US Payrolls Rise 4.8 MILLION In June, Dow Jumps 1% (Taylor Rule Rises To -7.07% On Improving Unemployment Rate To 11.1%)

The markets were waiting for some goods news during the Covid-19 pandemic (although I am certain that Dr. Fauci (nee Strangelove) will produce some dire forecast about new swine viruses to rattle confidence). The good news is … Non Farm payrolls jumped +4.8 million in June.

And the number of working Americans rose for the second straight month and the unemployment rate dropped to 11.1% in June.

As a result of the decrease in the unemployment rate, the Taylor Rule (Rudebusch variation) now calls for a Fed Funds rate of -7.07%.

Dr. Fauci speaking today.

My Fed! FOMC Minutes Suggest Fed Will Keep Buying Bonds “For Many Years” As Fed Officials Unconvinced on Need for Yield-Curve Control

There is nothing in the world that can change The Fed.

Federal Reserve officials had “many questions” about the benefits of yield-curve control when they discussed its pros and cons during their meeting in early June.

“Many participants remarked that, as long as the committee’s forward guidance remained credible on its own, it was not clear that there would be a need for the committee to reinforce its forward guidance with the adoption of a YCT policy,” minutes published Wednesday of the June 9-10 Federal Open Market Committee meeting showed. YCT refers to yield caps or targets.

Here is today’s Treasury yield curve versus the yield curve on December 1, 2005. Looks more like wholesale panic to me.

Furthermore, Powell and The Fed have signaled in the minutes that more long-term debt will have be issued … and purchased by The Fed.

The Fed dots plot from the recent meeting shows low interest rates until after 2022.

To infiniti … and beyond!!

U.S. Manufacturing Gauge Rises to 14-Month High on Reopenings

Pfizer seems to have a vaccine that works and United Airlines is scheduling more flights (not that I can fly anymore). And more good news …

(Bloomberg) — A closely watched measure of U.S. manufacturing jumped in June to the highest in more than a year, signaling the resumption of growth as pandemic-related lockdowns ended.

The Institute for Supply Management said Wednesday that its gauge jumped by 9.5 points, the most since August 1980, to 52.6 last month. Readings above 50 indicate that manufacturing is expanding, and the latest figure exceeded the 49.8 median projection of economists in a Bloomberg survey. More factories reported growth in orders and production.

The data mark a turnaround from just two months earlier when the factory gauge tumbled to an 11-year low as states closed most non-essential businesses to help contain the coronavirus. At the same time, the level of manufacturing activity, like much of the rest of economy, will probably remain below pre-pandemic levels for some time.

US Home Prices Soar 4.73% YoY In April As Average Hourly Rise 7.76% YoY (No Where To Run, No Where To Hide)

When US Treasury yields below 1% for maturities less than 20 years,

households are incentivized to invest in the stock market and real estate. As such, it is no surprise that the Case-Shiller national home price index rose 4.73% YoY in April.

At the same time, average hourly earnings for US workers rose 7.76% YoY in April and 6.75% in May.

Phoenix led in YoY price growth at 8.8% with Chicago at the bottom with 1.4% growth.

It doesn’t look like The Fed will pull the plug on its prodigious asset buying anytime soon.

“I swear that I will not meaningfully reduce The Fed’s footprint in the economy.”

V-Shaped Recovery? US Pending Home Sales Rise 44.3% MoM in May, But Decline -10.4% YoY

According to the National Association of Realtors, pending US home sales rose 44.3% MoM in May.

The looks like a big V-shaped recovery to me.

Although YoY pending home sales declined -10.4%, it is a massive improvement over April’s -34.6% YoY reading.

Consumer sentiment looks similar to pending home sales YoY.

Could this be households escaping big cities? Just in time of the start of fall classes!

Fed’s Muriburiland: Fed Keeps Pumping Air Into Asset Prices (S&P 500, Commercial Real Estate)

“In the field of monetary and credit policy, precautionary action to prevent inflationary excesses is bound to have some onerous effects— if it did not, it would be ineffective and futile. Those who have the task of making such policy don’t expect you to applaud. The Federal Reserve, as one writer put it after the recent increase in the discount rate, is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.”

William McChesney Martin, Speech to Investment Bankers Association of New York, October 1955

Perhaps The Fed removes the punch bowl in Muriburi Land, but The Fed certainly didn’t remove the punch bowl in the USA. The S&P 500 index and commercial real estate have both exploded with the perpetual punch bowl.

“We’re not even thinking about thinking about the consequences of our actions.”

Jerome Powell, Chairman, Federal Reserve

Apparently, Chairman Powell lives in financial Muriburiland.

Thanks to Jesse at Jesse’s Cafe Americain for the quotes!

4.68 Million Homeowners In Forbearance Plans (8.8% of Active Mortgages)

Black Knight has some grim housing news today. The latest data from the McDash Flash Forbearance Tracker shows that the number of homeowners in active forbearance rose this week after three consecutive weeks of declines.

As of June 23, As of June 23, 4.68 million homeowners are in forbearance plans, representing 8.8% of all active mortgages, up from 8.7% last week. Together, they represent just over $1 trillion in unpaid principal ($1,025B)., up from 8.7% last week. Together, they represent just over $1 trillion in unpaid principal ($1,025B).

Fannie Mae and Freddie Mac lead in terms of loans in forbearance.

What is forbearance you ask? Forbearance is when your mortgage servicer or lender allows you to temporarily pay your mortgage at a lower payment or pause paying your mortgage. You will have to pay the payment reduction or the paused payments back later.

The Forgotten Man II: Federal Reserve Holds 48.3% Of Treasury Debt Outstanding As Q2 GDP Plunges To -46.6%

It is stunning that The Federal Reserve now holds almost 50% of the US Treasury debt outstanding. At the same time, Japan and China are reducing their holdings.

Meanwhile, the government-shutdown of the economy has caused a recession. The Atlanta Fed GDPNow forecast of Q2 GDP is a whopping -46.631%.

Yes, “the shutdown governors” of NY (Cuomo), NJ (Murphy) and VA (Northam) have forgotten about the middle class as FDR forgot about them in the Great Depression.

Dow Tanks 700 Points As Covid-19 Picks Up Steam (No Where To Run For Treasuries)

The latest on the Covid-19 epidemic indicates that opening local economies will result in more Covid-19 cases. Which will lead to more governors and mayors shutting down economies.

On this bleak news, the Dow fell over 700 points.

As Martha and the Vandellas warbled, “No where to run, no where to hide” for Treasuries. Since the US Treasury yields at 3 years and less maturity are at only 21 basis points and lower.

There is no where to run to hide from local government shutdowns of the economy. But life finds a way .. unless government interferes.

US New Home Sales Surge 16.6% For May Thanks To Historic Low Interest Rates (Will The Fed Wave Into Negative Interest Rates?)

New home sales rose 16.6% MoM in May, a pleasant surprise for the US economy. This is nearly the exact opposite of yesterday’s existing home sales plunge of nearly 10% MoM in May.

(Bloomberg) – Prashant Gopal – New home sales in the U.S. rose more than expected in May, with record-low mortgage rates pulling buyers back into a housing market that froze up during the pandemic.

Purchases of single-family houses climbed 16.6% to a 676,000 annualized pace, government data showed Tuesday. The median forecast based on a Bloomberg Survey of economists was for 640,000.

Homebuilders are welcoming buyers back after social-distancing rules across much of the U.S. kept them on the sidelines in March and April. A growing share of buyers are opting for new homes because existing home listings are in short supply. Record-low interest rates have made the properties affordable to a larger share of buyers.

With the Taylor Rule at -11%, will The Fed venture into negative nominal rates?