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Wolf Richter: The Era Of The Fed “Put” Is Over

Adam Taggart
April 5th, 2018
Peak Prosperity
Comments (23)
Read by 3,828 people

This article was originally published by Adam Taggart at Peak Prosperity

To all those investors expecting the Fed to step in to backstop the recent weakness seen in the stock market, Wolf Richter warns: The cavalry isn’t coming.

After years of force-feeding too much liquidity into world markets, the central banking cartel is now aware of the Franken-markets it has created. And now with a new head at the US Federal Reserve, and soon at the ECB, central bankers have shifted their priority from supporting asset prices to now actively engineering lower prices.

They just don’t want prices to drop too far too fast.

Of course, the big question is: how much control do they really have? The situation may very quickly get out of their hands.

But the big takeaway is to expect lower prices across the board for nearly every “risk on” asset: stocks (including and especially the FANGS), corporate bonds and real estate. The Fed is working to reduce investor exuberance — and as many bloodied contrarian investors will warn you — Don’t fight the Fed:

Now we’re in an environment where we have an Everything Bubble, and even though there’s still a few central bankers out there that say that they can’t see the bubble, others have now acknowledged it. Of course they don’t call it a “bubble”; they say that prices are “elevated”. So they’re seeing this. In my opinion, a lot of the responses from the Fed are not really about inflation; they’re really about trying to avoid the asset bubble from getting any bigger. They’re trying to avoid a deflation of that asset bubble that could be very messy for the financial system.

Which is why they’re now tightening. Even though inflation by their measure is still relatively low and below target. And so they’re really not targeting inflation; I think they’re targeting asset prices. They’re trying to put a stop to the Everything Bubble out of fear that it might bring the financial system down again if this goes any further.

There’s debt behind this asset bubble, and this leverage is what’s risky. So I think the Fed is clearly, this time, on the side of targeting assets bubbles. Investors are asking if the stock market drops, if the Dow drops a thousand or two thousand or five thousand points, is the Fed going to step in and put a stop to it? And my gut feeling is, no, they won’t. They will let this run unless credit freezes up. They’re trying to bring these asset prices down somewhat. I think that’s the environment we’re in. We have bubbles everywhere, and now we have Central Banks trying to somehow save the system with minimum damage.

Of course we only have the central banks to blame for this situation. They wanted every investor to go way out on the risk branch, and pension funds have done that. And now, the price to be paid for that will be tremendous.  Most of these insolvent pension funds are state and municipal funds, so taxpayers may be at least partially responsible for picking that up.

This same will probably be true with corporate pension funds. We are seing companies that are going bankrupt, such as Remington, you know, they’re guaranteed to some extent by the Federal government and that, too, in the end, is probably going to require that the taxpayer will have to step in.

And as for the pain that rising interest rates will create, this is just the beginning. This has just started. After almost a decade of 0% interest rate policy we don’t know anymore what it’s like to look at many years of rising interest rates. Money will get a lot more expensive for a lot of companies. And those that have to roll over their debt, even if they’re not on LIBOR, if they have fixed rate debt they’ll have to roll that over eventually. And when they roll that over, they go from, you know, from a 4% percent coupon to maybe a 6% percent, 7% percent or 8% percent coupon.

As for housing, I think what we’ll see is not a dramatic selloff of double digit percentages that we had last time. I think we’ll see a long, drawn-out, much more difficult process. At first, it won’t even look like a sellout. I think on housing on a national basis, housing will continue to look strong even though the selloff will start in particular cities. You will have some cities that are turning around, but overall, nationwide the numbers are still stable. And so the Fed won’t even be worried about it because they’re looking at the nationwide numbers, and they’re saying, “Oh, it’s still okay, it’s just declining a little bit” or it’s “plateauing” whereas house pricing may be coming down pretty sharply in some of the most bubbly cities.

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Author: Adam Taggart
Views: Read by 3,828 people
Date: April 5th, 2018
Website: https://www.peakprosperity.com/

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23 Comments...

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  1. Heartless says:

    I’m contrary as heck on this. I don’t pull a bandage off slow. Nope. I’m a yank and rip sort of guy. Get it over with. Let out a bitch and a curse and get back to work. The wussies in the government and the financial system though…. they’ll pick at the corners for years if we let them. And meanwhile, the rot just sets in deep.

    • Eisenkreutz says:

      What are we gonna do with thousands of Hondurans with an average IQ of 80?

      Why wont white people defend themselves? Why?

      Why do whites have to justify their existence to anybody?

      How many less problems would we have in an all white country?

      When the country isnt white anymore, do you imbeciles think you’ll still have your constitution and your gold bars and your guns????? You monrons????? You idiots????

      South Africans gave up their white privilege. Now they will be exterminated.

      Why must we turn white lands from first world countries into third world shitholes?

      Do you think when America is brown it will still be first world???

      God damn you boomers are simple bastards. You literally dont have the sense of a donkey.

      What is wrong with the baby boomer mind????

      • ExposeThem511 says:

        First, this didn’t start with the boomers but they were remiss in yielding to the serpent race through enticements of pleasure and self-gratification. This is the price we will pay for allowing “multiculturalism” or sub-races/cultures into our society. This problem was actually brewing during the founding of our country. The revolutionary war was the result of serpent bankers pushing Britain to stop our advancement. Sadly the Brits allowed first central bank in their country in 1694. By the time America was being founded, the serpent already had control of Britain. We were fighting central bankers from the very beginning. Their goal of course is world domination by extinguishing white man through wars and integration. Their goal is closer to success than you might believe at this moment. Whites represent 5% or less of global population and I mean true white DNA, not those that look white and are not. The problem is you can’t get whites to believe this because of the lie of universalism.

      • buttcrackofdoom says:

        good post.

  2. Kevin2 says:

    Its certainly not capitalism.

  3. Frank Thoughts says:

    It is going to get tighter than a 15 year old in a Catholic school mini kilt. Basically, the vast quantity of debt that needs to be serviced will hoover up any profits or savings. Assets will stagnate or decline while interest rates creep up. A Gordian knot.

    What to do? Don’t be a hipster loser and move to some over-priced cesspit filled with Muslims and blacks hell bent on a crime wave. Instead, take daddy’s money and go to somewhere where they hate Muslims and blacks and buy property there. Ukraine, Poland, Thailand, Myanmar, Vietnam, Bhutan, Mongolia etc. You will be A Lot happier there.

    • 2018 Is Now says:

      Try to go some place where the medical care is not 3rd world. It’s important.
      Out of your list, Poland would be the most logical if healthcare was a concern.
      Corruption is also a concern. You don’t want to go where foreigners are victimized.
      You could argue that citizens here in the US are victimized. That’s another topic.

      • Frank Thoughts says:

        I get your point but you can go private in all those places for less than in the US. You can also get a good package for private health insurance in Switzerland for any really serious stuff.

        Consider the risks that make you sick or at risk of serious injury: all that is higher in the US (toxic food, violence, terrorism, mass shootings).

        Psychosocial health is also a big factor in well-being. Getting regular sex from beautiful women will lift your spirits,

    • Heartless says:

      Frank, first thanks for reminding me of one of my personal favorite fantasy girls, LOL. Those patent leather saddle-shoes over knee-socks, pressed white shirts and little cross-ties…. yeah, about perfection!!! But my problem is I ain’t got no ‘daddy’s money’ and no inclination to learn some new language. I’ve taken my share of several in schools over the years and can get by… but not in any of those countries save for maybe some Russian in the Ukraine. I’m saying it here again – stop the interest. Stop the banks cold in what they do to maintain a strangle-hold on life here in America. And get your butts ready to fight – blood and guts, bullets and whatever the hell else ya’ll might have up your sleeves. There has come to be no other way that I can see. I plan on looking for some good-ol American grain-fed heifer of a gal who knows how to cook and keep a man’s home and self happy. Don’t want any ‘La Raza’ or other pigmented gal. Fresh-washed pink skin is just fine by me.

  4. Skeptical Thinker says:

    I agree that there seems to be an “Everything Bubble” occurring right before our very eyes. Prices and values of almost everything seem to be inflated. As I shop for my first house in the Midwest, I notice that some in-town homes were purchased 5 years ago for $75,000 and now are being resold for $120,000 – and no major improvements have been made to them. Seriously, what commodity appreciates 60% in five years with no additional investment made to it?

    Our realtors are telling us that the market is that hot right now. I find it hard to believe. I live in the Rust Belt of the country in which good-paying jobs left a long time ago. Even as a college graduate, it is nearly impossible to find a job that covers more than your basic necessities of living. I’m nervous to make any moves on buying a house simply because I don’t want to end up like some of my friends 10 years ago who bought their homes lost massive value during the last housing crisis.

    I fear the era of the “Everything Bubble” will continue until the whole house of cards comes crashing down. I’m afraid that this time, however, there won’t be much left for commoners such as most of whom frequent this page to pick up.

    • Archivist says:

      It might be better to work your way up to a house.

      Step 1: Buy a used mobile home and put it in a trailer park until you pay it off.

      Step 2: Buy a piece of property where you want to have a house. Decide where you want the house and move your mobile home to another spot on the property. Live in the mobile home until you pay off the property.

      Step 3: Start constructing a small house which is livable, but can be added to later.

      Step 4: Move into your new house and sell the mobile home for almost as much as you paid for it.

      Step 5: After you’ve paid for building the starter house, begin whatever add-ons and improvements you want, paying as you go.

      Step 6: Live in your totally paid off home.

      Depending on your income and prices, this will take a few years. But you’ll end up with a house like you want, but with no payments. And if you don’t make it look too fancy on the outside, your property taxes might not be so bad.

      • Babycatcher says:

        Excellent advice! This is what we have done, and after a couple decades, I now have the small farm I wanted in my 20’s. I was told when I was 25, to give up on my dream of a small farm. But I worked my way up, and was blessed in the process, and we live debt free! I also have not retired( and probably won’t) but can work as I need to, and not according to someone else’s schedule.

      • aljamo says:

        Archivist.. that sounds like a good plan, if I could turn the clock back 40 years.

      • buttcrackofdoom says:

        i’m saving this one for my archives, your plan may just work for ME soon! good one, archivist!

      • THAT GUY says:

        Archivist, that is a beautiful post 🙂 A beautiful idea.

        I have imagined buying a nice piece of land and using storage container to start with… or something. I love the idea of put it where you don’t want the house, then start building the house.

        I imagined finding a place with a water well and a natural gas reserve. My barber used to tell me how his house sat on a natural gas. His heat was always free. How awesome is that?!

        I have looked further in to it, and dang vacant land is pricey! It is not 20-30K, it costs A LOT more than I imagined, but I hope I am missing something… I would still like to do this idea.

        Another pain in the @$$ about these idea is taxes. Taxes can blow a deal out of the stratosphere! I am sick and tried of government types and the way they spend my tax Dollars. It is sickening to see pet projects approved when they are obviously un-needed types… frills… and only approved because times are good and they got some more money…so they might as well spend it.

        Anyway… do you have any idea on where in the U.S.A. to look for the type of land I would like to find? Inexpensive, maybe natural resources below, outside of stupid tax zones in a place where it does not get too cold… or too hot… but just right.

        Thanks gain for the great post Archivist, I like its optimism. I would love to live that dream.

    • buttcrackofdoom says:

      skeptic, i sold my house for triple bac in 06, and watched as houses went down to half, and then 2 an a haf years later i bought back in. i bought a LOT of toys since then, and then SOLD my house 3 years ago….and i bought a lot of preps with that money. when interest rates go UP, house prices go DOWN…………it’s MATH…..and it’s LAW…….when, in the history of MAN have you seen interest rates lower than the last 5 years?……..ANYbody gotten a RAISE in pay since year 2000?…..after inflation….NO, very few have. the REASON you’re HERE on these pages is because you KNOW what’s coming. it gets hotter every day, and this country is about to blow it’s top. when you got 2 years supply of food and water for EVERY PERSON that’s likely to end up at your place when the bell DOES ring, and the guns and ammo to KEEP it, then you can take a breather before the big reset. it’s gonna be EPIC. most will die, because there will be a breakdown of the supply-chain. whatever you decide to do, you need to be somewhere you will be able to STAY, you don’t want to be homeless when it happens. good luck, youngun’!

  5. lena says:

    of note, this article is posted the day of the market reversing 1000 dow points in 24 hours and the boj flooding their markets.

    eventually reality will come crashing but to think the fed is just backing out because that’s what is on the schedule isn’t being realistic when it comes to governments manipulating whatever it desires.

  6. Asshat says:

    I can’t even tell you when I last bought anything. Don’t buy anything live off preps only. Not buying shit keeps sales tax $ in your pocket too. Starve the beast.

    • buttcrackofdoom says:

      i can show you over a hundred homeless people when on my 15 mile bikeride i do most days….and you know what? that aint even THINKIN’ about all the people sittin’ in their cars in every damn parkin’lot. i just started thinking about those people a few months ago, because i realized a big percentage are homeless TOO. you sure as hell aint alone! keep yer chin up, and your head down out there!!!

  7. Old Guy says:

    I never liked the stock market. Its a scam. I prefer tangible items. If you cant hold it in your hand its not actually real. Its make believe.

  8. stevor says:

    it’s all manipulated by the globalists and whatever happens, it will be some way that the globalists think they can destroy the USA (first) and then the world so there’s royals and slaves (too bad that so many puppets think they’ll get to be one of the royals but they’ll be flushed down the toilet)

 

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