COVID was a gift to Biden. The furious Federal spending of Q2 2020 through Q1 2021 helped keep GDP growth above recession levels.
Ignore Biden’s demented rants/lies about cutting the debt in half. Biden has claimed he cut the $34+ trillion national debt by $7 billion, $1.4 trillion, $1.7 billion, $1.7 trillion, and “in half,” depending on the day he rants. He did no such thing. He is confused and is talking about the BUDGET DEFICIT (don’t look to Snopes to fact check “Trucker Joe”, they really only fact check Trump).
Not surprisingly, the Federal deficit spiked with the Covid lockdowns. But when the economy reopened, the budget deficit shrunk because … the economy was open and Federal tax receipts soared. But we are back to rising deficits again.
Today, Q1 GDP numbers were released and it looks great. Real GDP year-over-year was 2.97% while Federal government expenditures YoY were 4.21%. But the US is still processing the tidal wave of COVID-related spending out of Washington DC (red line). The YoY growth in Federal spending was 86.4% in Q2 2020, 48.9% in Q3 2020, 22.4% in Q4 2020, and 67.8% in Q1 2021. Like The Titanic trying to avoid the iceberg, it takes a while for massive Federal spending to work itself through the economic system.
On a QoQ basis, US GDP increased by only 1.60%. Here are the contributions to GDP.
GDP QoQ was up 1.6% while Core PCE Price Index rose 3.7%. Yikes!
Are we entering Stagflation with the worst GDP print in 2 years as prices soar. As COVID stimulus seems to be wearing out.
Manufacturer’s Durable Goods New Orders growth peaked in April 2021, thanks in part to M2 Money Growth peaking in February 2021. And its been all downhill since then.
This is the 8th downward revision of durable goods orders in the last year…
Source: Bloomberg
Under the hood, defense and non-defense capital goods orders rose with non-defense aircraft orders surging over 30% MoM…
Source: Bloomberg
But… it looks like the AI bubble just burst as Computer & related Products orders plunged 3.9% MoM – the biggest drop since COVID lockdowns…
Source: Bloomberg
Finally, and more problematically, core capital goods shipments – a figure that is used to help calculate equipment investment in the government’s gross domestic product report – saw only a small 0.2% MoM rise, which left core shipments down 1.2% YoY – the biggest YoY drop since the COVID lockdowns…
Source: Bloomberg
Now that Biden is considering a NATIONAL CLIMATE EMERGENCY granting him 130 War-like powers, I shudder to think for much green spending he will initiate.
Biden: “How many times does Trump have to prove we can’t be trusted?”
Mortgage applications decreased 2.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 19, 2024.
The Market Composite Index, a measure of mortgage loan application volume, decreased 2.7 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2 percent compared with the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index increased 0.2 percent compared with the previous week and was15 percent lower than the same week one year ago.
The Refinance Index decreased 6 percent from the previous week and was 3 percent higher than the same week one year ago.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 7.24 percent from 7.13 percent, with points increasing to 0.66 from 0.65 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
The latest report from real estate data provider ATTOM shows CRE foreclosures topped 625 in March, up 6% from February and 117% from the same period last year.
ATTOM has been tracking commercial foreclosures since 2014. The number of foreclosures is approaching the peak of 889 in October 2014.
“California began experiencing a notable rise in commercial foreclosures in November 2023, surpassing 100 cases and continuing to escalate thereafter,” the report said.
New York, Florida, Texas, and New Jersey also showed increases in CRE foreclosures last month.
Regional banks provide a bulk of the financing for the space. The ongoing mess in the lending space due to tighter conditions adds pressure to the CRE downturn. Banks are expected to set aside more money to cover potential CRE losses.
Last month, Federal Reserve Chair Jerome Powell testified on Capitol Hill, “We have identified the banks that have high commercial real estate concentrations, particularly office and retail and other ones that have been affected a lot,” adding, “This is a problem that we’ll be working on for years more, I’m sure. There will be bank failures, but not the big banks.”
Data from a recent Treasury Department’s Financial Stability Oversight Council (FSOC) warned office vacancy rates have climbed sharply in recent years, reaching a record of 13.1% at the end of 2023.
CoStar analyst Phil Mobley recently noted the “reset in office demand has rocked US markets.”
Morgan Stanley warned earlier this year that office prices could plunge 30% due to sliding demand.
For those wondering why the excess supply of office towers can’t be converted into affordable housing, Goldman also noted that prices must drop 50% for housing conversions to make sense.
Powell has a rolling crisis on his hands. And the goal is to save the fireworks for after the election.
Housing is becoming an exclusively upper-class privilege in a growing number of cities.
According to a new study by Creditnews Research, in 2024, middle-class households could afford to buy an average home in just 52 of the country’s 100 largest metros.
Just five years earlier, they could afford a home in 91 of the top 100 metros.
The situation is far worse for lower middle-class households, as they can only afford a home in seven of the largest 100 metros.
In total, 41 out of the 100 metros require a gross annual income of $100,000 or more to qualify for an average home. In 13 metros, an average income of more than $155,000 is needed.
In those cities, even the upper-middle class doesn’t qualify for an average home.
The study determined affordability by looking at how much income households need to earn to afford a down payment, mortgage payment, and related fees for an average home.
A home is considered affordable if monthly housing and mortgage costs don’t exceed 28% of a household’s gross income.
“There’s no two ways about it: Housing affordability has worsened significantly since Covid,” the report said. Since the pandemic, 39 of the most populous metros have fallen below the affordability threshold.
As expected, the most affordable areas for the middle class are located in the Midwest, Rust Belt, and parts of Texas, while the West Coast, Tri-State Area, and Hawaii are largely out of reach.
Affording a home is no longer a guarantee for the middle class
Being considered “middle class” doesn’t carry the same significance as it did just a few years ago.
“In the past, if you were middle class, it was almost assumed you would become a homeowner,” said Ali Wolf, chief economist of Zonda, a housing market research firm.
“Today, the aspiration is still there, but it is a lot more difficult. You have to be wealthy or lucky.”
That’s all thanks to a “perfect storm” of elevated mortgage rates, sky-high home prices, and a lack of inventory, making housing more unaffordable.
The result is that middle-income buyers, or those with an annual income of up to $75,000, could only afford about one-quarter of listings on the market last year.
According to Nadia Evangelou, the director of real estate research at the National Association of Realtors, “Middle-income buyers face the largest shortage of homes among all income groups, making it even harder for them to build wealth through homeownership.”
Mortgage rates (blue line) creep closer to 7%. Mortgage rates are UP 168% under Vacation Joe and home prices are up 32.5%.
After falling between November and January, mortgage rates are creeping back up.
According to Freddie Mac, 30-year fixed-rate mortgages reached 6.88% in the week of April 11 and at some point climbed well above 7%.
The reversal seems to be driven by a surprise spike in inflation, which has come out higher than expected for four consecutive months
“For homebuyers, the latest CPI report means mortgage rates will stay higher for longer because it makes the Fed unlikely to cut interest rates in the next few months,” said Chen Zaho, Redfin’s economic research lead.
“Housing costs are likely to continue going up for the near future, but persistently high mortgage rates and rising supply could cool home-price growth by the end of the year, taking some pressure off costs.”
Bloomberg’s Ye Xie reports that a small group of funds has accumulated such large short wagers in the Treasury market that they could destabilize the broader financial system during times of stress, according to the International Monetary Fund.
“A concentration of vulnerability has built up, as a handful of highly leveraged funds account for most of the short positions in Treasury futures,” the IMF said in its Global Financial Stability Report released this week.
“Some of these funds may have become systemically important to the Treasury and repo markets, and stresses they face could affect the broader financial system.”
The IMF’s comments came in a section discussing the so-called basis trade, which contributed to turmoil in the world’s biggest bond market at the time of the pandemic outbreak in 2020.
In this trade, hedge funds exploit tiny differences between the prices of cash Treasuries and futures, using large sums of money borrowed from the repurchase-agreement market to amplify returns. Because of this leverage and reliance on short-term funding, the bet has drawn increasing scrutiny from regulators. And now the IMF is highlighting another risk: concentrated positions.
As of December, about half the two-year Treasury short positions in the futures market were in the hands of eight traders or less, according to the IMF. It was at a similar level at the end of 2019, just before a surge in funding costs in the early days of the pandemic spurred traders to unwind the positions, which helped boost volatility in bonds at a time of upheaval across financial markets.
Source: IMF’s Global Financial Stability Report
The use of basis trades swelled along with the Federal Reserve’s interest-rate hikes, which potentially make the strategy more profitable by widening the price gap between the cash and futures markets.
A Fed study last month estimated that hedge funds have amassed at least $317 billion in Treasury holdings related to basis trades since the first quarter of 2022, although the size is “significantly” less than it previously estimated.
In December, the SEC required the funds and brokerages to centrally clear far more of their US Treasuries transactions, a move to bolster oversight of basis trades.
Source: IMF’s Global Financial Stability Report
Since then, there are signs that use of the trade may be waning: Commodity Futures Trading Commission data shows a decline in leveraged funds’ short positions in bond futures.
The concentration in these bets has also diminished.
In two-year futures, net short positions controlled by eight traders or less have dropped to about 38% of total open interest, from 50% in early January, according to CFTC data compiled by Bloomberg.
Source: CFTC’s Commitments of Traders data
Note: Data show percentage of two-year Treasury short futures contracts held on a net basis
Despite that unwinding, the IMF noted the short positions of leveraged funds remain large, which means they may still loom as a risk.
As the Fed shrinks its holdings of Treasuries, a process known as quantitative tightening, it also may reduce the liquidity in the financial system, potentially triggering a jump in funding costs and leading the basis trade to unravel, the IMF said.
“Basis trade investors rely on low repo haircuts and low repo rates to leverage their positions and increase basis trade profitability,” the report said.
“A spike in repo rates — triggered, for example, by surprises in quantitative tightening — can render the trade unprofitable and could trigger the forced selling of Treasury securities and a brisk unwinding of futures positions as funds seek to quickly delever.”
Which explains, as we noted previously, why the SEC is now scrambling to figure out just how much capital is truly allocated to basis trades within multi-manager/multi-strat hedge funds, but based on our quick look at regulatory leverage, the actual amount allocated to basis is orders of magnitude greater than $550BN, more likely in the $2+ trillion ballpark across the entire global hedge fund industry.
And there you have it: all the basis trade is, is the latest manifestation of the “collecting pennies in front of a steamroller” trade, because when it works it generates 10% returns every year like clockwork, with the only gating factor being how much leverage a hedge fund has access to.
However, during a crisis, such as the Sept 2019 repo fiasco or the March 2020 crash, it all goes to hell… and the Fed rushes to bail out not just bank but hedge funds which are now so tightly interwoven in the financial fabric (via ultra loose and generous Prime Brokerage linkages) that central banks have no choice but to bail out everyone, including the billionaires who run the hedge funds that have put on trillions of basis trades on!
Sales were down almost 10% from a year earlier on an unadjusted basis, as sales of both single-family homes and condominiums and co-ops dropped.
Source: Bloomberg
This dragged total existing home sales SAAR back down to 4.19mm…
Source: Bloomberg
“Though rebounding from cyclical lows, home sales are stuck because interest rates have not made any major moves,” said NAR Chief Economist Lawrence Yun.
“There are nearly six million more jobs now compared to pre-COVID highs, which suggests more aspiring home buyers exist in the market.”
…and it’s about to get worse…
Source: Bloomberg
Total housing inventory registered at the end of March was 1.11 million units, up 4.7% from February and 14.4% from one year ago (970,000). Unsold inventory sits at a 3.2-month supply at the current sales pace, up from 2.9 months in February and 2.7 months in March 2023.
“More inventory is always welcomed in the current environment,” Yun said.
“It’s a great time to list with ongoing multiple offers on mid-priced properties and, overall, home prices continuing to rise.”
All price levels saw sales decline except $1mm+…
The median selling price increased 4.8% from a year ago to $393,500, the highest for any March on record.
Source: Bloomberg
…and existing home prices are about to top new home prices…
Source: Bloomberg
First-time buyers made up 32% of purchases in March, up from 26% a month earlier.
Somehow, I don’t think Biden will brag about this report.
President Obama selected Slow Joe Biden as his Vice President because 1) he was white and 2) an alleged foreign policy wizard in The Senate. Between Afghanistan, Ukraine, Israel, Taiwan and every other foreign policy disaster under his leadership, I am beginning to doubt Biden’s foreign policy acumen. For example …
While we are acutely aware of the fact that ‘correlation is not causation’, one would find it hard to argue that the practically perfect concomitance of China’s Treasury holdings and the yield of the US 10Y Treasury note over the past three years makes us wonder (in our out-loud voices), if – away from The QT, The FedSpeak, the macro-economy, the geopolitical crises, the AI-hype, the growth scares – if it’s not just all a well-managed (slow and steady) liquidation of China’s (still massive) US Treasury holdings…
Source: Bloomberg
It’s hard to argue they don’t have an incentive to a) de-dollarize, and b) not liquidate it all at once, shooting themselves in the face.
While the de-dollarizing has been steady in Treasury-land (enabled by a vast sea of liquid other players), things have been a little more ‘obvious’ in the alternative currency space – i.e gold.
And in case you wondered, it’s not just China and Russia, world reserve Treasury holdings are ‘relatively’ flat (based on Fed’s custody data) while according to The IMF, the world’s sovereign nations have been buying gold with both hands and feet…
Source: Bloomberg
…happy to take whatever retail-ETF-sellers are offering into their physical vaults…
Source: Bloomberg
Finally, as we note in the chart, this all started to ‘escalate quickly’ when Washington really started to weaponize the dollar.
Assuming that all the US gold is still in Fort Knox (and assuming that China and Russia are honest about their holdings), the world’s ‘other superpowers’ are rapidly catching up to the US’ holdings…
Source: Bloomberg
Who could have seen that coming? With mortgage rates hitting 7.5%, the home price to median household income ratio just hit an all-time high.
The 10Y Treasury yield just hit 4.519%.
And we have The Federal Reserve posting record losses.
Did we REALLY elect this fool Biden as President??
Biden lies constantly. This time about how HE reduced the Federal deficit. Odd since his student debt relief (buying votes) is going to raise the deficit by up to $750 BILLION.
The Biden Administration recently announced a new plan to cancel student debt for up to 30 million borrowers and released a preliminary rule this morning detailing parts of this plan. The proposal, which is being introduced through the rule making process, would replace the Administration’s initial proposal to cancel between $10,000 and $20,000 per person of debt, which was struck down by the Supreme Court.
Elements of the plan in today’s proposed rule would cost nearly $150 billion, according to the Department of Education. However, this excludes a proposal to allow the Secretary of Education to cancel debt for those facing hardship or likely to default. Including this provision, we estimate the plan could cost $250 billion to $750 billion, depending on how the additional cancellation is designed.
The plan itself has five major components. It would:
Cancel accumulated interest for borrowers with balances higher than what they initially borrowed, capped at $20,000 for those in standard repayment and uncapped but restricted to individuals making less than $120,000 annually or couples making under $240,000 enrolled in an income-driven repayment (IDR) plan.
Automatically cancel loans for borrowers in standard repayment who would be eligible for cancellation had they applied for programs such as Public Service Loan Forgiveness (PSLF) or the new IDR program, Saving on a Valuable Education (SAVE).
Automatically cancel loans for borrowers who have been repaying undergraduate loans for over 20 years or graduate loans for over 25 years.
Cancel debt of those who attended low-financial-value programs, including those that failed accountability measures or were deemed ineligible for federal student aid programs.
Forgive debt of borrowers who are “facing hardships” or are likely to default on their loan payments.
The Department of Education has estimated the first four components of the plan would cost $147 billion over a decade, with half the cost stemming from the cancellation of accumulated interest. This is in line with estimates we are currently producing, though well above estimates of $77 billion from the Penn Wharton Budget Model (PWBM). A huge source of uncertainty is how these provisions would interact with existing IDR programs and how much of the debt would otherwise be cancelled under current policy.
Importantly, today’s rule does not include the Administration’s hardship cancellation plan, which would “authorize the automatic forgiveness of loans for borrowers at a high risk of future default as well as those who show hardship due to other indicators.”
This is by far the most unclear and potentially the most costly part of their proposal, since cancellation could be both wide-ranging and ongoing. We estimate this proposal could cost between $100 billion and $600 billion over a decade. However, there’s a tremendous amount of uncertainty, with design choices possibly resulting in much lower costs than our range – for example, PWBM estimates this provision would only cost $7 billion.
It is unclear how the Administration will define hardship, but they discuss 16 possible criteria such as other consumer debt, age, and health care or housing expenses and also declare hardship could be defined based on “any other indicators of hardship identified by the Secretary.” In assessing default risk, the rule allows cancellation for cancellation for those with an 80 percent likelihood of default, as determined by the Secretary. Importantly, over $150 billion of debt is currently in default (and loans in default generally have around a 70 percent recovery rate). We also estimate that a further 6 million borrowers are over 90 days delinquent on their loans, which is another predictor of a high likelihood of default and would further push up the number. The historically high rates of delinquency appear to be related to challenges around restarting student loan repayments last year.
While the default provision would be limited to the next two years under the most recent draft of the proposal, the hardship component has no time limit and thus opens a new venue for a future administration to cancel large amounts of student loan debt. An analysis by FREOPP argues that it could cover over 70 percent of college students.
In total, our $250 billion to $750 billion estimate for the total cost of the plan would be in line with the cost of the Administration’s $400 billion blanket debt cancellation, which was ruled illegal by the Supreme Court. It would be on top of more than $600 billion of debt cancellation already enacted through unilateral executive action. As we have shown before, these policies would put upward pressure on inflation and interest rates by supporting stronger demand, and much of the benefits would accrue to high-incomeandhighly-educated Americans. In the coming weeks, we will produce further analysis of the Administration’s latest proposal and continue to refine our cost estimates as more data is made available.
Mortgage applications increased 3.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 12, 2024.
The Market Composite Index, a measure of mortgage loan application volume, increased 3.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 4 percent compared with the previous week. The seasonally adjusted Purchase Index increased 5 percent from one week earlier. The unadjusted Purchase Index increased 6 percent compared with the previous week and was 10 percent lower than the same week one year ago.
The Refinance Index increased 0.5 percent from the previous week and was 11 percent higher than the same week one year ago.
Bidenomics, a massive subsidy to the political donor class, but heartless towards the middle class.
Confounded Interest - Anthony B. Sanders 
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