0% returns.
And then to further their evil argument, they claim that “Rates are low because of deflationary pressures throughout society and a glut of savings.” But of course, if that were true, then QE wouldn’t have been needed to suppress rates.
The people who put forth these arguments are either stupid or evil. There is no door #3.
There is a glut of savings. How can there not be when they create trillions of dollars. The dollars all end up in someones account.
hence, huge reserve account balances and money market account balances, not to mention all the $100 dollar bills overseas.
These are almost certainly the same people who think taxes are too low, like someone who used to post that most people’s taxes don’t even cover “their share” of government spending, as if this has any relevance.
They also believe in two sets of conduct, one for the individual and another for “public policy”.
Behavior that would never be tolerated if done by individuals is perfectly acceptable as “policy” since it’s the result of “democracy”.
“There is a glut of savings.”
More precisely there is a glut of conjured money. None of that money is/was “savings.”
Augustus, correct. Robbing someone at gunpoint is not permissible, but voting for politicians who promise a $2,000 stimulus check (paid for by other people) is perfectly legitimate. Democracy! Until of course the process results in something the elite don’t like…
It really pissed me off in mid-2020 when TIAA-CREF told me I would lose significantly kept the money simply deposited in my retirment account.
May 2020: “TIAA Says Negative Yields Could Soon be a Possibility in Money-Market Products. Why That’s a ‘Horrible Deal’ for Investors.”
So the advice (under threat) was to move the money to some kind of asset fund (that they manage and make profit off of, with their special realationships like purchasing bonds without fees that I ended up having to pay a fee to get out of, etc).
United States of Kleptocracy is how I view my homeland.
It’s worse than what you outline. These are the same people who take poorly mitigated risks, then demand to be reimbursed/bailed out when they get wiped out.
“They don’t see any moral problem with effectively requiring an 80 year old retired lady with a modest $200k in savings to either take risk or suffer 0% returns.”
Not suffering 0% return but suffering at least -20% if not -50%pct return, if one looks at housing prices.
Robbing the savers and rewarding the borrowers.
I suppose it’s all about where one is at in the wealth distribution scale, but I sure don’t see anything at all “modest” about living to 80 and still having $200K in savings. Even when not assuming a paid for house, too. Point taken about screwing her, though.
I am sure I represent the majority of US citizens, (from Wolf’s past charts) just not most of the citizens at this website. I may rant, and criticize, even bad mouth, but I don’t whine. Making it well past 75 and having food and shelter (such as both are) makes me a TOTAL winner in life, IMHO.
(OK, I wish I didn’t have a trashed back, and could take long walks again, but other than that, very damn lucky)
+1
It’s not capitalism if capital has no return. ZIRP and NIRP make no economic sense.
Thanks for the comment on the 80 year old lady and millions of conservative fixed income folks that took no risk as advised and had their fixed income portfolios and folks like me that have been trying to find safe income for 15 years Toni avail what about us? Fed killed me !
The concept of investment “crybabies” did not really resonate with me until I started reading all the comments on this blog from people who apparently believe as a matter of principle that governments should stand by helplessly in the face of major crises just so holders of sovereign debt can earn a positive real return! Fine to say you disagree with Fed policy moves but the other position is absurd and definitely not the deal these “crybabies” signed up for.
Phimbleburg,
Your whole comment is absurd.
#1. the Fed isn’t the “government.”
#2. The government did correctly pay unemployment compensation. The extra unemployment compensation to where many people made more unemployed than while working was BS, the PPP loans were BS, the $50 billion for the airlines was BS, the stimulus checks were BS, etc. etc. Help the people who need help, don’t spread trillions around like manure.
#3. everything that the Fed did was horrendous. It should have kept its interest rates at the already low levels (1.5%-1.75% in January 2020). And it should have used repos for a couple of weeks in March 2020 to calm the issues in the Treasury market. And that’s it. The rest was pure enrichment of the asset holders. That’s how you tear up a society.
I cannot believe that anyone would be physically able to put that many red herring so densely into just one paragraph as you did. Kudos.
No one is saying the governments should just “stand by.” But you also must recognize that the governments don’t produce anything. they don’t have the ability to mitigate pain. All they can do is transfer pain from one party to another. That’s not to say that that is never the most prudent course of action, but the idea that governments can always prevent painful recessions is a recent one, and is being discredited as we speak.
Wonder who the bastids transferred my back pain from. Not a lifelong deskless clock puncher, I betcha.
Ben Bernanke, the godfather of QE just got the Nobel prize for economics. J Powell wants to get the Paul Volcker award for saving the economy from inflation.
I have a simple solution to your supposed problem.
Abolish monetary policy entirely and allow interest rates to find its correct price.
If this did happen, you will find that interest rates will soar far above whatever level the FRB plans to stop raising its target because the credit quality of most borrowers is actually complete garbage: governments, corporations, and individuals. It’s all based upon a fake economy and an asset mania.
Somehow, I have the sneaking suspicion you wouldn’t like this either.
Very pie in the sky, but I like your thinking. When did humans ever put away their arrogance and leave anything “unmanaged”?
Without cheap “managed” money, what happens to socialism? What about the 50 million jobs that are based on flimsy business ideas and little/no profit? We can’t have that! No sir. Now in a society where people vote. So, we’ll have to live with cycles of QE/QT, recession/inflation… forever.
Uhh, no.. contrary to popular belief we can’t live forever. Two more cycles, tops.
Then the monopolies on money better be abolished. Each bank issue their own money in competition with gold and other baks. The banks may issue ordinary Fiat money or cryptocurrencies.
Bankrucy, then those money are worthless. Well not gold and maybe not crypto that may live on on its own.
You need to have some coffee before you start posting so early in the morning. LOL!
The Investor Class doesn’t have enough votes to swing elections.
They use propaganda mouthpieces to crybaby for them, but those media outlets have destroyed their own credibility, so no one believes them anymore.
And when prices rise faster than income, it’s really hard to convince people they’re better off than they were 2 years ago.
Right!! so as long as the gamblers are protected everything is fine. Screw the pensioners, the savers, the financially prudent that don’t splurg off of cheap credit. Protect the gamblers and the casino managers at all cost. Virtue signaling really goes out the window when the chips are down.
Great summary Wolf!
The Fed Res has a partner in this debacle and it’s the Fed gvt with their decades of trillions$$$ in debt. Both reps and dems exerted enormous political pressure on the Fed Res to keep interest rates abnormally low and the obscene printing of the 8plus trillion$ in QE sitting on the Fed Res books! The Wall st crybabies are exerting tremendous pressure but the real pivot pressure will the politicos, like Trump in 2019! With recession and trillion$ annual interest payments on the Fed debt on the horizon the political-pivot is a lead- pipe-cinch!
Now INFLATOIN is a political bitch for the White House. Americans HATE inflation. They blame the White House, Republicans are making hay with it. The last thing this White House needs is more inflation. It needs the Fed to crack down on inflation and get it under control pronto, and it looks like there was a Biden-Powell deal to do so (similar to the Reagan-Volcker deal).
When Trump keelhauled Powell on a daily basis, inflation was below the Fed’s target, and Americans weren’t worried about it all.
HUGE difference.
Back in the Volker days the fed deficit was easily managed with higher rates. If jerome went full volker the fed interest payments would be over 5 trillion annually! If Jerome even goes to 5% for 18 mos and then slowly lowers rates the fed interest payments will be well over a trillion$ annually and that’s without a brutal recession! Where will the fed gvt get this trillion$ when the budget deficits will be well over a trillion$ and tax receipts cratering in a recession? If jerome was serious he’d be at 10% FFR!
I would add that 2008 2.0 with millions thrown out of work and their homes would not be party time at the White House!
It’s simple: Biden will grumble and then throw his party’s progressive wing and their fantasies into the ditch. It’s as over for them as it is for the GOP.
My recent search indicated that the FY2022 deficit is about $1T.
However, increase in the national debt from the prior year is about $2.5T.
Some of it may be prefunding (a timing difference from unspent borrowing as covered in this site) but most of it must be “off budget” spending.
The rate of increase is already unsustainable now.
Just wind up the printer again
Anyone ready for another bear market bounce? Many stocks went down hard the last few days, but stopped just short of new lows. Real panic may be delayed by couple of months. Or not. Let’s see those circuit breakers.
Retail investors are starting to sell the bear rip instead of buying the bull dip. Not much but retail capitulation is needed for a bottom in stocks. .
There has not been any capitulation yet as I read less than 12% of 401k investors have sold any of their 401k funds to move to cash. Most friends I know just quit looking at their 401k statements because…as in every previous downturn, the markets ended up higher in a few years so they just average cost down. Hopefully it works in their favor again.
“Hopefully it works in their favor again.”
Eventually it won’t, whether the stock mania is over or not. I think it is but recognize it might not be.
I am very confident the bond mania ended in 2020. So, if it’s not over now, it won’t be long.
The anti monopolist movement is growing. SF hi tech steal our
ads, delete the crumb people, lie, suppress the truths.. escape paying taxes.
CA is sending up to a 1,000 check to qualified poor, to fight inflation,
to feed the pigs, to keep the system running, to preserve the wealth of SF Robber Barons.
I know, but it is peanuts for the poor compared to QE for the rich.
I think I get only $350…but…..fine by me!
Speaking of hi tech. Tesla unveiled 3rd generation humanoid robot. Google it for giggles. It took 3 guys to wheel it on stage. 2nd generation actually took few steps (not unlike Honda’s Asimo robot from 20 years ago). First generation Tesla robot was a guy in silver tights doing the robot dance. So progress!
I’m still waiting for that tesla self driving and robo taxi fleet… promised 4-5 years ago now. Stunts to jack up the stock are a lot easier than actually producing anything.
Felon Musk is running out of ideas. Can’t do another stock split. Can’t do another tunnel boring story. Can’t do robots colonizing Mars again. Price target $5.
You must have missed the new robots. Soon it will be time to sell expensive battery replacements to early tesla adopters. $20k? 40k?
I saw a well marked “self driving” Tesla on 101 by Rohnert Park, couple yrs ago. But it had the right rear window blocked off and made an extreme effort to stay in fast lane, and not get passed.
I think someone was sitting back there.
I support good welfare schemes for poor people to provide safety net. But direct cash handout is beyond my comprehension.
The system has been rigged badly in favor of rich people. I wish poor people and middle class see this, wake up and take some actions.
I also believe, voting does not change anything. It simply empowers the other robbers to switch.
Something drastic needs to happen.
The only hope for our political system is campaign finance change. Get the wealthy out of control of the country. That can only be done with a giant cut in campaign spending. And, please pass a law that stops corporations from having “freedom of speech”. They won’t serve in the military, they’re not humans, so why should they have citizen “rights”?
And consider what will be lost due to big cuts in campaign financing: attack ads will disappear from tv and radio; completely useless campaign attack ads in your mailbox; the littering of streets with campaign posters that are left months after an election, campaign rallies that are completely scripted… gee, what a sad outcome.
The only possible solution is to drastically reduce the role of government which isn’t going to happen either. (It won’t prevent a future crash landing in living standards, but it’s a start.)
As long as government is in a position to sell favors, there will be no change in the current system. If government didn’t have anything to sell, the campaign finance problem would resolve itself.
Virtually no one wants to “cut the government down the size”. Instead, practically everyone has this implied fantasy where elites are stripped of their political defenses while the progressives implement their populist dreams to plunder their wealth. (That’s the implied outcome of your post, whether you realize it or not.)
It’s never happened in history and it’s never going to happen. Hell will freeze over first.
In a system (“democracy”) selling favors to the highest bidder, it’s inevitable the public will always lose, and they should. It’s not like the public is virtuous, only somewhat but not much better than the elites they seek to replace. (Read HL Mencken for a description and it’s worse now.)
Augustus Frost, with no government who do run the country then?
Who make the laws?
Who enforce the laws?
Will not those that then make the laws and enforce the laws be the government?
Sams, Augustus F. has some ideal way of life that is not only a complete fantasy but doesn’t square with “human nature”. Needs some work in cultural anthropology, I’d say, not just right-wing dogma that is grounded in thin air.
His point that government “sells favors”, hence we have lobbying and corruption, etc. etc., is a major league exaggeration and red herring, but if you’re attacking the idea of government, you can exaggerate until the cows come home. He’s probably a free marketer and completely ignores most of the import of Adam Smith who was a moral philosopher but extolled the operation of price discovery as though it were done by an invisible hand. Adam Smith repeatedly advocated that if not for a government restraining the exploitation of laborers by the wealthy, they’d be violated morally and the society would suffer. Now, how many right wingers know what Smith really wrote???
My Canadian friend says they will be people when subject to capital punishment. NDP member from mid Vancouver Island.
Yep, I’m a raving Social Democrat too, just like Bernie pointed out IKE was, TAXWISE.
Augustus, yes. When people say “Democracy isn’t working” or “The people aren’t getting what they want,” they aren’t referring to virtuous democratic desires like controlling our borders. What they are referring to are people not getting all of the free stuff to which they feel entitled. The elites rig the game in their favor, and the populists want to do the same.
Democracy only works long term when the population is virtuous. When you have people who will say “While I will benefit from X handout, it’s wrong and I won’t support it.”
That type of mentality only works in small, homogenous societies. It certainly doesn’t work in a balkanized society with many groups with very different values and abilities.
You got a better system in mind?
Georgia is sending out money as well.
You have identified an important point. That of where all this printed wealth has landed. It is always interesting to note the basic concerns of the consumer/tax payer vs those of Wall Street and money managers. Vastly different. This isn’t a class warfare thing, it is just how policy impacts the various economic classes. Who feels it and who is somewhat (for now) insulated from those impacts. I think we are seeing the impacts starting to be felt by the money managers and their customers now. We’ll have to wait and see if it migrates farther up the chain.
It is a class warfare thing, and the warfare has been waged for decades ,,,,,,,,,,,,,, at least.
“Class warfare” is hyperbole. But the great pendulum in the inherent (hence perpetual) conflict of interest between labor and capital reached its capital-side limit in 2018, and has begun to swing back towards labor. The limit was hit when the last global pools of cheap labor were hitched to the global economy. A key metric, for the US at least, is the share of income going to workers as opposed to profits, which was declining for many decades and turned in 2018.
Geopolitcal decoupling, limited progress in automation-robotics-AI-self-driving, and self-inflicted energy-supply constraints are accelerating the pendulum back towards labor.
The Investor Class is going to be on defense for at least a decade.
Class warfare is real. The fact that you don’t recognize it has nothing to do with it.
@CB: If you think this is “class warfare”, you’ve never seen warfare.
Conflict of interest, absolutely.
Power struggle, definitely.
Warfare? No – where’s the blood on the streets?
Wisdom Seeker, your comments are wise, so seek no more. CB is just busy stirring up hate. I’m sure Putin and Xi are happy about comments like that. They’d love watching a civil war in America.
C’mon WS, we are having tons and tons of ”blood on the streets” every single day these days.
While it is typically seen/described as done by those with severe mental illnesses, that could also be one description of every mob activity.
That we have seen severe mob activity on a limited basis SO FAR, ( the riots after killings of minority folks and the 6Jan2021 event the exceptions, ) does not reduce the random killing going on every day on the streets now.
That the vast and effective propaganda/mis and disinformation system continues to hide the nature of the current killings does not make it any less of a class war.
The continuing importation and distribution of killer drugs aimed at the underclass is another indication.
@ Wisdom Seeker –
“Class warfare” is hyperbole.
————————————
Class warfare, Genius. There doesn’t have to be blood in the streets for there to be class warfare ………….. though, the lower classes have been sacrificed in many ways requiring sweat and blood, including as soldiers. I personally know those drafted and killed protecting the interests of the ruling class. Do you?
Part of seeking wisdom is avoiding being willfully blind, an apologist, or a useful idiot.
VVN, +++++++++ From Viet Vet….67-68.
@ HowNow –
Don’t confuse a valid description of the state of things for hate, less ye be confused with a propagandist.
hell Wall Street is now only hoping for a pause not pivot.The inflation numbers being released on thurs the 13th should shed some light on when. The more the stock market rallies the less the fed will pause or pivot. Can’t wait for Crammers meltdown.
There will many strong re-bounces (BEAR trap rallies) b/c of ‘Front running’ crowd’s anticipation of pivot turning by the Fed, after every ‘bad’ news is ‘good’ news, peak inflation has arrived, after whispers or rumors from Eclectic building.
Don’t forget the every day positive narrative spin from the financial media/Wall St. How can any one undo the effect of the crowd from ‘pavlovian’ behavior induced by Fed’s loose monetary policies for the 13 years?
The Feds brutal rate repression and reckless monetary policy has created the breeding conditions for financial stock barkers et al, that now litter the landscape and multiply like Tribbles that found their way into the wheat bins on Captain Kirks Enterprise. The Fed created these useless creatures and hopefully the Fed will vaporize enough off of their huge balance sheet to the point that they will forced to be productive in the economy. Waitstaff are in demand and stock barkers turned Waitstaff could help the economy. I have always been a generous tipper and with my savings finally earning greater than 0% I will be able to bump up my tips even more.
I used to tip 100 dollar bills when Volcker was at the helm.
Oh yeah, your name used to be Rich Tony 😂
Our problems seem roughly as bad as GFC. SP500 bottom was 0.8 x sales in Mar 2009. Even now we have only dropped to 2.25. If there is really no Fed put we likely will put in a bottom closer to 1000 than 3000.
The good news is pricing is starting to reflect interest rates. Our local electric utility is off 20% and dividend is back to 4% plus. If I am not mistaken dividend hit 8% at GFC bottom.
From a peons point of view, Yellen comes across to me as an out of touch academic who has been wrong most of the time starting with first housing bubble. At least I get a sense that Powell has some grasp of complexity of financial markets when he talks.
Old School,
Yellen is an economist. Powell is not an economist, so he’s not burdened by silly theories.
But he is NO Mr. Volcker!
That’s true, but according to an author who reported about the minutes of the FOMC from 2010, Powell opposed Ben Bernanke’s decision to implement the unconscionable QE policy.
Yellen turned the corner by ending QE! IIRC she also started QT.
Yes, she did, and not many people here are giving her credit for it. This was a hard U-Turn for the Fed to make, after Bernanke had said that the Fed may never do QT and reduce its balance sheet.
1) Will CA gov Newsom become a Presidential candidate : yes !
2) The monthly Dow breached Feb 2020 high. The Dow is in it’s reaction phase, retracing 25% of the move from Aug high.
3) The DOW is green, but viscosity might pull it back. In 2020 the Dow breached Feb high in a sling shot. This time around the speed will be slower.
4) The job report was a gift to Newsom.
5) The Robber Barons support Newsom for fun and entertainment, will rock, when the pigs are travelling on trains to the ==> s..houses.
The bond market is broken but so far the underlying, the currency is steady, but that is not a market which depends exclusively on supply and demand. Dollar policy is not under Fed purview while it’s interest rate policies attract foreign investment. The dollar index could double from here with the inverse loss in purchasing power. RRPO more likely allows big banks to borrow from each other at near zero rates (the REPO market was originally a place where banks could exchange money, with the Fed providing liquidity). The Wall St crybabies have nothing to cry about, other than inflation eating up their profits and the FED is the biggest labor busting operation in the history of the nation. (and with a blue president too) The FED has taken a big short position on ZIRP like interest rates, (and liquidity) and we all know that when shorts come off the market rallies. The Fed crybabies always want stability when the market is at new highs. Hard (as usual) to know who is setting policy. Fed still wants to be a global central bank with its power insulated from the people (or partisans). If they throw the American labor force under the bus to benefit multinational corporations, there will be blood.
“RRPO more likely allows big banks to borrow from each other at near zero rates (the REPO market was originally a place where banks could exchange money, with the Fed providing liquidity).”
Nah. The banks borrow from each other directly, not via the repo market, but in the federal funds market, without having to post collateral, and rates are within the Fed’s range for the federal funds rate. Interbank lending/borrowing has shriveled to nearly nothing because since QE most banks have more cash than they know what to do with and put some on deposit at the Fed to earn some interest (the “reserves”). The repo market requires collateral. The federal funds market does not. The rates are close to the same, all of them over 3%, not “near zero.” That near-zero was before March 2022. But it ended, if you haven’t noticed. But the banks are LENDERS to the repo market to earn that 3%+.
The rest of the stuff is just too much work to sort out, such as “The FED has taken a big short position on ZIRP like interest rates, (and liquidity),” I mean, come on.
I mean, jeesuslordalmidy, what a pile of discombobulated stuff.
Ambrose Bierce
“If they throw the American labor force under the bus to benefit multinational corporations, there will be blood”
Blah!
The American Labor along with their factories over shipped since 2000 by US multi-Nationals but nothing happened b/c the Congress (both parties) were in it. America is under Corporatocracy beholden to top 0.1%
Ambrose, you are wrong about the dollar index. It’s near a multi-year top, and when the next top plays out in a few years it’ll be a decade+ top.
It was criminal for them to do QE for so long enriching the billionaires and corporations of the country for 13 years. Now all the 400 PhD’s at the Fed getting a pat in the back for fighting inflation after there nefarious causation actions. It all seems sickening in my opinion.
There are in total 750 PhD economists at the Fed network with 450 at DC
Maybe they should send some of those PhD’s to japan and Britain? Seems like they could use them.
Japan…how do they keep their 10yr at 0.25% anyhow?
This is how. Make sure you read all of it. It explains it:
https://wolfstreet.com/2022/10/07/shock-awe-balance-sheet-reduction-at-the-bank-of-japan-assets-drop-7-3-from-peak/
I post snippets of your articles on a bulletin board, just like the FBI does, to help piece together the theft of wealth of the past several decades.
They never learn 20 years of zero interest rates put Japan into the state it lies today… comatose.
Japan is “comatose”??? hahahaha. No, hate to disappoint you. A very vibrant culture. Go to any big city sometime to check this out. But the BOJ’s Kuroda and some politicians may well be comatose.
Knocked down a $2.19 (6 months ago they were $1.69) high octane Hurricane 24 ouncer (actually says “category 5” on the can) and wandered down to the local big box for a tube of GE Silicone 2 caulking. The tube was $11.98 plus tax bringing it to $13.08 total. 3 months ago purchased the exact same tube of goop at the exact same place for $6.98/tube plus tax. Two unavoidable conclusions: inflation is rampant and entrenched on everything blue collar, and the state must be flush with funds collecting a fixed percentage of the inflation.
One Category 5 packs the punch of 4 bottles of Bud at less than half the cost. One way to beat inflation. Connoisseurs drink it cold out of an empty instant coffee plastic jar.
The inflation is a bitch. The southern border a supper bitch. Women lib
is beyond peak. Lying about abortion indicate that the candidates are flex, understand women issues.
The republican candidates are impaired, but the other side is worse…
So you like your candidates to lie about their positions and then do the complete opposite when they are in office? No, they do not understand women’s issues which actually should be men’s issues as well but most men are complete a**holes.
Both sides are bad. Politicians from both sides are very rich and they have one one purpose: Fool the people and enrich themselves.
I always vote against the establishment. I know both sides are not worthy of your votes.
Voting against the establishment at least give me an impression that I am keeping them on their toes, may not be true though.
jon
fyi
There is NO ‘functioning’ democracy in America as ex prez Carter has mentioned more than once. We have corporatocracy/Oligarchy under the top 0.01%
The US is ranked 26th in the Global Democracy Index published by the Economist Intelligence Unit.
It is a “flawed democracy”, rather than “full democracy”.
I’m not sure this ever really sinks in.
What a badly written, nonsensical post!
Yeah, women’s lib. We now run everything! Why? Because we spent generations going to school, getting experience, working for less, and still working our way up the ladder to the top.
If you want it done right, hire a woman!
Lose your bad attitude.
I really and truly wish WE, in this case WE the PEONs, could hire/elect women for ALL the GUV MINT elected positions in USA Ccat!
That would at least begin to solve at least SOME of the extensive issues, (FKA “”PROBLEMS””) we have on our plate right now IMHO.
We have many qualified and enthusiastic women politicians working their way up the political spectrum, and I for one will be voting for them every time I get the chance.
Taking the young women of Iran as current examples, I am also totally in favor of EVERY young person spending time marching peacefully in the streets of every city until at least the worst of the current violence is stopped, especially the cowardly physical attacks against women and elderly.
Making it completely legal for every woman to carry serious weapons concealed or not would be a good start.
Just think what would happen if every woman who wanted to had one of those pretty (and deadly) little .32 caliber 10 shot automatics in her purse or pocket, just as did several of my teachers in high school, a high school where every kid with a car also had a gun in that car, and there were NEVER any kinds of malarky beyond the usual macho fist fights. ( With none of the ”kicking when down as is apparently common today.)
Dream on, eh?
VVN, my two neighbor widow ladies in their 70’s carry heat and have a concealed license. I carry too, but we can do that here in the great state of Texas.
I really and truly wish WE, in this case WE the PEONs, could hire/elect women for ALL the GUV MINT elected positions in USA Ccat!
That would at least begin to solve at least SOME of the extensive issues, (FKA “”PROBLEMS””) we have on our plate right now IMHO.
We have many qualified and enthusiastic women politicians working their way up the political spectrum, and I for one will be voting for them every time I get the chance.
———————————————
It’s an interesting sentiment you have. Seems to be quite common these days. Makes for an interesting outlook for young males going forward.
@ VintageVNvet –
Stick to the autistic technical analysis comments
Perfect.
If home price inflation doesn’t show up in consumer price inflation then there is obviously something wrong with their method of calculation.
If home prices go up, that allows/forces rent prices to go up.
Historically, rents have increased more than inflation for most years.
“Highlights. Average rent prices have increased at a rate of 8.86% per year since 1980, consistently outpacing wage inflation by a significant margin; 2021 was an exceptionally volatile year for the market, which appears to continue in 2022.
“According to some measurements, the national average rent increased over 20% year-over-year (YoY) at one point in 2021, the highest spike on record.
“The nationwide average monthly rent in 2020 was $1,164 ($1,225 with average rental inflation).
“The median rent in 2020 was $1,104 ($1,162 adjusted for inflation).
“78.1% of renters pay rent in full and on time.
“28.4% is their average rent-to-income ratio.
https://ipropertymanagement.com/research/average-rent-by-year
“Rent Inflation in the United States increased to 6.24 percent in August from 5.70 percent in July of 2022. ”
https://tradingeconomics.com/united-states/rent-inflation
Roger Dodger,
Your confusing “asking rents” with actual rents that people actually pay.
No one pays “asking rent.” That’s the amount that landlords advertise the unit at. If they cannot rent their units at that rent, they cut the asking rent. If the unit sat on the market for a while with high asking rent, that’s going to go into the asking rent figures, but no one is actually paying it. If the landlord cuts the asking rent, and three days later finds a tenant at that lowered rent, then the lowered asking rent will likely not enter into the figures (asking rents are gleaned by computers on one day a month across all advertised units). But it’s the lowered figure that becomes ACTUAL rent.
The only way you can determine actual rents that people are actually paying, and increases in actual rents, is to survey tenants – the same tenants over time, many tens of thousands of tenants, as the Census Bureau does monthly for their huge housing surveys – to see how their rents ACTAULLY changed.
In addition, there are leases, and rents don’t go up every month for every tenant. Many rents rise once a year. So it takes a lot of time for higher asking rents to even impact actual rents. Because most people keep paying their old rent.
ALL OF YOUR FIGURES, EXCEPT THE LAST ONE, WERE ASKING RENTS.
The last figure is based on the Census housing survey, reflects ACTUAL RENTS, that people are actually paying, including in rent-controlled units, etc.. Don’t confuse asking rents with actual rents.
Read the section “Housing costs surge: part of services CPI” about halfway down, with lots of charts:
https://wolfstreet.com/2022/09/13/services-inflation-spikes-core-cpi-jumps-food-inflation-worst-since-1979-even-durable-goods-rise-but-gasoline-airfares-plunge/
All true and accurately stated. I agree 100%. I just wish you would not deep six my comments on the disingenuous gaming of the CPI. Your post makes it crystal clear to anyone with critical thinking skills that the CPI is thoroughly gamed, and not just in “Owners Equivalent Rent” legerdemain.
The CPI will be down tomorrow. Why? Because this is the last month of the three months that is used for calculating the COLA for next years SS increase…
Post these long copy-and-paste diatribes somewhere else. You tried to post the same one twice.
The inflation rate isn’t bad at all, if you don’t count the things that people buy…
Something broke long before “price stability”, which we haven’t had for decades. What broke was rampant money creation. Everything since has been side effects.
During a bull market everyone is a genius. During a bear market everyone is a prophet. If you are actually showing green more that 8% you read the change correctly. If you are showing red you are a “long term investor.” You best bet is to ask,”what have I learned from my last trade?” You are either in line with the trend or you are “smarter” than the market. Best advice- be honest without self. Sell your losers and move to the new leadership. Wealth creation is different from wealth preservation. The system is rigged and transparent.
Reversion to the mean is as natural as 4 seasons. It may be delayed but cannot be banned. Been in the mkt since ’82 and survived more than one bear.
Global debt of Countries of any and all kind are at record peak, unlike any time in human history. We are in uncharted waters.
I listened to the whole recording over on Youtube, and I must say.. It’s fantastic! You did such a great job that some of the information actually penetrated my thick skull this time. :)
The Fed’s killing jobs and economy long before it’ll make a dent in inflation. The belief that if they just tightened enough it would succeed is a fantasy alt-economist’s push to their followers as a means to catalyze their base vs facing reality.
I am keenly waiting for the Fed’s response when there will be a major credit event like Lehman as in ’08, when yield seeking entities like pension funds and Insurance companies which are apparently leveraged, just like their counter parts in UK.
Black Rock is the dominant in managing High yield -HYT) credit mkt for Fed here. They are/were also consultant UK Govt and those pension funds, there, encouraging leverage (7X) in seeking the yield. This is an open secret. The cost for maintaining defensive derivatives/interest rate swap are climbing in an opaque environment. Many of the banks really don’t know their exposure. Guess we will know when the tides goes down. When Foxes minding the hen houses here, for decades, it is hard to believe that Fed will do the right thing
Fed will be forced to pivot in the near future due to political pressure and or monumental catastrophic events affecting the credit and equity mkts, unlike any thing in the past.
WHY?
B/c Mr. Powell is NO Mr. Volcker.
Just because the FRB “pivots” doesn’t mean the credit markets won’t freeze out many or most borrowers anyway.
This day is coming and by “this day”, the day when credit standards return to those prior to the mania. It’s possibly going to be a long road, but it should start from the bottom of the credit scale and move up.
It will be especially noticeable for the majority of the US population when consumers supposedly rated as “prime” credits start getting cut-off altogether.
Credit mkt is the foundation upon which Equity is built.
If the credit mkt gets sick, Equity mkt tumbles faster than credit.
Lehman event was one such event in ’08’ B/c of record debts, next event most likely a mega credit event.
Now we have currency crisis, energy crisis, pension plans crisis, never ending Ukraine war, record global debt, global inflation, global drought and global famine – a perfect storm brewing.
It is a lot different this time.
We are in uncharted waters
“Credit mkt is the foundation upon which Equity is built.”
————————————-
Equity built upon a foundation of credit, is like a house built upon a foundation of sand. Both are risky and subject to storms.
The FED has been backstopping and bailing out imprudent gamblers for decades now.
Whatever reason — other than just good inflation news — that causes the Fed to pivot will be a very Pyrrhic victory for the pivot lovers.
This was an excellent summary and explanation of what is going on with the Fed, inflation and the market. I have copied the link and sent it off to many of my friends, encouraging them to read the comments in addition to listening – as many have been very good.
I really appreciate your insight and willingness to use accessible language to make your points. It isn’t easy making complicated concepts understandable.
And the “Wall Street Crybabies” label is hilarious.
Treasury direct should take the cap off. I’m getting 11% on my 2008 ibond. And 9% on this years.
Remove the cap and the Stock market would be less corrupt.
That might be the end of the stock market :-]
The reason why the government put a cap on it is because these I-Bonds can be really good deals during inflationary times and very very expensive for the government.
Now if TD would actually fix that 1980’s website software! And hire some folks to answer the damn phone.
A huge problem is that if you can’t automatically “authenticate” during the sign up process, they make you get a nearly impossible to get signature guarantee that most banks will no longer provide.
Medallion and signature guarantees should be banned. The people who demand them are basically saying “We want someone else to take the risk of fraud for no gain.” Why would anyone do that?
I think my Mom just got a medallion signature guarantee for a POA at a Fidelity brokerage physical location. Granted that was for a Fidelity document but the service might be available for other things.
Venkarel,
Yes, it can be done, but it’s not easy. The large national banks I know of no longer will do it, except for maybe “private clients” or whatever they call them.
Einhal,
Totally agree that Treasury Direct requires Medallion signature is crazy, but I guess it makes sense per statute because you can technically transfer the paper treasuries notes/bonds to an entity. They, however, a;so require it to add or change a bank account which is nuts and not what the guarantee is for. Finally, just trying to help out and add national trusts (brokerage) services to the list of entities you could proposition for Medallion services.
“And central banks, still delusional back then about the idea that their radical policies could ever break price stabilities, because it hadn’t done it in the prior years, well, they brushed off the problem. They called this inflation temporary, and they kept printing vast amounts of money and repressing interest rates to zero or below zero even as inflation was beginning to rage in an act of incomprehensible recklessness.”
The money quote. Thank you, Wolf, for an honest voice in an abyss of lies and propaganda.
1) In the 1940’s George Marshall built the defense industry in CA. In the 50’s Eisenhower build silicon valley and the space programs in CA.
2) In the 70’s those programs suffered severe blows.
3) People lost their jobs. Shopping centers were closed. The housing
market plunged. RE project stopped.
4) There was no end to the misery.
5) But there was an old plan imitating wall street maverick in the fifties : buyback today your RE taxes, because within few years they will be $10,000 before rising to $30,000. If enough of u keep your houses today, paying low taxes for decades, one day your house might be worth a million or three.
SOFR is 3% on the to 4.5%. If the transitory inflation will be beaten,
loans given today between 7% and 25% will be financed with an o/n rate of 2%.
Kelly good in space, bad on earth. Lee 1:0 Tawana
Excuse me while I puke…
“The Nobel Memorial Prize in Economic Sciences was awarded to former Federal Reserve Chair Ben Bernanke and two others for their research in the 1980s on banks and financial crises.”
The Nobel Economic Sciences Prize Committee for 2022 consists of five “Professors of Economics” and one “Professor of Finance.”
“In his book, ‘Thinking Fast and Slow’, Princeton University Nobel Laureate, Daniel Kahneman, introduces us to the principle of Theory Induced Blindness – the adherence to a vulnerable belief, even though a counterexample may exist, about how something works that prevents you from seeing how it REALLY works. So once you have accepted a theory, it is extraordinarily difficult to notice its flaws, trusting instead the community of experts who have already accepted it.”
This timing of this announcement could not be more perfect. BB should be brought to the fed meetings and wrung through the wringer.
WSJ July 2009 Bernanke lays out how QE will end, and that when unemployment, then circa 11% at that point, dips below 6.5%, QE will begin to unwind and rates will begin to normalize.
Well, unemployment went to 3.5% and QE got larger and larger.
Currently there is about $4 Trillion in “extra money” sloshing around in the economy with no increase in product or services. That’s a prescription for inflation as described in Econ 101, chpt 1….did any of the PHDs at the Fed read it?
Theory Induced Blindness sounds like a good book.
It certainly applies to a lot more than Bernanke and his crackpot economics. And by a lot more, I mean a lot more, almost certainly including things the author himself believes.
There are numerous factions in the equivalent of a modern priesthood who believe and promote all kinds of claptrap. That’s where the public places their belief, in the modern priesthood without proof or evidence. Economics is only one area.
Yeah, Bernanke “did it again”.
The Bernank deserved the prize for nailing the sub-prime issue – “it’s contained.”
Yellen will deserve the prize for nailing QT – “it’ll be like watching paint dry.”
Powell will deserve the prize for nailing inflation – “it’s transitory.”
Clown world…
I will have to check out that book, very interesting concept. I would love to see him match up Theory Induced Blindness along with a concept of individual greed. I think that people only engage in TIB because they benefit from it.
Winston wrote: “The Nobel Economic Sciences Prize Committee for 2022 consists of five “Professors of Economics” and one “Professor of Finance.”
LOL. That Nobel “prize” is nothing but a financial gift from the .01% to some theorist for helping them to confuse the 99% and divert attention from what is really happening.
Yepp, not issued by the Nobel Comitee, but by Svenska Riksbanken. That is the Swedish cental bank.
Not really a Nobel prize at all. A central bank prize handed out to central bank economers.
That is why I specified who is on the awarding committee. The prize is a JOKE. And economics is NOT even a “science.”
One article among many on that:
No, Economics Is Not a Science
By Alan Y. Wang
December 13, 2013
This just proves that the whole system is a failure and needs to be scrapped. Bernanke is a liar, a fraud, an idiot and a complete disgrace. These people are rewarded both financially and academically for their ineptitude and disservice to the populace. It’s all Kabuki Theater, where they carry on with what can only be described as lives of alternate realities which steeped in greed, fantasy and delusion.
Amen
It is so disappointing – appalling really – how the Nobel prizes for Economics and Peace have been squandered – cheapening the awards for the truly deserving.
Well the quote is a sound analysis of an example of a degree of corruption that I referred too, elsewhere.
The title, “The Theory of Induced Blindness”, seems like it has cache for analyzing the theory of how the great unwashed are liable to react to an economic, political stimulus.
The winning of the reward seems like an indictment of societal failure rather than a recognition of extraordinary achievement.
In the class of Clinton O’Bama being awarded the prize for peace.
Mohamed El Erian, Jet : as long as the Dow don’t close under Jan 2020
low : 28,169.55, we are not in recession. Breaching it isn’t good enough.
Sept 2022 closed @28,723.55, above it.
Yes, I would say something has broken.
Conservative investors who bought government bonds may have purchased TLT at $170 a year ago. Now it’s worth $99, so that’s a 41% loss in one year, on government bonds, which are supposed to be safe.
The Fed induced people to buy TLT at $170 by saying it would do whatever it takes, however long it takes, to support the economy. Folks believed the Fed and thought they had no other options. Turns out, the Fed was relying on baffoon logic and had to renege on its promise rather quickly. That was extremely costly and life-altering for many folks who were trying to do the right thing and be responsible.
Even worse, any person who has a defined pension suffered the same fate. A pension payment stream has a similar, if not longer payment profile than a 20-year bond, so if TLT lost 41% of its value, people lost similar amounts of their pension as well, in terms of value. Any fixed payment streams people owned have been destryed by runaway inflation.
This is one reason why the Fed should shoot for negative inflation, or deflation, for a period of time. They need to mitigate the extremely harmful damage they’ve inflicted on honest hard-working folks who do the right thing. If they don’t allow some deflation, the damage they’ve done over the past decade will be permanent.
You shouldn’t be robbed of your retirement savings after working hard for 40-50 years, making sacrifices, listening to the Fed, and following the rules of responsible behavior.
Wolf has mentioned several times that bond ETFs are nothing more than a directional bet on interest rates. They are NOT conservative investments. I didn’t fully realize how important this understanding is until reading this site. It is far better for individual investors to buy bonds directly and collect the coupon interest and get all of the principal back when the bond matures. Sure if interest rates go up the coupon may seem low, but you don’t have the massive loss you’re describing in TLT. TLT is not a conservative investment and it’s unfortunate many conservative investors don’t understand this.
Yes, and thanks to Wolf for pointing that out a while back. About how folks advised to put $$ into an ETF, and told it was safe, really got whacked. Very helpful for me to grasp that, and also appreciate his general attitude — if I got it right, about buying Treasuries, bonds or CDs: Buy it (make sure it’s something that won’t default), hold it, and get your money back at the end of the term. Yes there is interest rate risk and opportunity risk, but there’s risk in anything.
I mitigate it by thorough laddering, with a lot in the next few years, and then nibbling at ones further out, but making sure each year has a bunch coming due. I will also continue to DCA into equities that pay dividends, mainly through VIG, and picking up small amounts of individual stocks. The other big play of mine is to visit the Safeway meat freezer with weekly specials, no more croissants from Berkeley french bakeries, 80/15 hamburger is the new steak, and a restaurant is something you visit 5 times a year. Though Cote Ouest was pretty nice this past Saturday evening. (Sometimes I forget the new rules.)
VIG dividend yield ……………….. 2.1%
sounds like a risky play to me …….. inadequate dividend yield
Those who know, please correct my vision if I’m missing something.
“…it’s unfortunate many conservative investors don’t understand this”
One of the best ways to learn how to look after your own money is to lose some.
You would have had the same 40% market value loss if you held a 30-year treasury directly. You’d still get your 2% interest, but if you tried to sell the bond today you’d get 40% loss than what you paid for it. That’s an economic loss in my book.
If your intention is to sell the bond prior to maturity, yes you will take the loss because it’s still a directional bet on interest rates. However, if your intention is to generate the interest income from the coupon, the fluctuation in the market price of the bond due to interest fluctuations is meaningless to you. It depends on what type of investment you’re looking for. The main point I was trying to emphasize is that a long-dated treasury bond ETF is not a conservative investment, particularly because the duration makes them very sensitive to interest fluctuations.
Bobber,
It is still safe and generating a 2.43% yield. It is very slightly up from a few months ago. If you purchased it for 2.43% Yearly ROI, you will continue to get it plus more slowly over time. Sell when bond yields drop again or just enjoy the interest. Same if you bought individual bonds for fixed income.
If you are trading bonds like stocks, yes, then the ROI is negative. 41% loss is a tragedy for bonds but it was driven by rapid Fed interest rate hikes. Don’t sell now.
Actually, it would pay to sell now because you’d get a loss for tax purposes (i.e., tax loss harvesting), even if you take the proceeds and buy a similar bond after 30 days.
Just read an article that the UN called upon the Fed to stop hiking interest rates because the global economy is on the brink of recession.
These economic elitists are just jerks. They have gotten so accustomed to the endless stream of fake money injected into the global economy that any return to rational policies is doomsday for them.
Maybe we need a recession to teach everyone to stop the mal-investment.
If you read past the headlines, the UN is calling for increases in tax rates and other measures, rather than further interest rate increases, to cool the world economies. Tax rate increases are better targeted because they can be accurately assessed on the wealthy (who have been receiving tax windfalls the past three decades). The UN logic seems to make sense than what media headlines portray.
The media wants to imply the UN is protecting Wall Street crybabies, when the opposite might be true.
Yeah I saw that too. I also read that Cathie Wood sent an open letter to the FED. Here is one of her bullet points:
“The Fed likely is making a mistake in its hard-line stance against inflation because it is looking backward, Ark Invest’s Cathie Wood said Monday.”
Cathie Woodshed to FED:
“Please stop, you’re huuuuuurrrrrrrrrrrting meeeeeeeeeeeeeee!!”
Translation:
Papa Powell please print free money to prop up my failing company! ………
That’s generally how recessions play into the business cycle. But not all dips and manias are the same.
Sentiment has predictable patterns that play out in short, medium, long, and very long term. They are fractals and fit together like a puzzle.
In this instance we are likely approaching or beginning a downturn that is on the same level as the Great Depression. It acts as a balancing force to reset the sentiment impulse that began at the beginning of WWII.
https://cms.zerohedge.com/s3/files/inline-images/2022-10-10_07-31-55.jpg?itok=vscdj9D5
The Bank of England is going to need a bigger boat.
A Senate bill introduced by Senators Fischer and Warner would raise the cap on annual Series I Savings Bond, or I bond, purchases, when inflation exceeds 3.5%, easing one of the limits on a government security designed to help protect investors and savers against rising consumer prices. Doesn’t the Treasury also have the authority to raise the annual cap on I bonds without any legislation?
Whenever I see large, rapid moves in prices, or rates, I just think to myself: how many leveraged funds have just exploded based on that unexpectedly large move?
I guess that is also “price stability”, which is also now gone.
Wolf. I Think the US Treasury will call uncle on the interest rate.
But I have made a big bet on higher interest rates and Powell keeping the pedal to the metal based on your advice.
The biggest mandate the Fed has is increasing elite riches.
Powell is not the tough guy he pretends to be. A little more stress in the system and he will shit his pants. Besides, it is a mathematical given that higher interest rates will crash such a leveraged system. Between collapse and pump further they will choose pump further. They will do it as soon as a deflationary episode manifests and it will.
I was in the heart of the Swamp yesterday. A neighborhood called Penn quarter. Right next to the Treasury, IRS, Trump Tower etc. Found a truck to buy a hot dog. The dude told me the IRS was on a 2 day workweek. No wonder it took me 6 months to get my refund. His business was off 80%. as a result. Also, the DC government hit him with an $8k license tax. I told him they were getting ready to hire 87,000 IRS agents. They will be coming after him and these little guys trying to earn a living selling $1.50 hot dogs and leaving the crooks on Wall Street and Corporate crooks and hedge funds unscathed.
Many office workers are working from home at least part of the time, including at the IRS. They show up at the office two days a week, kinda like Corporate America.
I just had to file a large claim using my homeowner’s insurance company for the first time in the last 4 decades. My Ins company was in San Antonio, TX. No local Office here in the Swamp. Not only are they out of state but they bragged about their 25K employees all working from home, many in other states. The service was horrible! No one came to my home to see the carnage. All they did was offload all the work to me and then deny most of the claim. A lot of the problem handling this claim could be traced to the WFH model which they implemented. I just cancelled my ins with them and went with another company for my Home and Auto ins. WFH works for some businesses but it doesn’t work for others.
Well, WFH worked very well for your insurance company, didn’t it? It just didn’t work for you, LOL
(Sometimes the only way to get what you want out of an insurance company is to hire a contingency-fee lawyer, if your claim is big enough to make it worthwhile)
Wolf,
There’s a Japanese author named Demming or something, that wrote a book about how a successful business focusses on the customer, “Total Quality Management”. Building an expanding customer base is the goal and it occurs by providing top notch service and a quality product to the customer. Unfortunately, a lot of businesses today, including my own ins co, (which is suppose to support active and retired military Vets), that don’t give damn about the customer or policy holder. They get distracted into focusing on Labor unions, credit arrangements, charities, Web portals, Logistical BS,….. AND …. WFH. Frankly, I don’t give a crap about my insurance company’s WFH policy. Because of terrible service on a recent claim and 3 previous ones before they implemented WFH, it took a 30 minute phone call and I dumped my homeowners and Auto policy with them, saving 30% on the premiums at the same time. By the way I just heard Kroger is buying Albertsons to gain buying power leverage, so Safeway which is already one of the worst groceries here in the DC Metro area. will mostly likely get significantly worse.