Wolf Richter on “This Week in Money,” at HoweStreet.com, recorded on February 29:
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Thank you Wolf. FRED may need to start tracking decreased US productivity caused by addiction to Wolf Street! Each post is so chock full of vital and important information that a lot of folks like me pause the regular day’s work to study WR.
Can you imagine someone who thinks NVDA surpassing Aramco in market value and SMCI joining the S&P 500 as the sign of a blow off top?
Yes, it is part of the blow-off top.
But the big question to me is “is this 1996-7 or is it more like 1999?”. This blow-off top might last a few more years. NVDA to >2500?
Mag 7 has been reduced to Mag 1 now.
This party may end soon.
Who know.
Even scrappy company like smci who simple makes servers with components from other companies are up big big time.
That stock came like into my head in the year 1990 when it was 10 dollars a share. Maybe a psychic premonition. I told my brother when he bought it that it would hit 100 dollars a share by the end of the year in 2015 and it hit 100 on I think the last trading day of the year and then keep going higher and higher and higher. The good thing is I hate my brother-in-law and I told my sister to buy it at 20 dollars a share in August 2015 and her big know it all husband didn’t buy it and watched it go to 100 dollars a share and then told my sister we’re not buying it its gone up too much. He would have been a billionaire on paper had he bought it. He’s not one to sell shares either.
Just out of curiosity Wolf, do you think the modern Federal Reserve’s myopic focus on high inflation being the only possible condition to justify raising interest rates a mistake?
Back in the 1980s & 1990s, there were a lot more ways to trigger interest rate hikes & monetary tightening from the Federal Reserve. For example, a general sense of the economy overheating, or during the first Internet bubble, Greenspan raised rates because he thought stocks were getting irrationally exuberant.
God I barely remember those days when the state was so conservative as to discourage economic bubbles
I think the focus on consumer price inflation is appropriate.
Asset price inflation is an issue, a result actually of too low interest rates. But it’s political suicide to go out and say, we’re going to bring down stock prices and home prices, because they’re too high. The Fed would have a rebellion in Congress on its hands. In addition, it would put the Fed in charge of determining what the right stock prices and home prices are. It sends shudders down my spine.
Let’s not expand the Fed’s mandates, please.
I hear your point, but when you create a problem, shouldn’t you be tasked with fixing it?
This is also leaving aside that asset price inflation inevitably leads to CPI inflation, at least at some point and to some degree.
Fixing problems created isn’t really the American way or even fixing something your precursor created. Sweep it under the rug and move on! Accountability would be refreshing to see but can’t see it happening.
It surprisingly doesn’t, at least not anywhere close to the magnitude needed to move inflation figures.
Case in point: the bull market of 2009-2020. Also, the 1990s bull market, where trailing-12-month CPI* rates were 1.5% to 2% between mid-1997 to mid-1999, during peak internet mania. (*the Federal Reserve changed its preferred inflation index from CPI to PCE in 2000.) If Greenspan had acted like the modern Federal Reserve, rates would have been held, if not reduced due to below-target CPI, during this time.
You might hear about average working-class Joes who invested early in NVIDIA or virtual funnymoney and became multi-millionaires, but those people are in the extreme minority & nowhere near enough to drive up inflation. The fact is stock & financial asset ownership is extremely top-heavy relative to the income spectrum.
This problem was created by the current, and previous, administrations and the inability of Congress to do their primary job, which is to be the financial oversight for the US Gov’t.
Nobody has the political willpower to hold any of those entities to task.
I think I strongly disagree here but I could have misunderstood your point of view. So here are a few scenarios and would like to know what YOU think the Fed should do
1. Near full employment and steady trend line GDP growth but inflation at 0.5%
2. Near full employment and strong GDP growth along with rapid credit growth but inflation at 2% and steady.
3. Unemployment at 7% and inflation at 5% and GDP growth near or below trend line.
Feel free to create scenarios that could cause such an environment.
What would your prescription be?
So it’s OK for Fed to pump these asset bubbles by keeping the rates artificially low for years but when it comes to enabling true price discocovery this tantamount to increasing Fed’s mandate…
Interesting..
That’s a false equivalence not worth wasting my time on.
Wolf,
The other fellows on this week in money talked about gold & bitcoin
What do you think of either as an investment, have any interest?
I know you didn’t ask me, but something about Bitcoin’s price movement in the past month just seems fake to me, like it’s being manipulated by some big players who have an ulterior motive.
Everyone needs to do their own research and bitcoin fans are more or less fanatics, but that doesn’t make some of the things they say true or false.
But the best way I would describe it to the wolf street crowd is that it is a monetary technology designed to be the antithesis of fiat money.
It is not just scarce, it is at all times 100% provably scarce. Imagine if you could audit all gold, in every vault, worldwide, at nearly no cost to you – and the total amount of all of that gold is known, limited and will never change from the original plan. Provably so.
Some aspects of its “monetary technology” require vigilance into the future and nothing is guaranteed as in anything in life – but for right now and the foreseeable future it is truly unconfiscatable and uncensorable. It is also undetectable if the holder chooses to memorize 12 words as a password. And when sending it in a transaction to any destination in any country, for the traits mentioned in this paragraph above, the cost is negligible. Any other asset that is not subject to the whims of a government does not come close to such a low carry cost or transaction/transportation fees & risks. If you do it right, there is no counter party risk.
If any of these things sound like something that most of the planet will find to be valuable in the future to you then go do some research and learn more.
Ryan, you’re missing the big picture with cryptocurrencies. You assume that costs are negligible–they’re not. There are extraordinary computing costs which require signficant amounts of energy and digital infrastructure. Energy production and infrastructure development and maintenance have significant distributed costs. And if satellites fall from the sky you’ll be SOL holding bitcoin, but ok with gold or other hard currency. Granted, we’ll all be SOL without satellites for a good while. Food for thought.
Bitcoin moving into ETF’s is like putting candy in the grocery store checkout aisles. Everyone can now play.
Great Grandma can now make millions like everyone else.
Everything with a dollar sign attached to it is faked and manipulated by bigger players with ulterior motives. *coin, Nvidia, the Federal Reserve, new homes, the orange crop report from “Trading Places.” Anyone who has ever helped a CFO prep for quarter close knows this.
But with enough time and data one can parse out the patterns behind the manipulations. From there you can either hold your nose and join the party or walk away with your head held high.
That’s the game in a nutshell, but with 12 month CDs at 5.5% holding one’s head high pays a lot better than it has in the last 15 years or so.
You didn’t ask me either but I just heard a good quote on gold I’ll share:
Gold is like your home insurance. If your house burns down, you’ll be glad you had insurance. However your house still burned down – your situation is just less bad than it would have been.
If I wake up tomorrow and my gold is worth $5000/oz, I wouldn’t be celebrating – it would mean there’s a major financial crisis unfolding.
Gold is fine as a long-term investment. It might not make you any money for years, but there are other investments that might not make you any money for years either.
Bitcoin is a gambling token. So have at it.
What did Warren Buffett (Jimmy’s uncle) say about crypto? I think it was “I wouldn’t give you a quarter for all the crypto on earth”.
He bad mouthed CDS, too, then made a pile off them.
I wouldn’t believe anything that sick old greed machine said, including his show that he is really just everybody’s friendly old financial grandpa’.
“The first billion is the hardest”, though, is true.
I trust gold much more than crypto crap. Crypto has nothing to back it up other than FOMO. It can also be destroyed by government regulations and edict.
Gold, if you buy physical, can not be government-regulated.
Which would you prefer?
Not to be picky here but gold was illegal to own from 1933 to 1974 so it was government regulated in that respect.
My grandson is working on a new crypto currency. The working title is “crapcoin”. He does not intend to make it available to anyone else. His thinking, like the bitcoin enthusiasts, is scarcity is its value. By being the sole owner, it will be priceless. he’s only nine but I think he has it figured out. :)
The government and sec is complicit in the Bitcoin scam because they allowed it to trade in the open market and as ETF. And the excess liquidity created by the fed is pouring gasoline on fire. Trillions of money is being wasted in Bitcoin pumping while the poor goes hungry. What a joke of this world.
Makes one wonder, who built bitcoin…
Always a good comprehensive review. Wish the US would take a friendly approach to China. Clearly bring anti-China is more important than addressing climate change. BYD cars look great, priced reasonable in Europe but of course impossible here as even if allowed the tariffs would be massive.
@Glen: BYD said recently that they have no plans to sell their cars in the US, but that may change anytime. I recall seeing some articles mentioning that BYD has set up manufacturing facilities in Mexico. If those reports are accurate, we may find BYD cards in the US by virtue of NAFTA.
Since the auto industry is highly visible in the US, Chinese manufacturers may plan small quiet entries into the US. We all know the “voluntary” quotas that were “adopted” by the Japanese car manufacturers during the Reagan administration when they started dominating the Big 3 in the early 1980s.
Love these posts! Thanks.
The Fed did get itself into a bind with 6 years of ZIRP AND $4T of liquidity injection. It juiced asset prices including RE to insane levels, which is now exacerbating inflation and wealth concentration.
At its core, the Feds mission is stabilizing economic growth. Huge bubbles that pop and negatively impact employment are inconsistent with that mission. If Fed policies create asset price bubbles, what good are those policies? If the tools aren’t good, don’t use them. You don’t see dentists using blow torches.
When legislators aren’t doing their job by raising taxes when necessary, cutting spending, making structural changes, etc., is it the Fed’s job to try and replace them with ZIRP and QE. ? I dont think so. As we’ve seen, the Fed’s tools are not replacements for appropriate budgeting and tax policy.
A true leader at the Fed would push back in Congress before pursuing ZIRP and QE. Calling these policies experimental is being kind. These monetary policies were doomed from the start. Inflation was the logical conclusion.
That’s why I was touting commodity stocks as soon as the money printing began. I’m not happy with the societal consequences though. 20% CPI inflation in three years is gross mismanagement, particularly when coupled with 30% to 100% RE asset inflation.