Wolf Richter on Adam Taggart’s new show, Thoughtful Money.
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Great interview Wolf.
Love this!
– The US housing is indeed stronger than one would expect but once all those building (at a near record level) that are under construction right now then the builders will be forced to lay off A LOT OF construction workers.
I don’t think those workers are employed by the builders. They are all sub contractors.
Regardless, there is an interesting “own-bootstraps” dynamic in construction that seems to create self-amplifying moves in both directions.
On the one hand, construction employs large numbers, helping them towards homeownership of greater supplied (theoretically cheaper, ahem, homes)…rinse, cycle, repeat until excess supply destroys the flywheel.
Ditto, the inverse.
But since 2000, the construction boom/construction employment boom didn’t lead to *cheaper* housing (although housing supply increased at first) instead, ZIRP-exploitation went on in soaring home prices (huge supra-normal profits to homebuilders and those they employed).
That was pre Bust 1.
Post Bust 1, reaction set in and supply collapsed until 2015 or so…we are still living with the consequences of that…to a certain extent.
Add in the even more moronic Pandemic Death Bubble, and you have…Today.
– Rate cuts: For a long time I agreed / thought the FED would hold rates “higher for longer”. But right now I have changed my mind. It’s clear that the FED is going to cut rates. The only question right now is “when”.
Wolf- excellent and far-ranging summary. Thank you for your reasoning ability and consistency.
Mr. Market- I think I hear you saying that interest rates are “transitory!”
About a month ago 6 percent of the people actually believed higher for longer. Like I said I’ve got a boatload of money coming due January 4th 2024 so I knew interest rates would tank and the stock market would probably go up right before then. It’s nothing new for me.
Marathon watch but a good one! Made me think that while paying interest on higher interest rates could be problematic at some level it also acts as a stimulus to the degree the money is poured back into spending.
You’re a lot nicer on camera.
I look a lot better on radio than on camera.
Ha, I remember the Buggles: Video Killed the Radio Star.
First music video played on MTV.
I do too. We’re getting old.
Harvey,
Yes we are, but it beats the alternative.
Wolf,
Do you think the sharp drop in interest rate and oil signal a forthcoming recession? Also analysts have cut the S&P 500 Q4 EPS estimates by 5%.
No. Longer-term yields will go up again. And oil isn’t an indicator of a recession but an indicator of massive production growth in the US, drill baby drill. The price of oil is still very high — too high. It’s still working off the spike.
Here is the 10-year yield chart. We’ve had several and even bigger Fed-pivot yield drops in this cycle. This is nothing new:
wolf, for sure the ECB will reduce interest rates, it could be in 2024.
But how much would interest rates be if inflation reached the 2% target and stayed there?
“2% and stayed there”
You mean without clawing back any of the prior 25% inflation/dilution of all existing savings?
In the era are of the internet, nobody is falling for the old “history started yesterday” scam.
I’m sure the Fed will scream (as it did in 2001) “Deflation…it is the end of Earth!!” if even a little of that 25% Pandemic Bubble inflation gets retrieved by the citizenry, but people ain’t buying the old BS anymore…too many voices have access to too many outlets.
Getting back to 2% would barely be a *start*.
Today is what comes from long manipulating the money supply of hundreds of millions of people.
Everything worked perfectly until the inevitable consequence “surprisingly” arrived.
Geez, it is really hard not to laugh at those who somehow think they are due deflation I order to make up for prior excess inflation.
Not going to happen.
Deflation is horrible for an economy. Inflation is bad, but deflation is 10x worse. No employer want to give pay cuts to their employees. No one wants to get into a situation where delaying purchases if the better play.
That just leads to a really bad spiral that is really hard to recover from.
Past inflation happened. Deal with it. There is no make up. Whining about it isn’t going to change anything. Recent past inflation is higher than the FED or anyone else wanted, but going forward they are still going to aim for 2%. No makeup.
I’m sure I’m missing something vital, but deflation appears to be baked into large segments of the US consumer economy and the world manages to keep turning.
Case in point – durable goods CPI – down 20% between 1997 and 2020. Granted, this observation was built on a global productivity frenzy (thanks China), and ZIRP – but it was deflation none the less.
Look for this trend to repeat itself in the current cycle – durable goods CPI is down 3% from the peak about a year ago. World still turning.
A very comprehensive interview. Atleast everyone accessing wolf street.com should spend time going through this.
Thanks Wolf.
Thanks Wolf,
This was my first Wolf-Video. It was good to the man behind all of this wonderful data.
We’re in a recession already. The Swamp made a rare appearance in a big box store, Target, the other day to replace some worn out undershirts. They all had holes in them. THERE WAS NOBODY IN THE STORE!
They had only one checkout line and the cashier spent 10 minutes trying to sell a Target credit card while the line backed up. I almost walked out but finally went to a self checkout.
No, not sign of a recession, but another sign of the transition to ecommerce. Did you miss that?
I’m surprised ANYONE still goes to the big box stores, except to buy groceries. You can buy everything that Target has at its store from its own online site, delivered to your house, for the same price, and you can also buy all the stuff that the store doesn’t have.
Walmart the same way, and it said so: online sales +24% yoy, grocery sales up some (biggest grocery store in the country), everything else at its stores down. And overall sales up. That’s the new reality of ecommerce, and this has been going on for years, and it’s not a sign of a recession but a structural shift in how Americans buy stuff.
“The Swamp made a RARE appearance in a big box store”
You may have missed my opening line in my post. I went there once in the last 2 years. I’m buying mostly on-line, even clothes and shoes. Sometimes they don’t have my size and have to go to a big box store like Target. The shopping experience is so dismal in these stores that I don’t know why anyone would want to go in there.
Buying tires online at Walmart works great. They will only ship the tires to one of their stores with a tire center, but you get the lower online prices. I got tires for $10 less (each) than their in store price for the same tire.
The Target by my house is always crowded. Home Depot is too.
“While the line backed up…”
At least no cavity search for the 64 cent canned peas like at the “self checkout” at Walmart.
I don’t blame the pea thieves and I don’t blame Walmart.
I blame our self-anointed “betters” who deranged the macro-economy.
A terrific interview for those interested in facts…….
Unemployment claims this morning…..flat……at a very low number
Oil at 70……NG at 2.57……gas is about to drop more
It just ain’t there………so who is disappointed
Those that write these casper the ghost articles with every sighting being a depression.
Powell is not going to ease anytime soon. He is in an ideal world……hit him when he is screwed up…….right now……good job.
Powell does not need to ease anything. The market already did it and financial conditions are so much loosened equivalent of 4-5 rates cuts in last month or so.
The credit spreads are tightest ever and BTC is flirting with 45K, along with Gold at highs.
If anything, Powell can do a surprise rate hike of 25bps which would be just a symbolic hike to establish FED’s credibility but for sure he won’t do this.
Exactly. At the last meeting, he cited that the long Treasury yields had already done the tightening for him, so at this meeting he can, and should, claim that the long Treasury yields have already done the loosening for him. No reason to bring down Fed Funds rates for the foreseeable future.
Reading a lot of the comments on this youtube video that’s a lot of people who just don’t understand what’s really going on. People citing the inverted yield curve. Fact is and I had to put in my own comments that the inflation rate is being understated in America so the present 5.5 percent Fed funds rate is still simulative meaning no recession. These people quote the past when the true or real inflation rate was used back in the 1980’s which is not the case today.
“…the true or real inflation rate was used back in the 1980’s”
That’s total BS. People who say that are clueless and will NEVER understand the US economy.
BLS published a 2020 list showing all of the changes they made to their CPI calculations over the years. It’s called the “Chronology of Changes in the Consumer Price index.”
There are more changes since the 1970s than I care to count. These are changes like, “Expanded the use of hedonic regression in quality adjustment” and “Extensively revised item classification system.”
They don’t provide much detail on each change, but it’s an interesting read nonetheless. At least it provides a sense of how CPI has been reshaped by each major revision all the way back to 1940.
Life has changed. Today we routinely buy goods and services that didn’t exist in the 1970s or 1980s. They wouldn’t even be in the CPI measure of 1980s. And the products and services that still exist have completely changed. All measures have to adjust to what consumers are actually doing, and not what they did 50 years ago. It has to be adjusted on a constant basis, or else the metric become useless.
Wolf,
Great interview!
Regarding market performance, I have posted about and been curious about Secure Act 2.0 and several states’ legislation increasing the number of people in retirement plans. I have been unable to find a source for tracking these plans’ totals or their overall market share. Any insight or do you know where I can find that data showing year-over-year retirement plan participants?
Considering the employment market growth, I suspect this increase may exceed the withdrawals of the growing number of retirees.
This is so true!
I was able to comprehend all of the video except the reasoning why the yield on the 10 year and longer is expected to get above 5%. Seems like no lack of buyers since most people see the equities market as meh for 2024. I get why a 10 year wouldn’t be attractive at 4% with 3.2% inflation but when banks start to drop CD rates it is getting back into market or take lower yields. Not clear when short term and long term yields might flip.
The 10 year yield should be in the neighborhood range of where nominal growth is.
If growth stays is in the 2-3% range and core inflation remains stuck at around 3 to 3.5% or higher, its easy to see why Wolf and other people are predicting yields to go much higher again.
Wolf said he thinks inflation is going to reaccelerate. I agree with this. You can already see a juicy inflation number is projected by the cleveland fed after this month is over. And that is with oil completely tanking.
Core CPI and services inflation is completely stuck in the mud right now. How are we getting all these rate cuts when financial conditions are currently loosening, we are getting a much bigger inflation print upcoming after this month, unemployment still hasn’t broken the 4 handle barrier yet, and core and services inflation isn’t going down.
If a recession doesn’t come, rate cuts shouldn’t be coming for a while either. And many people have completely failed on predicting the recession this time around that just wont come around.
Core inflation is still double the fed target. Wallstreet is begging for a recession to cut rates and it just isn’t happening.
I think inflation is here to stay and zirp is long gone and not coming back.
This was a great interview. If things are as good as they seem, no recession as far as they eye can see, I am thinking of joining the Jim Cramer Investment Club for the bargain price of $299.
Note the part about how I separate the no-recession-in-the-data from the markets. That was the crucial part of the interview.
Today’s housing market reminds me of the quip, “The beatings will continue until morale improves.” Short of recession or tax policy changes, I see nothing on the horizon that will bring house prices down (or rents for that matter). Wages are up, and increasing at a good clip. People sitting on multiple “existing homes” see no reason to sell any of them, because there was a K shaped recovery that caused wealthy people to panic buy homes as assets, and caused “poor” people to be priced out of ownership (or renting). The wealthy home owners do not care one lick that poor people are priced out a place to live though, and when you are dealing with a finite resource like housing, finite in realative terms, the simply is nothing there to bring pricing down outside of a recession or tax policy changes.
Wolf: you mentioned that the savings rate factors in income from interest & dividends, but not cap gains.
Where do bonds fall in this? Specifically zero coupon bills that are bought below par.
This is income from “dividends and interest,” meaning dividends from stocks, and interest from interest-bearing instruments, such as bonds or CDs or money market funds etc.. Interest on a T-bill is paid when the T-bill matures, and it counts as interest, including on your 1099-INT that you’ll get.
I am constantly amazed how many people are willing to twist themselves into pretzels in order to justify the FED lowering rates.
Higher for longer. Period. Exclamation point.
The FED is not lowering interst rates until one of two things happen; a recession, or inflation (especially in services) drops below 2%. Until either of those happen, interest rates are staying where they are at (or going higher).
The Fed cut rates in 2019 because the “financial plumbing” got blocked. It’s happening again but not being talked about much. Yet.
No it’s not happening again. That’s pivot-mongering BS. Bloomberg and ZH are exaggerating a rise of a few basis points, as there have been very many over the years. They’re just creating clickbait. Back then rates jumped 10 percentage points.
Recession is NOT coming, YET!
Meanwhile mkt indexes are keep marching higher on the ‘perception’ of coming rate cuts every other week, no matter how strong economic data comes.
I just rode on the power of perception over reality of analysis and my portfolio keep growing slowly. I relied on ‘ hard realty’ after ’09 and got the short end of the shaft. Those who front ran QEs got richer.
Fundamentals mean NOTHING any more, when Fed is still meddling with the mkts with rates, repo, reverse repo and what NOT. Liquidity is NOT allowed to happen with ‘back door’ measures. The power of perception of the crowd and the wall st is ‘too real’ to ignore.
Fed is captive of the mkt although claiming it is acting on the basis of incoming DATA (interpreted to fit it’s on going policy), What a farce. No point in complaining, just going along. Good luck for those still waiting for recession
First time commenter, long-time reader and lurker in the comments section. Always loved your writing, Wolf, and I’ve listed to Adam and love his prior and new shows also. First time I’ve listened to you and loved that also. Hope you become a regular on Thoughtful Money.
Thanks Wolf I enjoy your work.
My phone does strange things When I comment here, but the comments are always insightful.
Maybe you begin charting the comments on Wolf Street, and create a namesake sentiment indicator?