Fundamentals for markets have boiled down to QE or QT since 2009. Now there’s QT, a lot of QT, globally, to battle the worst inflation in decades.

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  140 comments for “THE WOLF STREET REPORT: Stocks, Bonds & CRE Face QT

  1. ReaderInJapan says:

    Ah, finally a Wolf Street Report, it has been a while so really enjoyed it. Glad you mentioned the $2T budget deficit. Always wondering how much that negates the effects of QT since it is almost double. Thanks for your work Wolf, it’s like a jewel in the junk yard.

    Have you ever considered doing a quarterly on the government’s income/expenses so your readers have a better understanding of it’s inflows and outflows? This data not covered much that I am aware of besides the MTS.

    • Wolf Richter says:

      I regularly cover the debt with my “out-the-wazoo” charts, and I cover quarterly the interest payments as percent of tax receipts.

      The budget is kind of a funny thing. It’s not based on cash accounting, but some sort of accrual accounting. For example, student loan forgiveness with the stroke of a pen increased the budget deficit. But when a big part of that forgiveness plan was scuttled, that amount was then removed from the deficit.

      But the increase in the debt (minus the TGA balance) shows the actual deficit spending on a cash basis. Government accounting cannot distort the debt.

  2. rodolfo says:

    What will October and the 4th quarter have in store for us?
    Stay tuned here for the best analysis and commentary.

  3. rojogrande says:

    Is the stock market a “market” if QE and QT dictate how it performs? If the Fed wanted control it got it, but now it’s responsible for the consequences. I do understand this doesn’t mean much in the post-accountability era.

    • phleep says:

      Money and credit supply is a vast factor. If it is not regulated as it is, who or what will do it? It must be regulated by someone or something. “Set and forget” constraints, like a gold standard, historically resulted in breakdowns of their own kind too, sometimes big and lengthy (1847, 1893). “Accountability” is a nice term, but, to whom? To what interests, because it will be to some finite set of interests. Do you want that to be Congress (with the wonderful functioning it is showing), or the ever-wise masses in the streets? What would they vote for themselves? Can they even collectively discern their long term best interests in money and credit supply? I’m not saying I have clear answers; with due respect, I’m not sure they exist, at least framed this simply.

      • medial axis says:

        I suspect if the ever-wise masses had a say in it they’d likely not vote for their hard earned money to lose value year on year. Likely much prefer stability. You know, 0% inflation for instance.

        • Wolf Richter says:


          The Fed cannot “control” the market like you can control your car as you wind your way through a congested city (it doesn’t buy or sell stocks).

          But it can inflate prices or deflate asset prices in general terms. It can create huge amounts of speculation, and it can wring the speculation out of it. It can encourage share buybacks with borrowed money (0% interest rates), and it can make share buybacks nearly impossible with borrowed money by pushing up interest rates to 8% or whatever. High interest rates also push zombie companies over the cliff and into bankruptcy, and we’re seeing some of that now. If they have publicly traded shares, it shows up in the stock market. M&A gets much tougher with high interest rates – and M&A is a big driver of stock prices as well (remember the merger-Monday mania during QE?).

      • Hellzapoppin says:

        Markets should set interest rates. The FED has historically been behind the curve and created most of the problems it tries to solve. Bond vigilantes play an important part in keeping credit tied to risk. The FED has gone overnight from ZIRP and NIRP to interest rates that still do not compensate bond investors from inflationary risks.

        • Rob says:

          @Hellzapoppin – the same Markets which have been craving fed pivot over the last year or so?

      • Not Sure says:

        Phleep, that’s a fascinating question… Who should be in charge of the money supply? Maybe nobody should. I’ve often thought that a PID control system would do the trick pretty well. PID functions are used for all kinds of digitally controlled systems we depend upon from thermostats to autopilot. We see this type of control strategy anywhere equilibrium is needed. It would be a system that monitors and automatically reacts to the volume of change (proportional), accounts for history of change (integral), and includes the rate of change (derivative). Seems like a match made in heaven for the Fed’s duties. It’s super effective, simple, and cheap enough to be used by counter-top appliances. Set and forget, but not static like the gold standard. It would add and remove liquidity at just the right rate and volume far faster than a human institution could ever hope to react.

        Unfortunately, such a system would probably be far too effective and not nearly corruptible enough to work for our current power brokers, so they’d never let such a system be implemented. Or if they did, they’d punch it full of back doors to serve their own purposes, rending it useless.

        • longstreet says:

          Who should control the miney supply?
          if one looks at the intent of the constitution, then one can determine that the intent was for Congress to control the minting of money.
          of course, tangible money was the only form of money at that point in time.
          It might be a frightening thought to have Congress in control of the money supply, but at least they are subject to elections and voter review.
          The current situation allows none of that

        • grimp says:

          good comment – I can only guess they have been trying this massive MIMO monetary control system with their fed models for a long time (like as soon as control theory was being applied). Assuming a siso pid (input=target inflation of 2%, output= measured rate), the problem is in tuning the gains when you are dealing with massive time lags, deadband, and variable damping. This dynamic system doesn’t respond to inputs right away like many physical systems. So we end up with them saturating the inputs without appropriate antiwindup… And then “way overshoot” the target and induce instability. The fed kinda admits this with their “long and variable lags” disclaimers. But this point in time is worrisome in the fact that they pegged the inputs for years (low rates, qe) without a response and now suddenly the system responds…

      • John H. says:


        I’ve always been intrigued by the writings of economist from the 1950’s, Machior Palyi.

        He had this to say on the 1800’s versus Post Federal Reserve Act era:

        “The contrary impression [contrary to contemporary view that the gold standard era was more unstable than the Fed era] is conveyed by the semantics in recent literature dealing with past business cycles. More often than not, cyclical downturns of the pre-1914 decades have been catalogued as ‘crises’ and ‘depressions,’ whereas more recent occurrences of similar intensity have been presented as only ‘recessions’ or ‘setbacks.’ In reality, the annual index of manufacturing production even in cyclically vulnerable United States, going back to 1860, never showed a decline of as much as 20 per cent until 1920-21!”
        – Melchior Palyi, The Twilight of Gold, 1972 (published posthumously, sadly)

        Both systems included periodic “instabilities.” But a comparison of gold standard era to central banking era shines favorably on the former as far as economic growth and severity of downturns are concerned.

        The gold standard also led to balanced budgets and relatively benign levels of federal debt.

        Fractional reserve banking and inflationism are not sustainable in the long run.

        • Gunther says:

          Did something happen a few years before 1920??
          Say a world war and unprecedented money printing by a newly created central bank to finance it?
          If tose extraordinary events are left out the observation becomes useless.

        • Escierto says:

          It’s all how they spin it. The Federal Reserve wants to be seen as some kind of Guardians of the Galaxy financial superheroes. In fact they are a bunch of academics with little real world experience running anything who have created a Rube Goldberg financial system.

        • longstreet says:

          And while we are quoting pre Fed….
          “as predicted by Alexis DeToqueville
          “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world’s greatest civilizations has been 200 years.”

        • Aristas says:

          The other beauty of hard money is that it limits suicidal exponential growth. If we were still on hard money, we wouldn’t be at 8 billion mouths to feed, for which one Earth is no longer enough. One billion is the max, everything else will be paid back.

        • Happy1 says:

          Gold standard is the only way we can rein in government spending. Our Constitutional form of government was predicated on hard money and the current monetary regime is near failure.

        • Chronic says:

          Oh the days of even a fractional percentage backing by a real commodity like gold. Now it’s simple key strokes on a computer system in the basement levels of the Fed. Adding zeros digitally. The technological magic trick of exchanging 1’s and 0’s on high speed silicon waffer chips. Nothing to see here folks, move along. Yes, add two more zeros, that aught to do it. Now off to the bond auction. QE/QT…we’re controlling the “money supply” people. Don’t ask questions. You can’t self manage. We’ve taken all the managing on for you. Just add those digital zeros on demand. Or take them away. OK now add them back.

          Is anyone keeping a paper copy in case of an EMP? Shit, an EMP would be the Feds wet dream with an 8 trillion balance sheet right now.

          No, we are never going back. Not even to a fractional backing of some real world commodity. Gold? Ha. Hey look 33 trillion in gold exactly nowhere. Even a basket of commodities? Oil, metals, grain even? A fractional basket? No sir. Not even that. Not 1% of anything. Just our precious unlimited key strokes and digital zeros on demand.

          We’ll go the way of Rome. Just like Tocqueville predicted. We’ve passed the 200 year mark already.

    • Petunia says:


      The capital markets were always controlled by the lenders. They behaved when they had skin in the game, as owners/partners, because they had to to survive. Ownership also gave them opaqueness, when they took risks for fees, it was largely hidden. They knew, when underwriting bonds, the real financial condition of the firm, they had to know.

      But now, they are playing with your money(401K) and they know you are not paying attention. Even when they “tell” you in the notes how bad the risk is, they know you don’t have a clue. They depend on your lack of financial literacy and attention. Do you really think Bear Stearns and Lehman Brothers didn’t know what they were doing with YOUR money? They always knew.

      The intervention of the fed is largely a function of the public nature of the capital markets as they exist now. The capital markets are global now and everything is bigger and faster. The fed is trying to control the flow of money internationally and it is a hard and dangerous game. Who knew?

    • The Real Tony says:

      They tell you profits go up when interest rates fall but the same broke people make up 70 percent of the spending under QE or QT. Profits have been falling since the 1981 recession worldwide. Devaluating currencies and inflation just mask this fact.

    • kramartini says:

      The Fed does not control the relative prices of different stocks nor who decides to buy or sell and thus reap the gains or suffer the losses.

    • Oui oui says:

      Big red,
      Clearly you remember tarp, qe, and all the other ‘tools’ in the feds ‘tool box’. I remember bernanke talking of doing money drops from helicopters if it wanted to almost every day to stimulate things. The unbridled arrogance. I surely do, as before these programs, I was killing the market with puts, because I did my homework. As we all know shorts do gawds work, they clean out the trash so cleaner better run companies can pick up the pieces in bk of those not run so well, and make things better in the long run. Then came the fed ‘fixing’. Now we’ve got hundreds of companies with negative equity value.zombies if you will that are propped up with borrowed money. Never earned a dime. Fill up this credit line, no worries get another. But the zombies did one better, they took borrowed money, and bought back stock so their stock prices would sky rocket and insiders cashed out. What a job?
      I agree completely with your comments about the fed and ‘free’ markets. This entire market has been so nurtured and coddled by this institution since 2008, that in my mind the fed now owns this Frankenstein they created. They wanted this control, they drove down rates, and held them there, and by gawd they got it. The pendulum swings in both directions. For every action there is an opposite reaction. Break out the popcorn.
      Hey fed, you made your bed, now sleep in it.
      Eat that shit sandwich you created. Good luck.oui oui.

  4. Chris_Mr says:

    Thank you for sorting out the audio / preventing the distortion.

    It was a pleasure to listen to.

    • Wolf Richter says:

      Just to make sure:

      The WOLF STREET REPORT here today is my own podcast where I control everything. In other words, everything is my own fault. It has been sounding about the same ever since I started it a few years ago (2017 or 2018?).

      The Howestreet radio show that I also post here are interviews conducted by Howestreet, where I call via Skype in to telephone equipment on their end, and I control nothing. It’s their podcast, and their equipment, and their interview, and I just answer the questions. I don’t know why they still use telephone equipment, which always creates lousy sounding shows. Some of their guests call in by phone, and that’s even worse.

  5. Ian says:

    If stock buybacks were well over $1 trillion in 2022, having grown to such a peak since 2009 when the annual amount was a ‘mere $100 billion (as it was in 2000 before the spike to $650 billion in 2007 and then fall back to $100 billion in 2009), and since this has been stated as now representing 40% of stock purchases, it seems that QE possibly allowed companies to buy back stock using not only from a huge part of their profits but also through QE borrowing at very low rates. The disappearance of low rates looks like it has already caused the buyback bubble to start to deflate to around $600 billion a year.

    The combination of buybacks and dividends means that companies are only spending a tiny amount of their profits on company investments. One report stated that the stock market is 40% too high because of buybacks. If companies are relying on existing means of profit & QE to boost their share prices, how long before that becomes played out. Sooner or later it looks like a big ‘adjustment’ is coming.

    • Petunia says:

      The Dow is 3-5X overvalued:

      33500/6500 = 5.15

      Current Dow divided by low of March 2009, when they started to pump. I’m allowing some wiggle room for actual growth.

    • Einhal says:

      What will cause it to reverse is if companies need to raise money (to pay back the debt they incurred during ZIRP) and they can’t do it in the debt markets, and are forced to issue new stock. That’ll be the equivalent of undoing the “buybacks.”

      • AD says:

        S&P 500 is up about 25% since February 2020 highs yet inflation has been about 20% since then.

        So if it drops some more, its real return will be 0% for the last 3.5 years.

        • Einhal says:

          Yes, but the February 2020 highs were absurdly overvalued, but at least they had the ZIRP/TINA to fall on there. They don’t have that now.

    • The Real Tony says:

      The rule of thumb is the DOW is not worth 10,000 on its best day of the year.

      • longstreet says:

        The guy who wrote the book “Dow 20,000” when the Dow was 10K might be right TWICE.

    • kramartini says:

      40% percent too high compared to what?
      Mostly likely the comparison is with a base case where the money used for buybacks was distributed as dividends.
      Essentially a share buyback program is a “choose your own dividend” program whereby some shareholders can cash out their profits while others can allow those profits to be reinvested instead of everyone being forced to cash out their profits via a larger dividend.

    • Wolf Richter says:

      Share buybacks have already dropped this year. In Q2 2023, share buybacks were down 20% year-over-year.

      High long-term interest rates make buybacks very expensive for companies that have to borrow money (issue bonds) to fund the buybacks. These cash-poor companies are having to dial back their buybacks. Cash-rich companies now decide whether to earn 5.5% on T-bills or spend this cash on buybacks.

      • kramartini says:

        It should be noted that there is a limt to how much cash rich corporations can salt away in T bills before they run afoul of the IRS and are hit with the Accumulated Earnings Tax. Share buybacks are a way to avoid this punitive tax but now come with a new tax on buybacks.

        • Wolf Richter says:

          LOL, this is based on retained earnings and is only an issue when retained earnings are huge in relationship to the company’s size.

          From the IRS:

          Liability for the accumulated earnings tax is based on the following two conditions:

          1. The corporation must have retained more earnings and profits than it can justify for the reasonable needs of the business

          2. There must be an intent on the part of the corporation to avoid the income tax on its stockholders by accumulating earnings and profits instead of distributing them.

          For example, Intel has $100 billion in equity, no problem, and stopped buybacks because it needs the cash for new chips and to build plants.

        • kramartini says:

          You have changed the scenario. A company with profitable investment opportunities such as Intel should not be deciding between t bills and buybacks but should invest in plant and equipment.

          Over investment in T bills would be evidence of an intent by the corporation to avoid tax. At some point the cash needs to be invested in operations or acquisitions or else timely distributed via dividends or share buybacks or maybe debt repayment.

      • Harry Houndstooth says:

        Simple, pure, unadulterated wisdom served up fresh daily.

        It doesn’t get better than this.

      • DaveCz says:

        Lots of tech companies (DDOG, CRWD) with massive stock based compensation equaling a majority of their operating cash flow. With buybacks waning the float grows. Without SBC their “free” cash flow goes kaput. Worth an article Wolf.

  6. Prince says:

    Less buybacks is due to higher rates and financing costs.
    More QT is alike but different : more and more supply of government bonds at higher rates. It will affects the structure of money flows in markets with more investments to bonds and less to equity.

    • Apple says:

      Companies are also now taxed at 1% on buybacks.

      • Einhal says:

        Which is not even close to enough to really discourage the behavior.

        Think about it. If a company is buying back $1 million worth of shares that are $100 each, that’s 10,000 shares. With a 1% tax, let’s say that they have to pay $1,010,000. So that’s the equivalent of the shares being $101 in actual cost to buy back. Stock prices easily move 1% in a day anyway.

    • AD says:

      True, and its part of the economic cycle.

      I’d buy Vanguard’s Total Bond ETF (ticker: BND) soon to take advantage of the interest rate reduction part of the cycle.

      For every 1% drop in interest rates there is a 1% increase in the price of the bond for every year of duration, so a 1% drop leads to a 4% increase in the bond value or price if it has a 4 year duration.

      Seems like they want a recession this year and a recovery by next summer leading into the election.

      If a recession starts next spring, there is not enough margin or time to tout a recovery starting a few months before election day.

  7. Brendan says:

    To the bitter end.

  8. Chinedu says:

    Since investors enjoyed QE era of ballooned stock prices the QT era complements the physical law of Actions and Reactions are Equal and Opposite.
    Thanks Wolf for easy to listen and understand Podcast

    • longstreet says:

      Indeed. In physics AND economics.
      Alchemy and optics.
      As Powell once said, “perception is everything”.

      But perception is ephemeral.

  9. spencer says:

    “The Federal Gov’t is the biggest drunken sailor!” Well said.

    • Nat says:

      Agreed, though I think its worth pointing out that it is not merely the biggest drunken sailor, but one of the most drunk as well.

  10. Citizen AllenM says:

    So many people hold vast assets and want to be assured that their assets will increase forever. Trees don’t scrape the lunar regolith. What was as avoided in the aftermath of the great recession is now baked in the cake.

    The unaffordable housing problem will be solved by either much higher wages or lower asset values and rents. The Fed has chosen the latter, so first movers and those who can stomach much higher run rates will win.

    The biggest part of this is going to be the transmission of asset deflation through higher interest rates to the rest of the world in the dollar system. Remember the international debt travails of the 80s and 90s? Coming back with a vengeance.

    • Pius says:

      The Fed *pretends* to have chosen the path to deflated assets, *but* in practice that is not possible without pain. Pain avoidance is literally the reason the Fed exists, by law – to avoid financial instability and high unemployment. In practice, circumstances have dictated larger and larger instabilities and massive wealth tranfer to the rich, because the system is set up to funnel wealth up.
      If the Fed creates deflation and massive unemployment, that would literally be illegal. Not to mention the monetization of record financial spending.
      The end game is more, much more $$ confetti, once they get sufficient political cover (pain). Until then, take cover in the $$ until something finally breaks. Powell cannot be Volcker.

      • Einhal says:

        The Fed can’t prevent pain. All it can do is transfer the pain to other people.

    • dishonest says:

      “much higher wages”
      We are amused at the very suggestion.

    • Pea Sea says:

      “The unaffordable housing problem will be solved by either much higher wages or lower asset values and rents. The Fed has chosen the latter, so first movers and those who can stomach much higher run rates will win.”

      At this rate, those first movers have plenty of time to make that move–asset values are as high as they’ve ever been and rents are declining at a snail’s pace, with many miles to go before renters’ purchasing power even approaches its level from before the money printing orgy.

  11. Mike R. says:

    I don’t see housing dropping substantially in price. Prices are sticky. But I don’t think it will continue to skyrocket either. And new house construction will stall in the middle value area (too expensive to build). High end and multifamily will continue to see support.

    I predict that the Federal government will step in with greater housing subsidies for those unable to afford rent/purchase. This of course will add to the deficit.

    “All things housing” is slowly coming to an end. That includes the past decades of mania surrounding remodeling; most of which was driven by ego and rising prices. But it will take time.

    Finally, as I keep saying, the black swan to keep an eye on involves faith in the dollar throughout the world. To keep that strong, the Fed will keep interest rates where they are, even when inflation subsides further. This will also gradually pressure Congress to reign in spending and deficits as interest costs on the debt are reaching noticeable
    /alarming levels.

    • Bobber says:

      There is a correlation between stock prices and RE prices. RE prices follow the stock market with a lag. I think QT will have the biggest influence on stock prices and, hence, RE prices going going forward. Add in the rising LT interest rates and investor sales, it doesn’t look good for housing prices the next several years, assuming QT continues.

      But continued QT is no given. The Fed has a tendency to panic in times of stress.

    • Flashman says:

      How do we house two million new residents a year? It must somehow but a floor under tents over the medium term.

      • Flashman says:

        Put & rents

      • ru82 says:

        It is unbelievable on how many mega-apartment complexes are being built in my area. A new 700 unit was just announced.

        Either you new $600k to $850k home is being built or a mega apartment complex. Nothing in between.

        • Ethan in NoVA says:

          Mega apartment complexes usually price fix to each other using collusion-as-a-service platforms (Guidestar.) Not sure the new-comers will pass the credit check to pay $2300 a month for a fresh new apartment in a rapidly constructed 5-over-1, though maybe the apartment construction companies know something we don’t and the government will step in and pay their rents? Or always if you pack enough in and split it between friends the rent becomes more affordable.

        • ru82 says:

          @Ethan – One thing that is interesting is in my city, new apartment permits require the apartment complexes to allocate 15% to low-income tenants.

  12. Micheal Engel says:

    1) US gov has fatty liver and insulin resistance to higher debt.
    2) The “man of the house” might kick the debt ceiling twice to hunt Biden from a closer range.
    3) The Real Disposable Income tsunami is over. It started in Mar 2020
    and lasted until Mar 2021. The Financial Anti Regulatory Act of 2006
    enabled it. Oct 2008 was a test.
    4) There might be an inverse tsunami, m/m seasonally adj annual rate, when the upper middle class will be depleted out of their assets and arrogance. A System Control with a negative feedback loop might send them down. Bubble up/ bubble down. A Shooting Star and a Hammer.

    • rojogrande says:

      I think you mean positive feedback loop. Negative feedback loops help maintain a fairly constant level within the system. Positive feedback loops accelerate or amplify a change. The “change” a positive feedback loop amplifies can be “negative” which often leads to confusion about the terms.

      • vecchio gatto veloce says:

        “Negative feedback can reduce the total quantity of distortion, but it adds new components of its own, and tempts the designer to use more cascaded gain stages in search of better numbers, accompanied by greater feedback frequency stability issues.”

        “The resulting complexity creates distortion which is unlike the simple harmonics associated with musical instruments, and we see that these complex waves can gather to create the occasional tsunami of distortion, peaking at values far above those imagined by the distortion specifications.”
        -Nelson Pass, Audio Engineer, 2008

        The “feedback loop” of interest rate suppression and “free money” by the Fed worked quite well for years and years. It helped increase wealth inequality. And it helped allow corporations to buy back stock by borrowing at near-zero interest rates. These were the desired effects achieved by the financial engineers at the Fed.

        But these feedback loops also helped trigger inflation to go back up to levels not seen in the USA for decades.

        Complex waves have gathered …

        • 91B20 1stCav (AUS) says:


          may we all find a better day.

        • rojogrande says:

          “Positive feedback occurs to increase the change or output: the result of a reaction is amplified to make it occur more quickly. Negative feedback occurs to reduce the change or output: the result of a reaction is reduced to bring the system back to a stable state.” See “Positive and Negative Feedback Loops in Biology”

          The way I see it, interest rate suppression and “free money” were intended to amplify asset values and the wealth effect. It created a positive feedback loop by encouraging investors to engage in the so-called “chase for yield.” I don’t think QE was intended to reduce distortions in the financial system in order to bring about greater stability. The financial engineers at the Fed weren’t trying to reduce the quantity of distortion like the audio engineer who lost control of the complex waves creating a tsunami of distortion.

          Perhaps we’re looking at this from two different perspectives. I’m focused on the Fed actively creating conditions to manipulate asset values higher. Something they were successful in accomplishing. On the other hand, you’re focused on the benign impact on CPI for a long time to indicate the system appeared stable on the surface while the Fed engaged in ZIRP and QE.

        • vecchio gatto veloce says:



  13. Dennis says:

    Wolf, what should a reasonable level of stocks be? Currently the spx is selling at a forward pe of about 17 if one assumes the earnings will be $250 in 2024 (according to Ed Yardeni’s research).

    • kramartini says:

      1/17 = 5.88% implied return (before taking into account future earnings growth which might or might not occur).
      I prefer my SNAXX money market fund at 5.38%…

      • andy says:

        Wish I had dogs of the dow fund in my 401K. Stark separation between haves a have nots these days. Verizon, Intel, Dow, Cisco, Walgreens, 3M, all good companies.

        Otherwise I m going with international. Not as overpriced as the US. Grantham confirmed my belief in recent interview.

        • Happy1 says:

          I’ve been waiting for international to have its day in the sun for almost 20 years.

      • Z33 says:

        Funny you mention that as I look at SNAXX every morning to see daily flows. Last 3 days (Tues-Thurs) had the largest outflows since April. I’m not sure where those account holders are deploying their capital. Dip buying stocks? Real estate? At any rate I’m still parked in MMFs…rates are too high for basically zero risk and I’m pretty risk averse and rather maintain capital than get greedy and grow as much as I can. I don’t follow SWVXX flows as those are small account holders are always inflows…

        • kramartini says:

          One thing to note about SNAXX is that the minimum initial deposit is just that. Initial. I have gone way below that for months with no consequence. (I imagine there is something in the fine print about this that I have not seen yet.)

      • DougP says:

        Wouldn’t T-bills at 5.35% with no state taxes be a better bet? Also safer by a margin. If you live in a no-state-tax state I suppose it is an easy decision as long as the buck don’t break.

        • kramartini says:

          No state income tax in Texas so the state tax exemption would be wasted on me. For that reason, I rarely buy treasuries, since I can usually get a better deal on brokered cd’s if I don’t mind tying up my money. But the SNAXX is giving a very good yield and keeps rising ahead of even 3 month brokered cd’s so that by the time the cd matures the SNAXX yield is higher. It just hasn’t been worth the effort of laddering cd’s.

    • andy says:

      7 out of 500 stocks are 28% of sp500. And trade at 30 P/E. Give or take. Dividend is 1.5%. And these are not even imaginary forward numbers. Long story short, it crashes.

      • longstreet says:

        technical and fundamental issues

        • andy says:

          And their new iPhone 15 is overheating. Gets too hot to hold. They will “fix it” with a sofware patch. Probably dial back performance. Holding Aapl puts since about 190. Sold few at 170.

      • ru82 says:

        There is a reverse weighted ETF call YPS. Will it go up?

      • ru82 says:

        Those 7 are making billions in profit too. So it makes sense to invest in them.

        I noticed on the stock heat screen today the stocks that are green are APPL, NVDA, MSFT, META, GOOG, AMZN, TSLA.

        Meanwhile the DOW, SPY, and R2K are red.

    • Wolf Richter says:

      The first thing you have to do is ignore “forward” anything. It’s a fictitious number designed to fool you, based on hyped up earnings “expectations” a year out. But then those expectations are dialed down massively as the reporting date nears so that a company can beat the lowered expectations. Oldest game in town.

      Rule of thumb is that a company whose GAAP revenues and earnings grow by 10% a year should have a P/E ratio of about 10. If revenues and earnings don’t grow, the P/E ratio should be lower. If companies consistently lose money, they should be a penny stock, worth nearly nothing.

      If GAAP revenues and earnings grow 20%, it would support a P/E ratio of 20.

      A company that is funding dividend payments with borrowed money (cash flow not enough to pay for dividends) is eating itself up. Same with share buybacks on borrowed money. If they do that year after year, you can calculate when this game is over. Even worse if a company needs to borrow to fund its interest payments. Over the longer term in the era of higher rates, investors get crushed in these things. That only works if the money is free.

      • 91B20 1stCav (AUS) says:

        …in the words of Mr. Houndstooth: “…pure wisdom…”.

        may we all find a better day.

    • fred flintstone says:

      The other day I was talking to a grandchild and describing her ability to accomplish something and I said…….out the wazoo……my wife asked me where that phrase came from, never having heard it before. Not realizing how it’s caught on in my inner mind I had to think about where it did come from. After thinking for a second I just grinned and said some site I go on for Econ info……LOL.

  14. andy says:

    Off topic question please..

    I have Treasury Direct account, and only used it for I-Bonds so far. The TD account is linked to a bank acount.

    So to buy T-Bills I only need to subscribe to an action, and then funds will automatically withdrawn from my bank account. And later deposited back (also automatically) into my bank account upon t-bill marurity. Does this sound about right? Anything to be on lookout for?

    Thank you.

    • kramartini says:

      If it were me I would place an order to buy a minimum sized amount of very short term t bills and watch what happens…

    • Wolf Richter says:

      That’s how it happened every time without fail between my TreasuryDirect account and my bank account. Totally on automatic pilot. Just make sure when you put in your order at TreasuryDirect that you have enough cash in your bank account to cover it and your other cash needs.

      You can also choose to leave the cash in your TreasuryDirect account when the securities mature. This is a useful feature if you’re dealing with purchases whose amounts exceed FDIC limits of your bank account and you don’t want this cash in your bank account.

    • Bobber says:

      For T-Bills, Use the automatic reinvestment function to minimize funds transfers and keep the interest flowing.

      • andy says:

        I just signed up first 4-week t-bill auction on 10/5, for only $1000, no reinvestment. Just want run a test.

        It says the actual amount can be lower or higher then I subscribed to, based on results of the auction.

        I can understand it can be lower, e.g $100 auctions for $99.5. But can it also be higher? Do I generally need to leave extra funds in my checking account for “higher” amounts? Maybe 10-20% more?


        • Bobber says:

          I don’t know, but that could be part of your test.

          My guess is they’d never sell you more T-Bills than what you’ve agreed to pay. They’d never go over the dollar amount you’ve entered in the system.

        • William Leake says:

          I use Treasury Direct only for I-bonds. Use a broker to buy (and sell if necessary) Tbills and CDs. I use Schwab, but I imagine Vanguard and Fidelity operate the same way. I buy at auction, sell at maturity. You have to have all the money needed for a purchase in your cash account by T+3, settlement day. The day of my order (when I buy), the interest is credited to my cash account. Then I get my principal back at maturity. That’s how it works at Schwab. I have done it many times.

          Brokers are good for CDs also, with no early withdrawal penalties (important), although if you sell on the secondary market you could lose (or gain). Schwab charges a pittance to sell CDs, nothing to sell Tbills. My intent is always to hold to maturity, but you never know what might happen.

          Also note that brokered CD interest does not compound (like it does with a bank). Tbill interest also does not compound. I don’t much care about compounding for now. Tbill interest is state tax-free (I do care a lot about this). Brokered CD interest is taxable by federal and state, same as with a bank CD.

        • kramartini says:

          It sounds like boilerplate used for all treasuries. T bills are always issued at a discount since they are zero coupon securities and interest rates are not negative. But it is possible for coupon bearing notes or bonds to be issued at a premium if the coupon is larger than the market requires.

        • VintageVNvet says:

          Keep the face value in your account until the T-Bill is issued and you can see the charge from treasury andy.
          That’s the simplest way to keep track IMO.
          Did start as you just did, and has not been any problems so far.
          Suggest you do not try to order the morning of the auction though, as they can get pretty busy some times.

        • Wolf Richter says:


          If T-bills are ever sold at a negative yield, the purchase price would be higher than face value. Not sure if this has ever happened before, though T-bills have traded with a negative yield.

        • andy says:

          Thank you, All. You guys are the best.

        • BobE says:

          My experience is that if you purchase 1K in TBills at a 5% rate, the amount withdrawn from your account is the amount that will generate 1K at maturity. Therefore, the purchase price will be less than 1K and when the maturity date is reached, you will automatically/magically have 1K transferred to your account.

          The actual rate that is paid is determined on the auction date after you have placed the order, so the exact value is never known until after you purchase. You can see the results of auctions the day before you order, and these days, an auction in the future has typically paid the same or higher rate.

          With a CD, you know exactly what rate will be paid when you purchase.

          Your effective yield should include a calculation after-tax.
          TBills and CDs are taxed as normal Federal income so they follow the Federal tax tables.

          ie if you are in the 24% Federal Tax bracket and in the 5% State tax bracket, your effective yield with a 5% CD or treasury will be:

          Federal CDs and TBills contribution:

          Federal: 24% of 5% = 1.2% => 3.8% effective yield for both CD’s and TBills

          State CD’s and TBills contribution:

          CD’s: 5% of 5%= .25% => 3.55% after both State and Fed taxes.
          TBills: No State tax on TBills => 3.8% after Fed taxes.

          Your results will depend on your tax brackets at the State and Fed level. If you have high State taxes, I would go with Tbills since they aren’t taxed at the State level as long as the rate you achieve is not much less than CDs.

        • BobE says:

          If you are extremely wealthy and are in the highest tax brackets

          ie 37% for Federal and 10% for State:

          For CD’s:

          37% of 5% =1.85% => effective yield of 3.15% after Federal taxes.
          10% of 5% = 0.5% => effective yield of 2.65%. after Fed and State taxes.

          It may be better to invest in more risky in-state municipal bonds which are completely tax-free (though more risky) at over 3%.

          Also, stock dividends are taxed at a lower 15 or 20% so they may have a higher yield. Again, more risk.

        • David says:

          T-Bills are zero coupon – meaning they don’t give interest. Rather, they sell at less than the face value, and you get full face value at maturity.

          The only way price would be more than maturity is if interest rates go negative. That certainly isn’t happening anytime soon.

  15. Dennis says:

    Wolf, thanks for your valuable work on this website. Do you have a plan for a meet up of readers in SF? I think it will be super valuable.

  16. 1stTDinvestor says:

    You should change your tag line to: The “Data” Behind Business, Finance & Money.

    I just shared one of your posts with a friend and described your blog as a place where a seasoned investor debunks the b.s. in the media with data (and also those bringing misinformation into the comments). It’s refreshing to hear your interpretation of the data. I may not always agree with that interpretation, but it’s refreshing and thought provoking nonetheless. Thank you. And please keep it coming!

  17. Micheal Engel says:

    1) SPX 12M : SPX in a trading range for 3Y since the 2021 bar.
    2) SPX 3M : an UT that can send the market deep down, on the lowest red vol since 2005. SPX might be resting for 3M , pumping muscles,
    before the jump.
    3) SPX 1M : Sept is larger than July and Aug, on a lower vol. Sept closed
    below July low. SPX downtrend might cont.
    4) 1W : SPX flipped lower on Aug 18. The Anti BB is waiting for action :
    May 12 low/ May 17 high 2022, 3,858.87/ 4,090.72.
    SPX dropped below a Lazer coming from : Oct 2011 low to Feb 2016 low.
    It’s above the tranquility Lazer : Oct 1989 high to Mar 1993 high, parallel from Oct 1990 low. Last week bar, a smaller red bar, on higher vol with
    a buying tail, under T&K of the cloud. T&K is closing Its clamp.
    In mid Oct Senko B will lose its Oct 2022 low. It will rise nonstop. The cloud might flip.

  18. Phimbleburg says:

    I was wondering the other day—has there been any uptick in banks calling in mortgages for “casual” mortgage fraud?

    Mortgage fraud was a huge problem during the first financial crisis, primarily in the case of people who could not pay. But we don’t hear much about mortgage fraud on the part of people who *can* pay but maybe made some misstatements to get a slightly better rate. For example, claiming a rental property would be a primary residence to qualify for a conforming loan. Some real estate forums seem very cavalier about this sort of thing, and banks may have been fine overlooking it while rates were generally falling, but if house prices remain high while mortgage rates go up and banks run into a rough patch, isn’t that creating a perfect storm for banks to call-in those loans at par and force the owners to either sell or refinance at a higher rate?

    Any data on this?

  19. Sufferinsucatash says:

    Stock market is in the same place as it was 2 years ago. Way to go people.

  20. Jon says:

    This is the best summary I’ve ever heard. I’ve sent it to everyone who is passively involved in the stock market.

    Wolf is the best.

  21. Micheal Engel says:

    SPX 12M : a green 2023, an inside bar(in Sept), red 2022 after a green 2021.
    It flipped up in 2012. 12 years between 2000 and 2011.
    12 years between 2012 and 2023.
    Heineken Ashi : shortening of the thrust. Three selling tails.
    Funfunfun : the republican wants to oust the sheigetz.

  22. Slick Williy says:

    “Banks lined up and shot”
    “Investors dismembered”
    “Bond market horror show”

    This is clearly the Halloween Edition of the Wolf Street Report!!

  23. Rocar says:

    With a national debt of 33 trillion dollars creating massive governmental borrowing costs and declining stock and bond markets, not to mention regional banks being under stress with commercial real estate heavy loan portfolios. The question is will the fed panic and reverse course with 2024 being an election year?

    • Wolf Richter says:

      The Fed already panicked in March 2023, threw $400 billion at the banks, but never ended QT (rolling off Treasuries and MBS) and continued the rate hikes, then drained all if it out again, plus a whole bunch more in a short time. Is this the new way Fed panics?

  24. Robert says:

    Free money makes all things possible! – Great line Wolf

  25. Anon2 says:

    1. If savers are earning high interest rates in CDs, money-market funds then who is on the other side of that equation paying higher rates on their borrowings ? Presumably they are getting squeezed.

    2. The QE/QT relation with asset prices is not evident in Japan though. They have been having QE for 30 years now but I think home and stock prices there are still below their all time highs from the early 90s. And deflation or close to zero inflation for several decades.
    Perhaps it is not the Fed keeping asset prices high, but the belief that the Fed can keep prices high that is doing so. For some reason the Fed has been treated as omnipotent. The BoJ on the other hand has been battling deflation for decades without much impact until this year when things finally changed.

    • Wolf Richter says:

      “who is on the other side of that equation paying higher rates on their borrowings ? Presumably they are getting squeezed.”

      1. Interest rates are just back to pre-money-printing normal-ish.

      2. other side of:
      – CDs = banks (stockholders ultimately)
      – money market funds = government, big corporations (issuers of corporate paper, Fed via RRPs)

    • The Real Tony says:

      They tried to rig the stock market in Japan but the people who live there know its the same crap they’d be buying into. The government will be left holding the bag on stocks unless the Yen devalues a lot more.

  26. TaxHaven says:

    You were the same people who – like me – expect the economy to hit a wall, unemployment to rise, a recesion and a moribund housing market. Now you imply that higher interest rates will have no serious effect. What gives? A recession is baked in the cake whether the market or governments want it or not…

  27. Debt-Free-Bubba says:

    Howdy Folks and Mr Lone Wolf. Listened to the bitter end and loved it.

  28. Tim SE says:

    Spot on, ‘The prophets of pivot aren’t predicting – they’re praying’.

    Banks look OK, but what I wonder about is the huge losses taken by bond investors – where have these losses “gone”, and is there some big failure risk out there somewhere?

    After how badly investors have been burned, I’m a bit surprised that there’s still take-up for MBS – ‘once bitten, twice stupid’?

    • BobE says:

      I used to wonder about where the money had gone.

      If you had a house, classic car, Beanie Baby, or bonds that were worth 100K last year but the same buyer has found another house, car, Beanie Baby, or bond elsewhere for 80K today, that loss hasn’t gone anywhere. I think it never really existed. It was based on some perceived value.

      People are buying MBS’s today because they are on sale at only 60K (probably less) today and have a perceived value worth that amount. The investor who loaned you the mortgage at 3% for 30 years when it was worth 100K has taken the loss. The homeowner is the winner.

      At some point, it may be worth buying some long term bond funds. A popular US government 20+ year bond fund TLT, has lost half it’s value since 2020 and may achieve Wolf’s infamous list. Is it at a low or will it drop more? I bet it will drop more. So much for the old rule of 60% bonds to be safe in retirement.

  29. Harry says:

    Great video, Wolf.
    Basically, the world is enslaved by a tiny group of elite bankers
    and investors.
    Like a drugdealer, they dangled their artificially cheap product (zero percent interestrates) to the masses for about a decade.
    To get them hooked and to get them to take on more debt.
    And now that the world has record-levels of debt, the ponzi-scheme is collapsing.
    Whatever their endgame is, it means yet another transfer of wealth.
    At no point in history was the corruption and collusion this apparent….everyone is in on it, the media, politicians, economists (hi Paul Krugman), MMT fanatics (hi Stephanie Kelton) and the disgusting spectacle of Central Bank rate-decisions, where every word is analyzed and a completely hysterical mediafrenzy begins.
    Am I the only one that sees the absurdity of it all?
    This is nothing but indentured servitude. We’re debtslaves and statistical units, bled dry to the bone by a select few that control everything.
    They control the narrative, the moneysupply, the price of money and the political class to enforce it.
    They manipulate statistics to their advantage, only to revise it afterwards, when they finish their trade.
    What a sickening and depressing reality this is.

    • kramartini says:

      The bankers and investors are the ones losing in this deal as they are left holding low yielding assets that have declined in value.

  30. SoCalBeachDude says:

    MW: US stocks open mostly lower as Treasury yields jump after Washington averts government shutdown

    • jon says:

      Don’t look at the daily moves, Look at the big picture. Stocks are still trading at nose bleed levels and have made up most of the lost ground from 2022.

  31. ru82 says:

    Funny thing how inflation can effect Stock prices. As long as a company can pass along inflation, then sales, revenue, and EPS and stock prices will go up.

    Lets say a company produces 100 widgets per year. They don’t increase production over the next 4 years but there is 5% inflation per year. After 4 years, Sales are up 22% and profits are up 22%. So is EPS. EPS growth continues to grows greater than 10% on 5% inflation. The stock prices will probably be 20% higher too.

    Num Cost Sale price Revenue Profit EPS ESP growth
    100 $0.90 $1.00 $100.00 $10.00 $0.100
    100 $0.95 $1.05 $105.00 $10.50 $0.105 10.4%
    100 $0.99 $1.10 $110.25 $11.03 $0.110 10.9%
    100 $1.04 $1.16 $115.76 $11.58 $0.116 11.5%
    100 $1.09 $1.22 $121.55 $12.16 $0.122 12.0%

    Just some quick numbers. I think they are correct. Anyway….stocks will go up in an inflationary period if income does too.

    It a stagflation environment, this is not the case. Consumer income does not rise and companies have a hard time passing the cost of inflation onto the consumer.

    • Einhal says:

      Your hypothetical assumes that the company’s inputs don’t increase in price disproportionately to the price at which they can sell each widget.

      • ru82 says:

        True. Usually the company raises the price even more than their input prices. LOL

        But of course it is hypothetical exercise to show that sales and EPS will rise even if the company never increases production. This is why stocks (without debt) tend to do well during inflationary periods. When you see the drunken sailor graphs of increased sending by the consumer, they are not necessary buying more stuff. I read a report that the consumers have not purchased more stuff in 2023 over 2022. It just costs more to buy the same amount of stuff. Thus using my example above, that means EPS for the SP500 goes up even though the companies are not selling more products.

  32. Bobber says:

    The Fed has said many times before that it doesn’t target asset prices, but it’s QE/QT interventions suggest otherwise. I think the Fed is actively managing asset prices to preserve a high plateau.

    It’s another example of Fed deception, saying one thing, then doing another.

    The Fed has zero business intervening in the long end of the rate curve. It needs to reverse out it’s illegitimate balance sheet growth as soon as possible.

    • Z33 says:

      If they don’t “target” them, they definitely do keep an eye on them and comment on them. I remember Jpow saying back in 2022 when S&P was 4,300 or so after the 4818 peak that the “market” was pricing inline with what they thought or something when QT was underway (it was in the rate meeting Q&A with reporters). He also made some comment about needing home prices (an asset) to correct or something along those lines.

    • jon says:

      If you look at the assets of FED members, they are filthy rich. Powell himself is worth 100 million or so.
      The primary job is FED is to protect the wealth of theirs friend’s, families and masters.

      What their explicit mandate is and what they publicly speak are just rhetoric.

      FED is waiting for an opportunity to start QE again using some excuse like they did in March-2023 during so called banking crisis.
      FED and other people may not call QW, but it was QE indeed and also evident by the bump in the market.

      Banking crisis in March-2023 was no where close to being a systemic risk but they used this as an excuse to throw 100s of billions of dollar.

      • Kracow says:

        There is no collusion of the rich it’s just in your mind. I’ve been to enough events and have friends in the 100M+ club and they don’t gather around a fireplace trying to destroy the less fortunate.

        All they have is access and opportunities that come from vast resources most of them have earned.

        Sure QE was silly for a decade everyone knew it you had almost zero interest rates for everyone and those with deep pockets could leverage to the hilt to abuse that mechanic.

  33. Bobber says:

    Shame on the Fed for injecting gargantuan liquidity into markets and turning investment markets into a gambling casino.

  34. Desert Dweller says:

    The day of reckoning is fast approaching US capital markets due to idiotic Fed policy going back to 2007. Asset bubbles are not sustainable once interest rates revert to historic norms. The Fed manufactured the Everything Bubble, and now the entire nation will pay the price, and Biden and the Dems will be blamed (not to say that they are completely innocent). I fully expect a revisit to post 2008, and possibly worse.

    • dang says:

      Well, that is definetly the worst case scenario of what is likely too happen. Like two standard deviations from what is likely too happen. I have a foggy sense of what may be about to unfold which is a toned down version of what you described.

      The stabilization of the monetary system supporting the sustained asset valuations requires much higher interest rates. especially at the long end to collapse the bubbles in housing, stocks, bonds, and the military budget.

  35. dang says:

    Yes, I would like to comment about the “gold” standard. Firstly, it was dependent on them that held the coin. Who were more than happy to discipline labor by withdrawing their issue of gold.

    We forget our own history by ignoring William Jennings Bryant’s speech about, ” you shall not crucify man on a cross of gold”

  36. Neutrino says:

    Hi Wolf and fellow readers,
    Is there a transcript for the YT video? How might I get one?

Comments are closed.