"Heard on the news today that 30 year fixed mortgages are now over 6%, Not that long ago they were 3-4%. That has to hit the housing market like a sledge hammer."
@hank- At this point in time, I agree with you regarding the damage to the housing market. But what I'm having trouble with is the fact that back in the 70s, at least in SF, 30-year mortgage rates were typically in the 8% range, or even a little over. I remember, because we had an 8.5% mortgage for our first home, and that was with an excellent credit rating.
And yet the real estate market, at least here in SF, wasn't in any particular trouble. Lots of people were buying and selling homes in that environment. Also, unlike today, there was no great shortage of "affordable" housing in the SF Bay Area, because there was still land available for new building in nearby areas.
I really have no idea, but it seems to me that there must have been other factors involved in the general financial situation then, compared to now. I'd be very curious to know a bit more about all of that.

Curious...do you think the technicals would indicate something like $95B coming off the CBs balance sheets and the impact on stonks, rate hikes and the impact of policy errors contributing to inflation continuning on and on....why do many think the fed will pivot anytime soon with inflation still running so hot (and even hotter in reality than what the gov't says it is)....that 4% 1year Tbill looks purdy good to me right now...Baseball Fan

@Baseball_Fan - I’m trying to cut through your rambling macro analysis. Would you please address some of the following questions? Best Wishes
“Curious … Do you think the technicals … ”
What technicals? Not everyone uses technical analysis. Please identify which “technicals” you watch and base your investment decisions on? I’ve tried to help out by listing a few common technical indicators below:
- Moving Averages
- Moving Average Convergence and Divergence
- Relative Strength Indicator (RSI)
- Bollinger Bands
- Volume
- Exponential Moving Average
- Money Flow Index
“ … would indicate something like $95B coming off the CBs balance sheets”
Over what period of time? Do you have a source verifying this will be completed within a definite time period? It took over a decade for the Federal Reserve to amass their bond holdings, beginning with the near depression that threatened the economy between 2007 and 2009.
“and the impact on stonks” (sic?)
Not all stocks are the same. Financials? Commodities? Growth? Domestic or foreign? Also omitted here is any reference to time frame. Do you mean by the end or 2022 or are your concerns related to further out (5-10 years)?
“rate hikes”
Why would you consider rate hikes to be bad for equities? Financials tend to do very well when longer term rates rise. It is true that the most speculative areas tend to suffer as the cost of borrowing increases. (However, many are already down 50-70% this year.) But it’s not as cut & dry as you would have us believe. Rates have been extremely low for many years now. Bound to rise some day. Yet you and many others have over that time invested in equities for the long term - even knowing rates would someday rise. What changed?
“the impact of policy errors”
That’s a sweeping assertion based it seems on conjecture. Please explain why that risk is higher now than in March 2020 (the covid related financial crisis) or March 2009 (the beginning of the last bull market). Policy errors can occur at any point in time. So can other negative factors like war, political chaos, natural disaster. As investors in companies we’re accustomed to accepting those risks.
“inflation continuing on and on … “
Says who? Do you have some psychic in mind who can forecast inflation years out?
“(Will) the fed pivot any time soon … ?”
What particular “pivot” are you referencing? After you explain that, please explain why an equity investor should base long term decisions on this ill defined hypothetical concept.
“inflation still running so hot”
That’s redundant as you referenced it above. Here you seem to prophesy inflation will remain “so hot” ? … There’s no definitive way I know of to confirm / predict the level of inflation 1, 2 or 3 years out. Shall we base our long term equity investment decisions on such speculation?
“even hotter in reality than what the gov’t says it is …”
Isn’t this something folks have long ragged about on this forum and elsewhere? There’s been numerous threads over the years examining the various inflation measures (there are several). So, you’re entitled to your prejudice on that point. But why do you find the discrepancy between your own numbers and what the Federal Bureau of Statistics determines to be of greater importance today than it was 3 years ago or 10 years ago?
“that 4% 1 year TBill looks puffy good to me right now”
Good. Glad you find TBills a good investment for your needs. Bear in mind that’s for just 1 year. Equity investors by nature are investing for much longer periods. Contemplate that if you harvest your 4% TBill a year from now, you might find that stocks in general have appreciated more than 4%. I don’t think it’s at all unreasonable to think they might. (Some I own move 4% in a single day.) In such case, you will have lost ground and possibly face buying in to equities than at a net loss. If inflation is running as “hot” as you think, why are you comfortable with just 4%?

If it's any consolation, the YTD charts of TROW (financial) and ASML (technology), two completely different categories, are virtually identical when superimposed. This suggests to me that both are merely reflecting the general market deterioration, and that neither is being punished because of perceived operational flaws.
If you own either, probably best to just forget about the whole thing until the market exits this phase. As far as new purchases hoping to catch a quick upturn/profit, I'd be very wary, since the day-to-day market movements are very erratic, unpredictable, and subject to a host of worldwide forces of an unusual nature.

@yogibearbull : Are you telling me that Chuck has more that a few loose ends to tie up from TD A. ? I must have missed USAA brokerage dealings. when did that happen?
Thanks, Derf

USAA is going back to basics - financial services for military families and veterans.
It sold its fund operations to Victory Capital and brokerage operations to Schwab.

ETFs IYG (financial services) and IAI (brokers-dealers) have several brokers.
Price/TROW is doing much worse than more diversified brokers-dealers/fin-svcs.
Schwab/SCHW has to yet digest TD Ameritrade and brokerage parts of USAA. It may not buy anything for a while.
https://stockcharts.com/h-perf/ui?s=TROW&compare=IAI,IYG&id=p15922107105

I’ve never seen such carnage across both stocks and bonds this far into a year.. No place to hide except cash. PRWCX had an unusually rough day - off nearly 3%. No longer own. Just a watcher. Banks were hammered again today. Many major banks are now down 25-30% for the year, off 5+% today alone. We used to rag on Cathie Wood when her fund was down that much. (Last I looked ARKK was off 60-70% for the year.)
Somehow it feels as if the damage YTD is worse than what the major indexes reflect. Not sure why. Might be that bonds of every stripe have been hit. Might be the damage in the financial sector which ISTM was more of a safe “value” play in the past.

Thanks for your comments.

As has happened in the past, monetary tightening tends to produce some financial accident, crisis or disaster (here or globally). We don't know if the collapse of speculative stocks and cryptos were those - so, keep your fingers crossed and be on the lookout for more disasters.

Gotta love those experiments. Problem is the entire world has been doing the same thing.
What the the consequences of unloading $9 trillion dollars of MBS and treasury?

There is quite a bit of talk about QT and that it going full steam from mid-September at -$60 billion/mo for Treasuries and -$35 billion/mo for MBS. This can go on for a while.
Also mentioned is that the Treasury market is large and liquid and can handle -$60 billion/mo as roll off. But MBS market is not large or liquid enough and -$35 billion/mo cannot be achieved through roll off alone. So, that means that the Fed would have to sell some MBS. Impact of that would be felt in mortgage rates.
What is less talked about is the indirect rate increase effect of QT and there are some guesstimates on it. But even the Fed isn't clear on this. There isn't much history on QE or QT (remember, QE was considered a new innovative tool). All one can say is that the mix of rate hikes and QT is a potent combo and its effects are underappreciated.
As has happened in the past, monetary tightening tends to produce some financial accident, crisis or disaster (here or globally). We don't know if the collapse of speculative stocks and cryptos were those - so, keep your fingers crossed and be on the lookout for more disasters.

Had a boss once at a garage where we did vehicle repair who’d quip, “We’ll fix it or f*** it.”
Crap. Getting too OT on the thread. Umm … I used M* very little. But had a great link to Lipper thru Reuters I relied on for about a decade. Went blank couple months ago. Nothing I’ve found compares. So much performance data at a glance. Everything from 1-week to 1-month to 3-months out, etc. Highly accurate so that with etfs those performance numbers were constantly updated all day long. Great way to see how an investment was reacting to financial news / events.
As I inferred, investing got a bit harder when I lost that Lipper link. There are other Lipper links at M/Watch, but they do not have the same data and layout as the old one. As for trackers, M* did me a favor by shutting down the archaic service. The IOS app I use now for pennies a day is infinitely superior.

Price website shows Top 10 monthly. I suppose after admitting that he was frustrated and not happy with GE, he decided to sell - it is gone from Top 10 but he may be holding a small position. Here is the monthly status of GE (scroll to Holdings/Top 10 Holdings),
https://www.troweprice.com/financial-intermediary/us/en/investments/mutual-funds/us-products/capital-appreciation-fund.html
Date, %, #
12/31/21, 4.41%, 4
1/31/22, 4.59%, 4
2/28/22, 4.67%, 3
3/31/22, 3.79%, 3
4/30/22, 3.22%, 2
5/31/22, 3.38%, 3
6/30/22, 3.05%, 4
7/31/22, 3.01%, 4
8/31/22, Gone from Top 10

The late summer stall is now turning into something substantial. In 14 trading days, the S&P 500 has given back 9.22% which is more than half of what it gained in the previous two months. As I’ve said, all bear market rallies should be assumed to be phony until proven otherwise.
The big battle on Wall Street right now is for what the Fed will do at its meeting later this month. Some traders expect a 0.5% rate hike while others think it will be 0.75%. Thanks to Powell’s “pain” comment in Jackson Hole, the 0.75% crowd has the upper hand. Still, the jobs report gave the 0.5% hike faithful some ammo. My take is that we should listen to Powell. There’s going to be more pain ahead.
The 60/40 Portfolio?
The culprit isn’t hard to find. It’s inflation. Inflation acts like kryptonite to financial markets. This means that the two elements of the 60/40 portfolio aren’t balancing each other out. Both are down. Higher prices have caused bonds to fall. Plus, the Fed’s response to inflation has led stocks to fall.

cws-market-review-september-6-2022

As investors, our investing capacity is constrained by our income and what income is left over at the end of the month (cost of living) to invest.
Recent Study:

a collaboration
between Transamerica Center for Retirement Studies and
Transamerica Institute, examines the retirement outlook of
Generation Z, Millennials, Generation X, and Baby Boomers. It
focuses on the experiences of employed workers of for-profit
companies and the impacts of the pandemic on their health,
employment, financial well-being, and their ability to save and
invest for retirement. The report is based on findings from the
21st Annual Transamerica Retirement Survey, one of the largest
and longest running surveys of its kind. The survey was
conducted in late 2020 when COVID-19 cases were surging, and
many businesses were shuttered or operating at limited capacity
because of the pandemic.

retirement-survey-of-workers-four-generations-living-in-a-pandemic

JPMorgan is only the latest bank to be raided.
From four months ago:

The German branch of Morgan Stanley was searched by prosecutors in Frankfurt in relation to "past activity" on Tuesday, a spokesperson for the U.S. bank said.
...
A large number of banks were involved in the cum-ex deals: In the past few weeks alone there have been raids on the German branches of Barclays and the investment bank Merrill Lynch.

https://www.reuters.com/world/europe/frankfurt-bank-two-homes-searched-relation-cum-ex-scandal-2022-05-03/
The Financial Times reports that:

Prosecutors have been investigating the scandal for years, but the inquiry was stepped up last month when a former senior banker from Fortis bank was arrested in Mallorca at the request of Frankfurt prosecutors.

https://www.ft.com/content/84ad1e87-cad2-47d7-832f-5025b74a081d
(Subscription usually required, though google search may yield access)
As Reuters noted years ago, this was a legal loophole in Germany until 2012, though courts have ruled otherwise.

German banks exploited a legal loophole that allowed two parties to claim ownership of the same shares. ... The loophole was closed in 2012, with the means of claiming double ownership banned. ... a German regional court ruling in February [2016] found there was no legal basis for the double claiming of rebates, even before it was banned in 2012

https://www.reuters.com/article/germany-dividends/dividend-tax-scandal-how-banks-short-changed-germany-idUSL8N1991BN
I like the NYTimes description from 2020:

The scheme was built around “cum-ex trading” (from the Latin for “with-without”): a monetary maneuver to avoid double taxation of investment profits that plays out like high finance’s answer to a David Copperfield stage illusion. Through careful timing, and the coordination of a dozen different transactions, cum-ex trades produced two refunds for dividend tax paid on one basket of stocks.
One basket of stocks. Abracadabra. Two refunds.

https://www.nytimes.com/2020/01/23/business/cum-ex.html
The US has a distantly related form of legerdemain. In the EU, these banks took one basket of stocks and pretended (legal fiction) that it had been taxed twice, In the US, mutual funds and ETFs take one basket of stocks, sell it (via redemption in kind), and pretend (legal fiction) that no sales have taken place. Abracadabra. No capital gains recognized (IRC §852(b)(6)), tax averted.
The main difference seems to be that the EU fiction had a fraudulent intent; the US fiction is out in the open - no fraud. Either way, the legal fictions are tax loopholes.

STORY
“I was actually happy to see how Chair Powell's Jackson Hole speech was received," Kashkari told Bloomberg's Odd Lots podcast. "People now understand the seriousness of our commitment to getting inflation back down to 2%."
“I certainly was not excited to see the stock market rallying after our last Federal Open Market Committee meeting," he added,
What a perverse way to view financial markets ….. Geez - “With friends like that …”

Much like in the U.S., in China I suspect it comes down to whether some companies are "too big to fail." One could see the centralized government as a big drawback for investors, but just as often as China has attacked certain companies, it has also propped up and supported some long after they probably would've died in other countries. See the entirety of its financial sector.

Interest rate increases......of benefit to slow down inflation; OR whether that the FED had to do something to appear to be in control of whatever and doing it's work???
--- What are the three tasks mandated to the Federal Reserve bank?
It is the Federal Reserve's actions, as a central bank, to achieve three goals specified by Congress: maximum employment, stable prices, and moderate long-term interest rates in the United States.
AND there is the dual mandate, which is often mentioned:
The Federal Reserve’s dual mandate is “stable prices” and “maximum employment,” referring to inflation and unemployment. It sounds complicated but means ensuring that the prices you pay for goods and services remain relatively stable over time and that everyone who wants a job in the U.S. economy can find one.
The dual mandate represents the two economic objectives empowering the Federal Reserve’s every move. In other words, the Fed uses the federal funds rate rate to steer the economy toward its dual mandate, while also looking at it as an indication of whether it’s time to attempt to prop up the economy with a rate cut or slow it down with a rate hike.
'Course, as with the market melt/financial crisis of 2008; the FED may become wholly involved with fixes, as needed.
Inflation is global, yes? Two years of Covid impacted so many areas. A crazy Russian further impacted global inflation in the energy sectors. Climate extremes in many countries has also impacted food inflation.
IMHO, it is an exaggeration to blame inflation on excessive fiscal support in the United States. Fiscal support was needed to "hand hold" our economic melt from Covid. Acting on its own, the FED can have only a limited effect on global prices; meaning inflation in the United States.
Higher interest rates to force inflation to 2% ? How many portions of an economy will have to be broken to obtain 2% ?
This is not Paul Volcker's inflation of the early 1980's. I've been there and done that, too.
I remain skeptical of the FEDS plan.
Remain curious,
Catch

"I’m not buying it."
@hank- not sure what it is that you're "not buying". Would appreciate a little more detail on that.

I don’t think the Fed wants to slam on the brakes and send financial markets plunging. They might like us to think that. More smoke and mirrors in Powell’s commiserative messaging me thinks. Something of a phantom inflation dragon being slain here based on a lot of one-time factors (pandemic, supply bottlenecks, stimulus checks, Ukrainian impact on grain / energy, financial market excesses). Sure, inflation is real. But it’s not deep seated in the way it was in the 70s & 80s and the numbers have been improving. Surely Powell is aware of the differences.
Volcker looks a lot better in hindsight. I lived through that multi-year period of recession, layoffs, high unemployment. Wasn’t very pretty.

Thanks, @old_joe. Re converting office space into residential property, here is one video from CNBC -
Other YouTube videos and articles on this topic turned up on google search.
I am still struggling to find out which financial assets can do OK in the new world order, assuming the post-Covid world order is different from pre-Covid world order (i.e., increase in structural inflation)?
For lack of better ideas, I bought some PRWCX and SPY today at market close. I disclose this only because in the past few weeks I mentioned in this forum on Aug 12 that I sold some equities (I also sold more equities the following Monday, Aug 15). So, today's buy is just trying to get back to previous equity allocation %age. I am under-weight equities relative to PRWCX, based on Giroux's note to shareholders.

If the trends mentioned here are the beginning of a long-term trend (i.e., symptoms of remote work, de-globalization, just in case inventory systems, etc.) could labor become more premium (i.e., wages as a source of inflation) than what we witnessed in the past decade(s)? Are we in a structural shift to higher inflation, leading to a change in Fed's target inflation rate from 2 to 3-4%? (Is realistic for the Fed to want to stick to the notion that a neutral fed funds rate is 2-2.5%?) I am trying not to become the blissful frog in the boiling water, especially when my income is entirely from capital and zero from labor.
Add to the above, recent lower productivity readings.
Which financial assets can do OK in the new world order, assuming the post-Covid world order is different from pre-Covid world order?
Excess office spaces can be converted into housing which can put downward pressure on housing prices. It was in the news today that Blackstone will halt buying homes in 38 cities / markets.

Since it seems Level 1 ADRs do not have to file any company financial information with the SEC, is it possible for some of the existing Chinese ADRs to avoid delisting by trading as level 1 ADRs? Sort of grand fathering!