REAL Fed Funds Rates Goes POSITIVE For First Time Since 2008 (When Fed Introduced QE!)

Yes, the REAL effective Fed Funds Target Rate has gone POSITIVE … for the first time since 2008 and tbe beginning of The Fed’s quantitative easing.

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It must be Janet Yellen and Lael Brainard singing to create inflation! Because The Fed has been raising their target rate since November 2016 even though core inflation has been stagnant!

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Mr. Freeze? US Existing Home Sales YoY Fall For 7th Consecutive Month (-4.10% In September), Median Price YoY Continues To Cool

Well, ain’t this a kick in the head.

US existing home sales YoY fell for the seventh straight month, -4.10% in September.

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Existing home sales median price YoY has cooled to 4.2% YoY while inventory remains below the long-run average.

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Is Fed Chair Jerome Powell really Mr. Freeze?

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Fear! Dow “Smart Money” Index Drops To Lowest Level Since April 2009

The Dow “Smart Money” Flow index has dropped to its lowest level since April 2009.

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The Smart Money Flow Index is calculated by taking the action of the Dow in two time periods: the  first 30 minutes and the close. The first 30 minutes represent emotional buying, driven by greed and fear of the crowd based on good and bad news. 

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That’s Amore! Italy’s Yield Spread Over Germany Hits Highest Level Since 2013

When a moon  the yield hits their eye like a big pizza pie
That’s amore
When the the government spends like they’ve had too much wine
That’s amore
(Alarm) Bells will ring ting-a-ling-a-ling, ting-a-ling-a-ling
And you’ll sing “Vita bella” “We’re screwed!”

(Bloomberg) — A key barometer of risk aversion for Italy flared to the highest level in more than five years as the nation battles the European Union over its budget and faces the prospect of rating downgrades next week.

The extra yield that investors demand on Italy’s 10-year bonds over comparable notes in Germany rose to 324 basis points, the highest level since April 2013. Italy is due to widen its deficit to 2.4 percent next year, putting it in conflict with EU fiscal rules, while S&P Global Ratings and Moody’s Investors Service are due to review the sovereign rating by the end of this month. The nation is currently rated two notches above junk by both.

Italy’s 10-year yield rose 12 basis points to 3.67 percent as of 4:04 p.m. in London, while those on their German peers dropped two basis points to 0.44 percent. Italy’s Treasury conducted a 3.8 billion euro ($4.4 billion) buyback of inflation-linked bonds, selling five nominal notes in return, earlier Thursday.

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Of course, the same countries that overspent before, Italy, Greece, Portugal and Spain all saw the most rapid rise today in 10-year sovereign yields.

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And Germany’s 10-year yield is the second lowest in Europe.

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Greece and Italy lead Europe in Debt-to-GDP followed closely by Portugal.

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Dean Martin is the classic version of That’s Amore. The worst?

The Mist! US Housing Starts Plunge Under Rising Interest Rates (Hurricanes Florence and Jerome)

There is little doubt that Federal Reserve policies have resulted in mispriced risk and massive distortions in the economy. Fed Chairs Bernanke and Yellen were masters of distortion (keeping rates too low for too long) while Fed Chair Powell (Hurricane Jerome) is raising rates rapidly in the face of little-to-no inflation. Throw in Hurricane Florence and we have “The Mist” where fear changes everything.

Housing starts for September were released yesterday and, as expected, the numbers were down across the board (except for the West where it is seemingly always sunny).

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1-unit starts (aka, single family detached) are still below 2000 levels thanks, in part, to The Federal Reserve dropping their target rate like a hammer to 1%. We got a massive construction response. That blew up, so The Fed dropped their target rate like a hammer … again from which Hurricane Jerome is only recently begun raising.

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But it is with multifamily (5+ unit starts) that Fed rate increases are being daunting.

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In a sense, The Fed destroyed the single family detached housing market (along with other misguided Federal programs) and now The Fed is applying its mist to the multifamily market.

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Courtesy of the great Jesse’s Cafe Americain!

Dollar Libor at a 10-Year High Adds to Global Funding Headwinds (Fed’s Giant Electric Belt!)

(Bloomberg) — The global dollar benchmark rate that everyone loves to hate and which regulators have marked for extinction approached a 10-year high Wednesday, adding to strains on some emerging economies and U.S. companies alike.

The London interbank offered rate still serves as the basis for trillions of dollars in loans and floating-rate securities globally, even though its replacement is gaining traction. Steeper U.S. interbank borrowing costs risk rippling across developing economies by tightening financial conditions and forcing local-currency benchmarks higher. It’s a development that could heighten investor concern at a time when a rising dollar has sparked worries about emerging-market borrowers’ ability to repay loans in the greenback.

Three-month U.S. dollar Libor is now 2.4496 percent, the highest since November 2008. The main driver is that traders are pricing in further Federal Reserve tightening. Officials’ latest quarterly forecasts indicate another rate hike this year followed by three more in 2019.

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I wonder if The Fed’s rate hikes are contributing to the LIBOR meteoric rise?

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Here is The Fed’s Magical Electric Belt to stimulate the economy!

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Russia Dumps US Treasuries As Rates Climb (From Russia With Love?)

As predicted, Russia has reduced its holdings of US Treasuries as US rates continue to rise.

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But Russia is a relatively small player in the US Treasury market (unless they are using proxies like postage-stamp sized Luxembourg, Ireland or the Cayman Islands).

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As The Federal Reserve SLOWLY unwinds its balance sheet, I am surprised that Japan and China have not unloaded MORE of their Treasury holdings.

Here is Vlad Putin singing “From Russia With Love.”

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Mortgage Refinancing Applications Remain In Death Valley (Hurricanes Michael And Jerome)

Between Hurricanes Michael and Hurricane Jerome (Powell), mortgage refinancing applcations are taking a big hit.

The Mortgage Bankers Association (MBA) refinancing applications index fell 9% from the previous week as 30-year mortgage rate continued to rise.

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Mortgage purchase applications fell 5.52% WoW, but it is in the “mean season” for mortgage purchase applications and there was a hurricane (Michael). And then you have hurricane Jerome (Powell) battering the mortgage markets.

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In addition to Hurricane (weather and Federal government), there is also the decline in Adjustable Rate Mortgages (ARMs) since the financial crisis.

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Here is the face of financial squalls: Hurricane Jerome (Powell).

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Fear! Hungarian National Bank Increased Their Gold Reserves By Ten Times!

Yes, Central Banks are growing more fearful of how their policies may have created staggering asset bubbles that could burst. Though Hungary is a small player, it says something about what is happening around the globe.

Budapest, October 16, 2018 – In view of the long-term national and economic strategygoals, the Monetary Council of the National Bank of Hungary has decided to increase the gold reserves of the country. As a result, in October 2018 the precious metal stock ranges from the previous 3.1 to 31.5 tons increased tenfold. Since 1986, the Hungarian National Bank has been buying gold for the first time since 1986. After the substantial increase in the stock of gold reserves in physical form, its repatriation has already taken place.

The possession of precious metal within the country is in line with international trends, supports financial stability and strengthens market confidence in Hungary. In keeping with the historical role of gold, it remains one of the safest instruments in the world, which, even under normal market conditions, exposes its stability and confidence-building function. With a current stock of about $ 1.24 billion in gold reserves of 31.5 tonnes, it reached the historical level that was available to our country at the time of the “golden train”. Within the international reserve, the share of gold reserves rose to 4.4 per cent, which corresponds to the average of non-euro area Central and Eastern European countries.

The role of gold reserves in the nation and economy strategy is becoming more and more appreciated while both the possession and the increase of the precious metals nationwide appear to be a decisive international trend. In this process, according to the strategic decision of the Hungarian National Bank, the domestic gold reserves rose to 31.5 tons. The raising of the gold reserve and the returning of it in physical form took place in the first half of October 2018.

Increasing and repatriating gold reserves can be considered a significant step in economic history. Since the founding of the Hungarian National Bank in 1924, gold reserves have been maintained, but the stock of the population has fluctuated considerably over the decades, depending on the purpose of keeping. The amount of gold reserve is in the II. World War II, and at the end of the day, he pulled out some 30 tons of gold balloons and gold coins on the MNB’s legendary “gold train” in the Spital am Pyhrn in Austria. This amount was fully returned to the country after the war, while providing cover for the introduction of the new currency of the country, the forint, thus supporting financial consolidation and the stabilization of the post-war Hungarian economy. At the end of the eighties, Hungary’s gold reserves, driven by short-term investment objectives, fluctuated between 40 and 50 tons and then, at the time of the change of regime (between 1989 and 1992), the ruling central bank executives decided to reduce to a minimum level of about 3.1 tons by the end of September 2018. level. With the decision of the MNB today, the stock of 31.5 tonnes of gold reserves reached the level of the stabilization period of 1946 by October 2018.

Gold reserves are held for short-term investment and / or long-term stability purposes by country central banks. The current decision of the Hungarian National Bank was led by the stability goals, and there are no investment concerns behind the holding of gold reserves. Gold also has a confidence-building effect in the normal period, that is, it can play a role in stabilizing and defending it not only in the extreme market environment, structural changes in the international financial system or in deeper geopolitical crises. Gold is still considered to be one of the safest assets that can be attributed to unique properties such as the finite supply of precious metal, which is not linked to credit and counterparty risk, since gold is not a claim against a specific partner or country.

Over the past few years, more and more countries have decided to continue to play a decisive role in the use of precious metals, which serve as traditional reserve assets, and raise their gold reserves. This was followed by Poland, in spite of the fact that it had one of the highest gold reserves in the region. When raising domestic gold reserves to 31.5 tons, the MNB also paid attention to the international and regional role played by precious metals in central bank reserves. As a result, the Hungarian gold reserve increased to 4.4 percent in the Central Eastern European region averaging the entire international reserve ratio. This move from the end of the international rankings to the middle of the way has progressed, both in terms of size and proportion of gold reserves.

On the occasion of the announcement, the National Bank of Hungary also published a “golden book”, which gives an insight into decisive periods such as centuries of golden coins, the rescue of our national treasures by gold trains, or the recent homecoming of the country’s gold reserves.

The National Bank of Hungary must have seen this film clip of fear being wrestled to the ground. By buying gold.

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US Industrial Production Rises 5.14% YoY, Highest Since 2010 (New Surge In Subprime Lending Courtesy of NACA And Bank Of America)

The Good News! US industrial production YoY rose 5.14% in September, the highest growth rate since 2010.

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The Bad News? Subprime mortgage lending is starting to boom … again.  When lenders feel comfortable because of a booming economy  and home prices things change … again.

As CNBC’ Diana Olick writes, “Thousands line up for zero-down-payment, subprime mortgages”

Borrowers can have low credit scores, but have to go through an education session about the program and submit all necessary documents, from income statements to phone bills.

They must go through counseling to understand their monthly budget and ensure they can afford the mortgage payment.

The loans are 15- or 30-year fixed with interest rates below market, about 4.5 percent.

“It’s total upside,” said AJ Barkley, senior vice president of consumer lending at BofA. “We have seen significant wins in this partnership. Just to be clear, when we get those loans with all the heavy lifting here, we’re over a 90 percent approval, meaning 90 percent of the people who go through this program that we actually underwrite the loans.

While the Veterans Administration offers no-down payment loans to veterans and their families, there are few other programs like this. Most low-down payment programs require mortgage insurance, which can be costly. The NACA program does not.

Following the financial crisis, lenders locked up, requiring much higher credit scores and at least 3 percent down payments. The subprime mortgage crisis was precipitated by lenders offering no-down payment loans with short-term “teaser” rates as low as zero. They asked for no documentation, and sometimes tacked interest onto later years of the loan, so-called, negative amortization loans. The NACA loans are all fixed rate with full documentation.

So far more than 10,000 potential borrowers have shown up at various NACA events in cities like Charlotte, North Carolina, and Atlanta, according to Marks, and more are planned. NACA receives a $3,000 commission on each loan.

A community organizer making a deal with a big bank. What could go wrong?

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