The Crazy Stuff & Asset Prices that arose during Easy Money are coming unglued as Easy Money ended.
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Nothing is FREE…
Even if you jump out of a jet at high altitude?
Ticket prices are sky-high!
free falllllling.
You pay on landing.
Some actual data:
$7.50 to 12,500 AGL in 1974
$11.00 to 12,500 AGL in 1980
(If his mood and upper winds were good, pilot often treated you to 13-13.5, but never less, as many wore altimeters. $40
No Fun Til Fed Done…
Happy Holidays and Good Luck with All your Investments…
Yes, but easy money is easy.
People confuse easy money with free money.
Easy money: Money Printing, money lending at a ridiculously low interest rate, easy government subsides, you name it.
But all that has a cost, you can’t never just “print your debt away”, not forever at least, not even if you are the USA government.
Easy money for some, loss of productive businesses for others.
Cash burn for some as viable businesses get destroyed by ultra liquid Wall Street ba_tards.
Hollowing out entrepreneur/small business, along with the removal of the power of Private Sector working people, is a price that can never be recovered.
Rax,
Debt can be quite easily taxed away, and in fact has been done successfully. The entire cost of WW2 had been essentially taxed away, before Reagan began piling it up again, ostensibly to “defeat” the Russians and the various “Star Wars” visions he conjured up himself….neither of which worked at all.
I’m not sure how the considerable Vietnam War debt was hidden, but it didn’t appear on the books as “Our National Debt”. Perhaps the last huge bout with inflation was tied to it somehow? It did occur right after that sordid “business endeavor” was abandoned.
Many things are free.
And you could argue that other changes unrelated to the money supply would have tamped inflation proactively.
But, but, free money is the best kind, experts assured us.
Wallstreet experts and Realtors with a disclaimer in fine print that reads:
“We only care about our commissions and you, the moron, assumes all risks for your stupid and ignorant decisions from hereon”.
Such a disclaimer makes perfect sense (seriously), unless you think greedy gamblers should be able to look to salespeople as insurers from any loss. The greedy punters would keep the gains, without guilt or comment. So why should they blame the salesperson, if their silly fantasies of wealth don’t come true? The investors bears that risk, and should. And, lofty statements about future possible gains (absent a promise, guarantee or insurance, one should expect to negotiate and pay for) are (inherently) OPINION, not FACT, thus not FRAUD. The future is uncertain, and anyone should know what, so there is risk. Freedom, conservatism,, means you get to keep the legitimate gains from your (risky) investments, and also, you take the losses.
With all due respect, this comment sounds to me like the populist illogic polluting the debates, and seeping into the political sphere on all sides.
Shifting profits from production to Rentier profits is the destruction of the foundation of the American Economy. Now 89% Free Riders – Government and Services.
Debt to so-called GDP now heading to Japanification.
With all due respect, my good friend.
The Sappy Savers didn’t get to vote on Free Money for the Past 15 Years. That lowered our interest rates.
Have a wonderful day, my Faux Free Market Friend.
What does populism have to do with the free market? Have you spoken with a populist? Populism is surging exactly because of the grifting with free money.
It would behoove you to speak with a populist rather than make assumptions that are wrong.
“…privatize ALL profit, socialize ALL risk…” (…and trust you will outlive a disintegrating citizenry and society…).
may we all find a better day.
And pity those left behind…..and do what you can for them….use LESS and vote for alternate energy…..ideally a massive comprehensive green new industry on a WAR footing, because it IS a war for survival.
Still may be too late to stop man-made climate change damage.
People who risk money have IMMENSE courage……especially under corporate shields…..where only the corp (and MOST employees) lose and they can try again and again…..
NBay – d’you ever get a feeling that you’re re-enacting the scene from the Python’s ‘Life of Brian’ wherein Miriam says: “…it’s HAPPENING, Reg, it’s HAPPENING!!!…”?
(i know I do…).
may we all find a better day.
I didn’t have (or even watch it much) a TV when that was popular, and the last time at the movies was Star Wars, so I don’t “get” a lot of movie references. But now that I do watch TV more, I’ve seen some of Python and get the same kick out of it as I do South Park.
I long ago accepted the fact we live in a pretty confused (if not insane) culture, though….so there is plenty room to enjoy the absurd or tilting at windmills….if that’s what you mean.
NBay – check and understand. Movie reference (which I think you’d enjoy in light of your past refs to xtianity). Scene illustrates (in a different situation) the general obliviousness of many, who one would think know better, to the width, breadth, and big delta of a clear and present danger…
may we all find a better day.
@phleep and @Jon –
Beware the word “populist”, it means different things to different people. You probably agree with each other for the most part.
The “populist illogic” that Phleep lamented comes not just from the “populists”. The linguistic corruption is everywhere. If people aren’t taught consistent definitions and don’t follow consistent usage, how can anyone be logical?
Besides “populist”, I’d also flag words like “conservative”, “liberal” and even “capital”, “money” and “dollar” – they mean very different things depending on who writes them, and when.
Economics and politics are rife with words like these, words whose meaning has been FUBAR’d by repetitive misuse by special interests… as such, these words are not suitable for casual conversation without more elaborate definitions. But most of the “defining words” are also FUBAR’d, so it’s a real challenge sometimes, talking to someone whom you fundamentally agree with, but whose linguistic programming was different from yours.
To be fair, words do evolve, and even a grain of rice isn’t what it used to be, but at least today’s larger rice is a result of bio-technological rather than linguistic evolution!
Yeah. xtianity is one cultural absurdity I DON’T find amusing, except for coke snorting and M-60 firing son of god on South Park….he is just another character there.
Likely is THE major insanity in this culture. Check out creationism in wikipedia and see Gallup pole on how many people in USA actually believe bible is absolute truth as opposed to other countries. Scary. Only Turkey is worse, and that’s a different “bible”, but both are worth killing over on both sides.
Highway 61.
So what does one do with US dollars under these disintegrating circumstances?
The good news is every currency is experiencing high inflation so don’t worry about the almighty buck being singled out, the bad news is if you think savers have been singled out for lack of performance, you ain’t seen nothing yet.
Count yourself lucky you don’t have UK pounds. Though with cost of heating our homes now it isn’t far off being cheaper to burn £5 notes than pay for central heating.
my guess, and it is only a guess, is that the pivot theme has peaked in the markets. so now the markets are facing the reality that there will be no swift pivot, even if inflation falls down a bit here, it is not conquered. that means higher long term interest rates and a higher dollar.
I’m making extra payments on my car loan personally.
If you trust the fed then a money market drawing 4% might be the best bet til they pivot. If you want to go safer 30 day t-bills. You would just be camping out til something gets cheap.
I bought a new computer and a new monitor. US dollars may be rapidly losing value but they come in handy for paying property taxes. I’ll be paying my second (and final) installment in two weeks.
You hold dollars. And be glad you’re not getting paid in any other currency. Bad as the buying power of the dollar has been its still a lot better than any other currency. The Euro sank to parity, the Pound is trying hard to do the same. The Chinese are doing everything they can to prop up their bills, and Japan is going to enter some interesting times.
My job is moving me to Europe, and I fully intend to buy my retirement place on the beach over there in a couple years as things start hitting bottom.
In the not-so-distant future:
So like… no bailouts this time, Right guys???
*crickets chirping*
Hahahaha, with this raging inflation? There won’t be a bailout. People need to get a grip.
In addition, banks — which is where bailouts are focused — aren’t at risk in these deals. Most of the residential mortgage risks have been rolled off to the taxpayer via government-guaranteed MBS, and to investors via private-label MBS. The risks that the banks retain are relatively small. In terms of cryptos, only some small banks have big exposure to the space, and they may blow up, but who cares, they’re small banks. They won’t get bailed out. The FDIC will swoop in on a Friday at 6 pm and take over the place, and stockholders will get bailed in on the spot and their shares become worthless and no longer represent anything, and anyone with cryptos at the bank will get bailed in, and unsecured bondholders might get bailed in, and fiat-depositors will wake up Monday morning and find that their deposits and accrued interest were transferred to another bank, and nothing changed for them. In other words, investors are going to get socked, and the big banks will be OK, and the small banks, if any collapse, will be taken over as matter of routine by the FDIC and “resolved,” as it’s called.
Is there a list of all banks who have exposure to crypto?
I’ve covered some of them. There are probably more, but those are biggest ones, though they’re relatively small: Silvergate Capital and Signature Bank. Their stocks have crashed
SVB Financial Group, which owns Silicon Valley Bank, is heavily exposed to the entire startup scene, including crypto startup companies, but not to cryptos themselves. Its stock has crashed with the startup stocks.
https://wolfstreet.com/2022/11/16/wheres-the-contagion-from-the-crypto-implosion/
Thank You!
Provident Bancorp PVBC is down 75%
This is like saying all the holes have been plugged and everything is in controlled descent (or demo). But in practice something unexpected always cracks, and the only solution the government has for any unpredictable situation is printing. See: Covid. It’s been this way for thousands of years. Our currency is dying to plug holes that government itself creates.
“But in practice something unexpected always cracks…”
Yes, but it ALREADY cracked, and it’s INFLATION, the worst in 40 years, and people still don’t take it seriously because they don’t remember, or weren’t around to see, what this was like. And they think something will crack when the biggest thing in 40 years ALREADY cracked
And the solution to this huge problem is the opposite of money-printing and bailouts. People need to get a grip on this. The Fed has gotten a grip on it finally. But markets are delusional.
Dudley (former NY Fed governor) said so again today in an editorial. Markets are still not taking this inflation seriously, he said, but the Fed is.
re “the only solution the government has for any unpredictable situation is printing”
No, that’s just the laziest solution. There are always plenty of other solutions, they just usually require more effort.
the real long term solution is to turn the mortgage market back into a private market with no Freddie or Fannie to take all the risk. And there should be regulations that force originators of mortgages to hold onto a substantial portion of the risk of the mortgages they originate.
the current system of originators divorced from risk is what gets us in trouble.
we also need to reinstitute the Volcker rule and stop big banks from engaging in risky investment banking and trading operations. if you want access to Fed money, you cant gamble with it.
Government mortgage guarantees should be abolished.
There is no need to require originators to keep the paper they underwrite. Private mortgage buyers should be free to buy it at their own risk.
The Volker Rule is just another attempt to regulate moral hazard which is ultimate guaranteed to fail.
Without deposit insurance and the FRB “put”, the TBTF banks either wouldn’t exist at all or in current form. Excess risk taking (as perceived by their creditors) would mean they would lose funding.
Government guarantees should be abolished, but a second role of Fannie and Freddie is in maintaining decent underwriting standards … Fannie ad Freddie need to go, but those standards need to be upheld. The decline in underwriting standards was a major weak link in 2006-2009.
GameTV: Totally agree.
I believe over the next decade or so we will see some of the major financial institutions requiring bail-ins. Goldman will likely be one, and I’m of the opinion that the reason Goldman began taking deposits a few years ago was out of this very expectation.
It won’t likely be a huge loss from housing this time, but the banks are exposed in new areas now.
Wolf,
Awesome! Thank you!
How long do you guys think it will take to drain all this money out of the system? and how long will it take for House prices to come down to some affordable level?
It is going to take years, and all of the money will not be “drained.” These are distortions on a level never before seen. They changed the entire structure of the US economy.
Exactly
QT @95B per month on a near $9T balance sheet isn’t a meaningful reduction.
That it supposedly cannot be done any faster demonstrates what a house of cards the US has for a financial system and economy.
And the Fed is only running of $20B a month in MBS or only 57% of target.
30YFRM have dropped significantly in the last month or so. They’re on pace to permanently move below 6% in the next 30 days, since the 10YT has peaked and is slowly going down. It’s reasonable to propose 5% arrives by next March, making ARMs much more affordable and possibly stabilizing home sales.
So then the question becomes will the Fed be willing to start selling $15B a month in MBS to push 30YFRM back up? That’s the million-dollar question that’s looking looming early next year.
7.83 years
August, my question to you is: who will purchase all of the new debt coming on line? From what I read, there are trillion dollar deficits as far as the eye can see and the government is not even considering slowing spending.
I will do my part buying this debt if long-term yields are high enough. There is HUGE demand for this debt NOW, way too much demand, which pushes up prices and pushes down yields, which you can see from the 10-year Treasury yield, which should be 8%, given 7-8% inflation, but is now just 3.6%, due to this huge demand. Markets are delusional. There should be zero demand at 3.5% at this inflation rate. But now, way too much demand.
Yield solves all demand issues. Yield creates demand.
Augustus Frost,
You people are funny. I don’t get this nonsense about the current level of QT being “not a meaningful reduction.”
That’s just the final phase of the QT deniers?
Wolf, for responsible savers, yield have been below inflation for years. Now, earning ~ 4% for the second half of 2022, while inflation is 6-9%, is still hard to take.
Responsible savers are still being told to take risks, to try to beat inflation.
Though, TIPS are now at least slightly positive.
I would like to know the name of the buyers of this long term debt. Especially the names of the meaningful quantity purchasers.
Wolf,
“…10-year Treasury yield, which should be 8%, given 7-8% inflation…”
– This would only be true if inflation expectations were 7-8% for the next 10 years (or thereabouts). They aren’t.
“You people are funny. I don’t get this nonsense about the current level of QT being “not a meaningful reduction.””
– I think the funny people focus on the monthly QT in proportion to the total Fed b/s. Looks small. Instead they need to focus on the effect of ~$100B of monthly QT. Two VERY different things.
I’m not a QT “denier”.
It’s trivial in the context of a $9T balance sheet.
I know why they are doing this, even without reading your website.
I also don’t believe there is much pent-up demand for longer dated (10YR and up) UST paper anywhere near current rates, by individuals.
Institutions?
Sure, it isn’t their money.
With the turn in the credit cycle in 2020, anyone guessing wrong on long term Treasury paper still risks getting crushed by both inflation and rising interest rates.
Augustus,
“QT @95B per month on a near $9T balance sheet isn’t a meaningful reduction.”
I don’t think the amount sitting on their b/s is all that important compared to the monthly change in the b/s. $95B is a lot to be taking out. I’d like to see a lot more, but I’m trying to be objective.
@ James “…the 10YT has peaked and is slowly going down.”
That’s what they said in March 2021, but the 10YT rate made a new, higher high 10 months later.
They said it again in February 2022, but the 10YT rate made a new, higher high 1 month later.
They repeated it in July 2022, but the 10YT made a new, higher high 3 months later.
Each time, the 10year rate also made higher lows.
So now, from the latest higher high, yes, it is “slowly going down”. But I don’t think that will last too long.
A lot of theories. I have heard between March and June. If we get to 5% and run off $1 T that might be all it takes to drain oxygen from the system. You can’t live more than a few minutes without oxygen.
I’ve read the record was over 20 min
Great report Wolf. Thanks and I passed it along to my retired friends.
Some are seeing evidence of housing price deflation. The price of a house is not included in the CPI.
Migrants are sleeping on the streets of El Paso.
I signed up for a gold health insurance plan. My premiums will increase to $2000 a month in 2023. There is health insurance inflation.
If I turn 65 in 2024 as planned, I will be eligible for Medicare. Hard for a senior to vote against Social Security and Medicare.
Those who used to live in Silicon Valley may be working from home somewhere else. The California population decreased for two years in a row.
Hi David,
I live very close to El Paso, TX.
Zero migrant problems here. Zero! None on the streets – white homeless only.
Not a disrespect to David…but fact check to everyone.
Voxxed, pandemic, opening of the economy, Pivot, transitory, buzz words, Winter of death.
Spin you round right round…right round…
Wolf Street sheds truth to the madness,
Bless Y’all.
You’re lying and wrong, but other than that great post. Cheers
No he’s not lying!!
Escierto,
I don’t pretend to know El Paso, but saying “white homeless only” seems to be stretching the truth at best. Poverty and homelessness tend to be spread around a little better than that. Perhaps Gary is just being facetious.
I do not know what Title 42 is, but migrants from south of the border are coming by the thousands as they heard it is expiring. El Paso is expecting sub freezing temperatures this coming week.
Do you live in El Paso? It’s always these fools who live in Indiana or Missouri whining about the border. Meanwhile all is well with the people who actually live here.
@Escierto
36,000 people crossed the border into El Paso this last week and 20,000 were released into the community. Literally thousands of immigrants from Nicaragua are lining up at the border and Ciudad Jaurez is struggling to provide shelter for them in unseasonably cold, near freezing night time temperatures. This is an unprecedented humanitarian crisis and to say that “all is well” at the border is like saying “all is well” aboard the Titanic because it didn’t immediately sink after hitting the iceberg.
Sure, a state of emergency has been declared in El Paso due to the out of control migrant situation, but nothing is going on. Right?
Greg Abbott is running for President. Its part of his campaign.
I seriously can’t believe someone posting on here thinks Greg Abbot’s hysterical State of Emergency is a genuine state of emergency.
The state of emergency has also been declared by the local Democratic mayor, Oscar Leesor, he says that the 2,500 people crossing the border each day last week is expected to be 6,500 later this week with nighttime temperatures near freezing. He is coordinating bussing of migrants to other US cities, although not without coordinating with those cities, it just doesn’t get media play because it doesn’t have the “gotcha” narrative of the politically motivated bussing by Governor Abbott.
But anyone suggesting that we don’t have a crisis at the border is either incapable of reading or a partisan with no interest in actual facts.
There is a very good chance I am moving out of this stinking country in another year or two max. Why? Healthcare costs.
We went to Portugal for vacation a couple years ago and one of our party broke her wrist. The private hospital bill for the xray, sling and specialist to get called in from his home to take a look at it was $200. And the prescription was a couple bucks.
The healthcare industry in the US is essentially fraud, in particular, hospital bills.
The system of hospital billing is exactly why insurance companies can get away with their ridiculous price increases. It is a huge risk to go without insurance because if you ever go to the hospital it can wipe out a huge amount of your savings. In a country where hospital bills are rational, people would just skip the insurance, because the hospital bill would not be outrageous.
If you look at the US economy, it is not driven by people creating value, it is driven by people exploiting government spending, corruption and graft. That is also true of other developed countries, but ours is the worst.
Do you really think for a second that the $200 represented anything even remotely near the cost of providing that service? Subsidized heavily. Someone paid the rest of that bill for you.
If you are moving there (or anywhere similar) for that reason, then you are no different than the migrants crashing the gates of Europe and the U.S. seeking support one way or another.
I’d love to know how much “value” GTV “created” and HOW he did it…..but I bet he won’t say anything at all about it.
Meanwhile thousands working at shit jobs that will either outright kill them or just will have to work till they die on the job from old age will be paying the likely maximum amount of social security he will be sucking out of them.
They won’t ever see NYC or SF, much less take jaunts to Portugal.
Gattppardo: Good point! The very people denying universal health care to others because they don’t want their taxes to go up (like my mother) are the very people who couldn’t wait to get onto Medicare or want to immigrate to other countries because of their affordable health care.
The problem with universal healthcare in the USA is there has to be cost control. Cost control is long overdue. The prices charged for services rendered are so far out of wack it’s not funny.
I remember when Amazon was talking of spinning up their own medical system for their employees, I wish they would have just for the industry disruption.
It should be cheaper than ever to provide better service than ever given technology. Same with education.
What’s the matter GTV?……ashamed?
There really is no way to frame excessive taking from others and then consuming/wasting it, so that it sounds “nice”, is there?
Think you have a some company here, if it makes you feel any better….which it obviously doesn’t.
Absolutely true! And *worse*!
People diagnosed with dementia are being *forced* into wildly expensive ($10,000++/month) , private, for profit, “memory care” facilities against their will. Then they get stuffed with antipsychotics, drugged up and many die early.
After all they have dementia (so no rights!) and the government agencies take over! It’s an extremely profitable scam to take over conservatorship and quickly steal their assets!
The spouse will be threatened with felony “willful endangerment” if not giving up husband/wife to the private for-profit locked down facility.
I could write a book!
It has happened to us after 49 years of marriage! Has cost a fortune in legal fees for self defense.
Watch out! On your will and trust make sure that you have a long list of potential conservators so that people/agencies suing to take custody of you (take conservatorship) are locked out. Make sure that you have an advance health care directive banning anybody from giving you antipsychotics. Make sure your will and trust lists everything you own and also has a list of *prohibited people and government agencies*.
If you have a nickel, your relatives and “friends”, as well as government agencies will try to steal every last cent any way they can, especially under the guise of healthcare.
I am going to stop, but this is an ongoing nightmare and dementia is nightmare enough.
Ccat
So what was your scam? Who’s money (and it sounds considerable) did you take that is now getting ripped off from you by another scammer?
All’s fair in love, war, and American Capitalism…..the “game with NO enforced regs and NO boundaries”.
Now you are losing, so what? Are you in the bottom 50% yet? How many people did YOU help put there?
It might seem that the craziness that motivated the mania of magic money printing started 13 years ago. However the basic problem was seen in its infancy a very long time ago. I suggest reading “The Fallacy of Saving” by John M Robertson written in 1892. You only need read the first 11 pages of this book (on line) with brilliantly clear writing.
He explains the early evolution in change in the meaning of the word “capital.” At one time it primarily meant to describe actual buildings and industrial structure and stuff –requiring real work by humans to have made–that is physically capable of producing goods and services. Robertson explains the gradual shift in meaning of “capital” began to include also “money” that had no such actual value, but was only a FUTURE CLAIM on such real capital.
Those two meanings of capital are now no longer distinguished so obviously “wealth” could be obtained merely by holding claims, or paper money as “real wealth.” Paper is much cheaper than buildings, and now requiring only bits to be in the right place in a computer– Voila!! And crypto too. We’ve discovered a much easier way to produce wealth. Now having absurd claim value over four times of US yearly GDP.
So Greenspan, Bernanke and the rest finally discovered this wonderful much easier way to obtain–and preserve– massively high so called “wealth” that a few financial geniuses hold today.
We’re finally experiencing the mistake that Robertson was warning about 130 years ago.
I disagree somewhat about “paper” money. The government has a claim on future productivity of this economy (from whatever source: buildings, crops, land, software) called taxes. “Paper” money is also legal tender for all debts, and it pays taxes. So, there is a tie to real assets. So, with all respect for your basic point (and crypto certainly represents straining the limits of getting more and more abstract claims on real assets), it is incorrect, I think, to dismiss “fiat” entirely. Any financial instrument (IMO) SHOULD represent some tie to the productivity of real assets/capital. If it doesn’t, it is a sham. US dollars have that tie, if it is weaker sometimes (like now: inflation).
We can’t just do barter.
Gold was constrained in supply but otherwise not productive either. It was just a benchmark for money supply, one among many possible. It is very inflexible as an alternative, leading to huge crashes and depressions.
Now, the Fed is seemingly making efforts to return to a normalized money supply. The falling house prices (should) represent the counterbalancing gradual trickle back into the US dollar of purchasing power. If only. I would ask, what alternative is there?
Phleep
I don’t think I have any real disagreement with you. The value of money is important as a method to equitably exchange useful goods/services that we produce with others that also produce goods/services. And I see no reason why fiat money can’t serve this purpose. What seems distortionary in an economy is when some people gain amounts of money many millions–even billions of dollars greater than they need for this purpose–and “money” gained with effort and financial tricks that “create capital” with no real contribution to what used to be called “real capital” that requires infinitely less effort per dollar gained than what the 95% of normal working people receive for their effort.
The example of crypto or fed printing in ways that result in “value” with no useful resulting human “real capital” being created is what I regard as a big problem.
To your question about alternatives: Important question. But I think there must be some better way than printing trillions of money that eventually somehow winds up as people’s possesed value with no corresponding human effort to produce.
The fundamental issue with fiat currency is “who controls the fiat, what choices do they make, and why?”
That power corrupts. Too much temptation. Too much hubris. Too vulnerable to Murphy’s Law.
So I was watching R.P. warming up the large audience prior to, I think, the second GOP Prez debate in 2016.
He said, “How many here are worth $5M?”
A huge cheer went up.
Then he said, “how many here are worth $10M?”
Not so loud of a cheer.
Then he said, “Awww”, rather sadly, followed by, “How many WANT to be worth $10M”
Again he got the huge cheer.
Just a true anecdote, take it anyway you choose.
The way I understand it is every real asset has to be matched with an equity or debt or combined ‘paper’ security. The problem is when the price of the paper doesn’t approximate the future income the real asset is going to produce.
When Fed creates easy money it’s very tempting to play the temporary asset price bump, but the price bump only lasts as long as the easy money.
Real tangible assets require no offsetting paper liability, of any kind.
Maybe a gold coin that is held at home.
Everything else of substantial value has a legal title that shows who owns it and if there are debt obligations there will be legal instruments recording that.
There are a few stock companies with no loans that the stock holders own the company outright without a debt instrument. All equity ownership divided into shares.
Anyway that’s my understanding from the first page of my finance book. But if you are saying the world is too leveraged I will jump on board that train.
Great podcast, Wolf!
Buy the dip is one thing, but as someone who DCAs – is it worth parking the money in short term treasuries at this point or is that what everyone says in a downturn then misses the bull run?
I believe the bull is dying a slow death. J. Powell the matador. Higher prices, higher interest rates and no growth. Welcome to stagflation IMO. The only beneficiary is the U.S. government.
I am so sick of people bitching about QT after years of enjoying and profiting from QE. Did these people think the party would never end? How short sighted. These things come in waves and cycles. The biggest problem in my mind is that QE lasted too long and people came to take it for granted. J Powell is doing the best he can to stifle inflation – which is a MASSIVE problem that people with plenty of money don’t seem to understand. I don’t love Powell but to crucify him because easy money isn’t easy any more is just childish. Matador indeed!
Could speculate on some gold and silver ,but premiums are rediculios on silver pretty high on gold historically
I DCA also. Might be a good time to do some deleveraging. Your return might not be great, but it is risk free. Obviously depends on your situation.
THEWILLMAN…
Buying short term treasuries is, basically, a way of waiting for long term treasuries to fully adjust for inflation. Then you convert short to long. It’s the strategy I’m using.
I’m not saying you won’t lose money in shorts – with 8% inflation you will. In fact, I wouldn’t be surprised if everything loses you money. With shorts you might lose the least.
‘…a way of waiting for long term treasuries to fully adjust for inflation.’
Thanks for the laugh.
I think the biggest deception out there right now is the Fed’s so-called 2% inflation target. Clearly, we will witness more than 20% inflation during the brief period 2021 to 2024, even by understated official metrics. Therefore, if the Fed truly has a policy of averaging to 2% inflation over time, it should be communicating an intent to run inflation below the 2% target for many years into the future.
If the Fed’s true policy is to stick to an average 2% inflation target except when times are tough, the Fed should be honest and admit that.
If the Fed thinks the 20% inflationary spike was acceptable and should stand without reversal, perhaps Fed leaders should not make statements suggesting they care about seniors, low wage earners, and people at the bottom of the economy. They just handed them 20%+ inflation and have plans to stack even more inflation on top of it.
I just game out my annual Christmas bonus to my lawn man who has been giving me great service for the last 3 decades. He’s doing all the lawns himself because his help has all been sequestered for holiday surge temp jobs. He told me he has lost over 30K in the Stock market mutual funds over the last year alone, but is confident it will all come back. What if it doesn’t? So now we have massive inflation and recession to great us for the new year with no end in sight. This is the reality on the ground.
Is your lawn guy also the shoeshine guy?
Swamp is JP Morgan reincarnated.
So we’ve now arrived at the point where bumper stickers will read “Support Your Local LawN Enforcement”? From a T-shirt Economy to the Weed Wacker E-Con-omy..so much “Progress” in so little time. Gee we’re doing great.
Good one!
> lost over 30K in the Stock market mutual funds over the last year alone
These were, I’m guessing, paper gains from the immediately preceding period, i.e., an irrational bubble, so he should be flat to about 2020, right? Similar to the runup in houses. Greed was driving people not selling out, cashing in, in an obvious wild bubble runup. Who bears those risks and responsibilities?
Maybe I’m just a grumbly guy with nobody to make weepy eyes at, and hit up for a holiday bonus.
These funds he lost were in a professionally managed 401K mutual fund. The best and the brightest on Wall Street. He is depending on these funds for his retirement. This sorry episode is being repeated across the USA by hard working self employed workers.
You Lemmings can play in the Wall Street casino. I have no at risk investments. I’m going into Sports Betting vs Wall Street. It’s just became legal; here in Maryland and DC and demand is exploding;. So far I’m doing pretty good. Made one $10 bet last week and cashed in $700. Picked 10 out the 13 NFL winners and the points.
Now he’s the DeNiro character in “Casino”…..sans Sharon Stone, unfortunately.
Hope you gave him a big, fat bonus for years of loyal service.
But we can buy treasuries at 4% ,best deal in town . We gave our wealth away via IMF .This will be ugly chaos,war. Who knows
I just did a back of the envelope calculation. Wolf says the SNB printed Swiss francs and then sold them to amass a $1 trillion foreign stock portfolio. There are 6.57 million Swiss citizens. That is $116 million per citizen — man, woman and child. They have been slowly selling down the stock. Suppose they recently lost 20% of the value, they still have about $94 million per Swiss citizen. This is batshit crazy. The Swiss may never have to work again.
Dan, you may want to recheck your math. $1T/6.57M = 152,000
I think your math is off by a couple of zero’s.
That must have been some envelope. $1e12 / 6.57e6 people ~ $152,000 per citizen.
Maybe it was one of those envelopes that the used car dealers send. Did it have scratch-offs all over it? “We’d love to give you a ten thousand dollars to trade in for your 1997 Nissan Sentra.” Don’t believe them, Dan.
Too funny & ironic the mention of a vehicle year, make & model in the reply;
I just stumbled upon & bought a used 1997 Nissan Altima, with only 50k on the odometer, as a simple, cheap get-to-school car for my 17 yr old son.
It is definitely a 50k car as the wear ‘n tear factor, plus overall mechanical performance, are just like it rolled off the showroom floor last month!
Maybe THIS time the vehicle won’t get totalled by an unlicensed, illegal, minor driving daddy’s overpowered Ford mega truck in the school parking lot!
price paid: $1,500
I have been looking at many replacement vehicles for him, but of course out here in the Greater Sacramento area prices are still thru the roof for anything decent, as all good vintage vehicles just vanish to south of the border.
I jokingly call this car “ the bean”.
He is not amused.
are you sure your envelope math is correct?
Not even remotely correct.
Supposing 20% loss, it’s 121,765 francs per person. That’s enough to cover a few years I suppose. It turns out that a trillion dollars split a few million ways isn’t a big number.
What backed the francs they printed?
Dan – $1,000,000,000,000 divided by 6,570,000 is around $152,000, so not a literal “ton” yet still 335lbs! (dollars that weigh about 1 gram each).
DawnsEarlyLight – Faith in Fiat, not to be confused with the Italian automaker owned by Stellantis…yet perhaps similar in theory to the Church of Scientology…HA
In 2021, Switzerland had 8.7 million inhabitants no 6.57 million
About $115,000 each
Franks are backed by trust. The trust of the rest of the world, just like the USD. Just like all other currencies.
The way I understand it all currencies are backed by the real economy being able to service the sovereign debt. Politicians can screw up and kill the real economy like in Zimbabwe or Venezuela.
In the Swiss case, it is the trust by wealthy people from all over that they won’t snitch to ANYONE about tax evasion, money laundering, gold taken from teeth, etc, etc.
They have been playing this rotten little game for a long time.
Yet, according to a relative stationed there for a couple years, they hiss at people who jaywalk.
A rather strange sense of right and wrong, no?
Backed by…hot dog buns, sauerkraut, and mustard?
Postwar, the USA (admittedly having done Marshall Plan, etc.) printed dollars for a long time postwar and sent them abroad for real assets. I remember the inflow of “cheap” imports, German and Japanese cars, etc.
That “exorbitant privilege” has allowed us to cash in on the US dollar’s faith-base for decades upon decades. Admittedly, we played a hefty part in saving the world (for our own system’s hegemony, yeah).
Why should we begrudge the Swiss for pulling it off once? Power to them. (If only they would stop being an offshore haven for criminality, right? But why actually have to work? On that: watch the UK, going forward.)
“Politicians can screw up and kill the real economy like in Zimbabwe or Venezuela.”
Or everywhere in 2020?
BTW, Calvinism was BORN in Geneva, so it’s all cool with God…..not a crime, but rather a “calling” from God…..although I’m sure they have no problem with Infidel or non-beliver money.
Calvin was having disagreements with a fellow Theologian over Biblical interpretation. He invited him to Geneva to discuss the matter. After a sham trial he had the guy burnt at the stake for heresy.
The Calvinist Biblical interpretation is extremely popular today, especially in how the US business community (or any extreme wealth) is viewed by most Christians.
Not to slam Dan because that’s been done but how many people do similar envelope calculations that are COMPLETELY WRONG?They then go on to make various wrongheaded assertions based on those bad calculations.
Never mind. My bad. Turns out your figure of $116 million per citizen was correct. But the actual population of Switzerland is only 8,620 souls. All of them yodel, so naturally, they all make cough drops for a living. I hadn’t realized what a boon to the sore throat industry COVID has been.
The Dow might rise to 35K area in the next few weeks.
20K is a better target ME.
1. Usually if you talk about an article in wolfstreet blog, its better to give the article link in the description below. This will increase blog traffic. Also give a link to the website.
2. Digital currencies including Central bank digital currencies have a future place in economy. But not each coin can have a value like $10,000.
3. Anyone short on binance or other klepto exchanges?
4. .A trillion here and another trillion there, now we are talking about real money.
5. Thank all those working during this holiday season. Malls, hospitals, stock brokers, cops, fire fighters and strippers…
LOL, CP, are you playing ME’s game?
I never saw CP and ME in the same place at the same time. Just sayin’.
Going to just buy srs, drv on weakness, market in bad place here, fed just killed cap rate algos and iyr heading to 60
Fed will break the stock market if it keeps going. Right now you can get a higher payout on a 3 month t-bill than our regulated utility which is considered a safety stock. If Fed goes to 5% in theory the value of that stock ought to be worth at least 20% less. Non dividend payers ought to be worth a lot less.
I read an article in WSJ on housing. In HB1, Home equity peaked at 15 trillion while mortgage debt peaked at 12 Trillion.
Right now mortgage debt is about 14 trillion while Home Equity is at 30 Trillion. Talk about the wealth effect. Mortgage debt is only about 15% while home equity is up more than 100%. Sure smells like a bubble.
Now during HB1 when the the bubble popped, housing fell 28% and millions of homes had negative equity. Home Equity fell to 9 trillion and mortgage debt dropped only dropped to 10 Trillion. Thus more debt than equity. Lots of people walked away from their houses….etc.
The article said we would need housing to drop 48% to create the same number of houses with negative equity as in HB1. I don’t think we will see that kind of drop though.
It’s really hard to say. We seem to be in a new place as central banks are tightening into a recession. Governments may not be able to bail out markets this time. Maybe we get a real bottom with homes at 3 times income and stocks at less than 1 times revenue.
It’d happen. Just wait. Housing is like a slow train and it has long way to fall.
Everyone who has vested interest, thinks, come what may, home prices wont fall a lot.
I think it’d fall a lot but only time would tell.
IN my hood southern calif, I see discounts galore although prices are still obcene,
Update on inflation in sporting goods. Remember 2020 and 2021, when sporting goods retailers ran out of bikes, skis, camping equipment, etc?
Today, in an effort to single-handedly crank up our lumbering economy and make sure we hit our GDP target, and to make sure that ecommerce sales go through the roof, I bought new skate skis, boots, bindings, and poles for the wife and moi. Turns out, everything was between 15% and 40% off. List prices seemed pretty high, but the discounts were big.
There were some issues in getting the right sizes of what we wanted and we needed to do a little switching. I ended up buying my boots from a different place because the first place was out of my size, but that’s kind of how it is. Also got a discount.
We tried to do this in the late fall of 2021 and they were out of a lot of stuff, so we gave up and skied one more time with the old stuff.
This confirms that the bottlenecks in goods have largely disappeared, and that demand has dropped from the ridiculous levels last year to something more normal.
However, no such luck with our services, which are going up by the double digits every time I dare to look.
Word in the bicycle industry is that sales are crashing hard. They rose 80% in the pandemic and are now below 2019 levels.
Bicycles are crashing? Treadmills doing face-plants?
PTON is down only about 90%.
IIRC, you do cross country. Seeing the same effect in downhill equipment?
I didn’t check downhill equipment.
I am in retail sales for residential equipment for last 12 years. Our business BOOMED 2020 and 2021 with families trapped at home looking for things to entertain the kids while being forced to stay at home. We had record sales… I knew at some point the record sales would drop. First started noticing the slow down late Spring 2022.
With record sales from all over the country came product shortages. All manufacturers, who mostly import from China, frantically ordered record volumes of product at record high ocean freight prices. The manufacturers now have a huge surplus of products sitting in warehouses and the demand has dropped to “normal” 2019 levels. Manufacturers are slow to reduce wholesale pricing, but I imagine that will come 2023. Product prices on some items have shot up 40% or more in less than 2 years. Cannot sustain these prices.
No complaints on the slow down from 2 record back to back years as I knew it was coming sooner or later. It will be interesting to see what next year brings.
At work, buying electrical/electronic stuff, I’d say the supply situation is much better, but it’s still not close to normal.
Just curious – where did you buy all this? (presuming all in one place). I recall when I was shopping for only skating boots (Salomon) it took me some time to find (eventually found in REI).
A place in Utah and a place in Michigan. Both come up when you google them. I have not had any luck with REI. The Utah place I did business with before. They had everything except the boots my size. I’m not brand-conscious. If this brand doesn’t have the right size, I switch to another brand. They have great phone service if you have questions, which I always have because this stuff can get complicated.
But last year was a nightmare and we finally gave up.
Thanks for taking the time to respond.
Having read the initial comment, it sounded like a regular supermarket shopping visit (at least it was my 1st impression).
Then I said to myself: wait a minute… :)
Wolf,
You and your wife will have a great time skiing with the new gear. Congrats & enjoy!
And commenters, please do not mix the two words: bicycle & crash. Thanks …
I bought an expensive ebike for 67% off msrp, top of the line.
Yes, discounts galore everywhere. During its peak last year, dealers were selling this above msrp.
I am sure, in next few quarters, we’d see similar discounts in housing as well.
What did you buy and how much. You had it out for a fun trip yet?
AAPL dribbled down, closed Nov 9/10 gap, took out the last 26TD Stop
Losses on a large volume, above June 16 close, for fun with Ariel Ortega.
This doesn’t particularly tie into what you wrote.
I too read an article recently…from the NY Times… by a Stefanos Chen, that had a graph that seemed noteworthy. (early November, 2022 I believe). I just checked, its titled “The Housing Market is Worse than You Think”.
It showed the number of home listings for sale going back decades. There were approximately 3M listings around 1986, 3.4M at the height of HB1 (2007), and only 1.1M in August 2022.
Per the graph it looks as though listings got as low as approximately 800,000 in 2021 to early 2022 and have been increasing since to the 1.1M as of August 2022.
The author points out that our population is 40% greater than in 1982 making the diminished number of listings all the more significant.
I guess as home prices shot up few wanted to sell (ride the rocket). Now as prices level off or fall more apparently are trying to sell (?).
The author, Mr. Chen, is referring to “single family housing “. So I don’t believe this would include apartments for rent.
I only point this out because I sometimes am uncertain what is included when someone refers to “housing inventory “.
I believe Wolf had an article recently pointing out that apartment construction was as great as it has been since the 1980s (I believe I read elsewhere this is likely to cool off in 2023).
I believe I’ve read SFH construction had made a comeback from its 2012 (?) or so lows but has turned down (nationwide) for a few months.
I live in Washington state. There was an advertisement today on TV about our state being rated worse in the country for providing affordable housing. I didn’t catch the name of the organization that was behind this rating, just that WA was #50.
Here is what a friend of mine told me a few days ago — and this is the kind of thing that keeps inventory for sale low: people bought a new home but didn’t want to sell the old home, and now they’re stuck because prices have dropped and demand vanished, and one of those homes is vacant, and they’re having trouble financially. So that vacant home will show up on the market, either for sale or for rent.
This is what my friend said:
They put their home of 30 years on the market in March in Portland, OR. Got two bids. One bid vanished. The other bidder made a deal, but mortgage rates were rising, and there were delays in getting the financing because the buyer didn’t want to sell the old home, and mortgage rates rose further, and my friend ended up having to cut the price by $35,000 to keep the deal together (there were no other bids). The deal closed in May and my friend walked away with a bunch of money.
But the buyer never sold the old home and now cannot afford both homes, and put the newly acquired home on the rental market, where it has been languishing for 6 months — advertised, so my friend can check out the progress, and it’s still on the rental market, likely because what they could get in rent isn’t nearly enough to pay for the mortgage.
At some point, barring a miracle, they’re going to sell the house and take a big loss, or let the lender have the house and deal with the consequences. This is happening all over the place. I’ve heard lots of stories like this. And you can see that the single-family rental market has cooled down a lot, with more than ample supply.
So be patient. Housing takes many years to go through the cycles of a bust.
Yep, one of my idiot neighbors that bought last year sight unseen just found out he has an 8 month work assignment elsewhere and his plan is to keep the house in the hopes that they will come back some day. Just had his 3rd kid, all under 5 too I think. They’re going to get crushed guaranteed as they overpaid by 25% probably.
I agree. Housing is weird because (a) it’s purchased primarily for consumption, (b) prices are not nearly as volatile and (c) the market seems to be influenced more by the narratives.
You didn’t have to be a genius to stay away from housing in 2005. You just had to read the Economist. (“After the fall”, 6/16/2005). But that didn’t mean you saw a crash right away. It took two more years for that to begin kicking in and years more before you saw a bottom. Plus that one had a lot of overleverage by lower-middle, sketch loans, and a rough recession to create some momentum when it started getting going.
This one seems fueled by pandemic/WFH needs pushing the middle and up to buy more space, whether it be from moving from MFD to SFR or buying a bigger SFR. Add to it some, potentially temporary, geographic arbitraging, and you can see why a temporary demand spike with a temporary spike in borrowing power led to a spike in prices. But these guys may be able to service the debt, so while some declines seem baked in, it might be more of a housing having shit returns for a long time rather than 2007+ collapse in pricing.
The home right next to me cannot even be rented. It’s been vacant for 6 months and is falling apart. They put the rent at half the normal market rate (rent offered at $2,500)/month and it still can’t be rented. Meanwhile new home are selling for 1.5 to 2 million right around the corner. Everyone that comes over to look at it walks in and walks out with no bites. The pictures on the Internet make the place look like palace. WTF gives here???
The rent is very very cheap $2500/month in a neighborhood where home sells for $1.5million+.
It means home prices have much more to fall
That’s wild! I’d guess it’s because the home might be less attractive to the would-be renter, who has plentiful options in more desirable locations.
In my opinion, MFD Buyers/Renters != SFH Buyers/Renters. There is some substitution, but generally MFD folks often will trade space for location/price. They also are way more price sensitive, with lower incomes and assets. Finally, they likely missed out from the gains from the last round of asset prices going up, or simply didn’t make enough to justify increasing their spend to $2500 / month for housing.
Easy solution, just find 3 renters that can agree to live together.
833 a month is still doable and your are at $2,500 a month less utilities. The problem is that all 3 renters need to qualify and if 1 walks, the other 2 and/or the landlord will need to pick up the missing rent.
Creative housing solutions will be required, if not expect the homeless populations to swell.
Incarcerate the homeless and then raise taxes to pay for it all.
If this things play out that way, soon, we will all be swamp creatures.
First thought is the place looks nice in pictures, but the pics are retouched. In reality the place is clearly flipped into a Landlord Special: it smells, the water is a nice rusty brown, evidence the basement floods, etc.
Maybe the landlord is creepy or making absurd demands in the application process or lease.
Perhaps the price is too low and seems like a scam, or very much is a scam.
To clarify, comparable homes to the home next door, sell for $825 to $900, not $1.5m to 2m. Still doesn’t explain the low rent. $2,500/month. A rambler around the corner is getting $3,800/mo rent.
Note, the crooked property manager gets 25% so the owner a$shole in Iowa gets less than $2,000/month. WTF?
I’d say you’re answering your own question. They may be desperate to get it occupied, but something is very wrong in that palace. Perhaps costs an arm and a leg to heat.
Or maybe the landlord isn’t looking to gouge. It happens. Had a friend paying $900 for a nice, 3 bedroom brownstone in Brooklyn for years, because the owner/landlords were old hippies who owned it outright and despised the gentrification of the neighborhood. Talking about finding a diamond rental.
But likely, the house/landlord situation is an obvious hot mess to all prospects who view it. Tenants who rent houses aren’t stupid, mostly.
So any idea what the SNB going to do with all the dollars they got when they sold all that stock? It’s only a form of “quasi QT” if they don’t reinvest it in another asset in the US like housing.
It’s the reverse process from what they did when they got into it:
Back when they bought the stocks, the SNB created francs, sold them on the foreign exchange market for dollars, and then used the dollars to buy stocks in the stock market. They did this to keep down the exchange rate of the franc that was trying to rise.
Now they sell the stocks for dollars in the stock market, then sell the dollars in the currency market for francs, and then they destroy the francs (opposite of creating them). They’re doing this to stabilize the franc, to keep it within the exchange-rate band and keep it from dropping.
“These thirteen (13) years of free money have turned out to be very costly afterwards as we can now see. On the positive side, this process provides a much needed cleanup of the mind boggling messes created by free money.”
Excuse me? Last I heard, Ben Bernanke, architect of the mind boggling mess – now unwinding – we refer to as the ‘Wealth Effect’, was awarded the Nobel Prize in economics. I wonder if his sequel, the soon to be published ‘Negative Wealth Effect’, will be a similar runaway best seller. I hear from friends, hawking the movie rights, the action scenes are even better than the original (filmed with a new ‘Distraction Effect’ technique). When will then be now? Soon.
Sounds like Congress is going to pass a substantial spending bill in the lame duck. Maybe the last big one for a while. More stimulus while Powell runs up interest rates. Going to be a head on collision between fiscal and monetary policy is 2023.
Continuous war and open border going to come to a head during next recession. Interest to service the debt heading toward $1 trillion. Hopefully society can keep it together when free money goes away.
The Republicrats won’t stop printing until the roof truly caves in. And when it does, guess what their tool is? More printing. It’s not like their going to take off their Gucci loafers and get our and plow the fields or build houses now, is it?
Out of curiosity where do you live? Open border is complete nonsense. The actual border where I actually live looks like the freaking DMZ between North and South Korea. The only open border is in your fevered manipulated imagination.
So are all of those people walking across the Rio Grande River from Mexico into Texas merely actors hired by Fox News?
They are CGI. Computer generated videos they bought from China. Trump ran an ad in 2016 which showed the same thing. Illegals crossing the border. At least he used real video archives, only they were not on the border of the USA and Mexico. They were in filmed in a province of Mongolia or somewhere like that. It was a very effective attack ad and help get him elected.
“CGI”. You probably think, those migrants bussed by Texas and Florida are also not real… well let me assure you, i personally saw them exiting buses and getting settled into local hotel located in town next door to where i live.
Could all that be exagerated? Maybe, but stating its CGi is ridiculous.
Escierto, Object Permanence is an important cognitive ability of small kids, to understand things they can’t personally see, still exist.
Yeah, sure.
All those 4 to 5 million people that have moved across the border are made up.
Just like the mayors in the big cities aren’t screaming about how they are running out of money as a result of the increase in immigrants in their cities.
Got to hand it to you people – you never stop with the lies.
The bill contains 100 billion in corporate tax increases. That should help increase the supply of goods and services and lower inflation.
Reminds me of a joke.
A man jumps off the top of a building. All the way down he keeps saying “so far so good”.
Inflation, right here, right now, why?
Are things really that different than they were say 10 or even 20 years ago? King dollar was supposed to have died years ago, along with it’s reserve currency status but here we sit.
Shrinkflation and asset inflation have been around for a long time but largely ignored/rationalized away.
Covid happened, supply chain disruption occurred, world economies amassed staggering debt. Running trillion dollar deficits is not even discussed, just let the Fed do their thing and everything will work out just fine.
The reactionary stance to inflation being taken by central banks and governments in general is all that I see.
“I have no idea how we got here but this is what we are going to do about it?” This response is not acceptable to me.
Acknowledging a problem like inflation and outlining the steps you hope will resolve the issue is a relatively easy process.
I want answers and I can handle the truth!
Excellent post, Wolf. Thank You!
Funny thing about this wealth effect….when I look around most people are living good. When I was a kid, early 2000 I remember people struggling. Everyone now has an iPhone, heat, uber eats etc. I don’t totally get it…
Hey Wolf, Love your coverage of the debt bubbles. Your recap of the SNB was very eye opening. I found this 2017 article from Forbes about the SNB The Swiss National Bank Owns $80 Billion In U.S. Stocks https://www.forbes.com/sites/johnmauldin/2017/06/22/the-swiss-national-bank-owns-80-billion-in-us-stocks-heres-the-catch/?sh=4794b7e55362
The article foreshadows what’s happening today….the Minsky Moment..The Great Reset.