Bidenomics should be called Sovietnomics. Meaning the same type of command-driven economy that helped demolish the old Soviet Union instead of a western-style demand-driven economy. Biden’s reliance on “goin’ green” has been bad for the middle class (but a boon for the wealthy donor class like Tom Steyer, the donor when The Bidens are spending on their vacation at Lake Tahoe in California).
But back to the ravages being infliced on the US middle class due to 1) bad monetary policy and 2) insane levels of spending by Biden and Congress. (Congress of Blunders?)
Existing home sales were expected to decline very modestly in July (-0.2% MoM) – after June’s drop (the biggest since Nov ’22). However, existing home sales tumbled more than expected (down 2.2% MoM), leaving sales down 16.6% YoY…
Source: Bloomberg
On a SAAR basis, that is the slowest pace of sales for July since 2010…
…and is worse than at the peak/trough of the COVID lockdowns…
Source: Bloomberg
On the bright side, at the margin, the inventory of unsold existing homes increased 3.7% from the previous month to 1.11 million at the end of July, or the equivalent of 3.3 months’ supply at the current monthly sales pace.
“Two factors are driving current sales activity – inventory availability and mortgage rates,” said NAR Chief Economist Lawrence Yun.
“Unfortunately, both have been unfavorable to buyers.”
To boost sales, builders have passed along drops in lumber prices, reduced home sizes, reduced lot sizes, and bought down mortgage rates. But the easy fruit is off the vine.
For existing home sales, current transactions reflect a combination of mortgage rates, price, and willingness of consumers to speculate on rising home prices.
For new home sales, factor in ability and willingness of homebuilders to make homes more affordable with incentives or by building smaller homes. More incentives reduces profit.
At this rate, new home prices will drop below existing home prices for the first time since 2005 – when the last housing bubble peaked..
Source: Bloomberg
Despite all the excitement of homebuilder stocks and new (over-incentivized) home sales, there remains a giant chasm between homebuyer confidence and homebuilder confidence…
Source: Bloomberg
And if mortgage rates are anything to go by, it’s about to get very real…
It’s NOT always sunny in Philadelphia. Particularly when the Philly Fed non-manufacturing survey screams stagflation (a nauseating combination of economic slowdown and inflation).
On a non-seasonally-adjusted basis, the Philly Fed Services survey plunged to -20.0 – practically its lowest level since the COVID lockdowns…
Source: Bloomberg
Under the hood it’s even uglier with stagflationary impulses rearing their ugly heads.
Price indicator readings suggest continued increases in prices for inputs and the firms’ own goods and services.
The prices paid index increased 7 points to 46.2 this month. More than 50 percent of the firms reported increases in input prices. Regarding prices for the firms’ own goods and services, the prices received index rose from 7.8 to 14.6.
At the same time the indexes for sales/revenues and new orders both recorded negative readings this month
Source: Bloomberg
Is the ‘Services’ side of the economy finally catching down to the reality of the ‘Manufacturing’ side as savings run dry?
Yes, The Fed has a line on you! And will likely keep raising rates as inflation stays elevated. This means higher mortgage rates unless China slips into a deflation doom loop.
Thanks in part to The Fed, housing affordability is at the lowest level since the 1980s.
And we are seeing tail volatility in the US Treasury futures.
Fastest Ever Rate of Increase in Credit Card Debt!!
Credit card debt has been rising at what seems like an alarming rate. To cope with Bidenflation.
Credit Card Delinquencies Gapping Higher!
This chart seems almost scary because it shows a rapid rise in delinquencies. While not quite “parabolic” it has increased by almost 50% in a little over a year! However, 0.8% to 1.15% seems a lot less scary than saying it has increased by 50% (which is why I tune out whenever anyone talks about credit spread moves in percentage terms).
Not only is credit card debt rising at an alarming rate, it is also coming just as delinquencies spike higher!
The Consumer is Normalizing
Let’s revisit the prior two charts but use a different time horizon.
Credit Card Debt Remains Below Trend
Credit card debt rose at a steady pace from 2013 until late 2019. Then COVID, stimulus, work from home, and supply chain issues all seemed to coalesce into an amazing drop in credit card debt. While we can question whether credit card debt should have been rising at the rate that it was before COVID (and whether it was sustainable or not), we should just accept that it was. Maybe population growth has changed (or it was some other factor), but if you “strip out” the COVID phenomenon, we are basically back to trend. I do think that credit card balances are an issue, but it is an issue that we seem to have dealt with in the past.
On credit cards, I completely ignore any impact from Fed hikes because credit card interest rates have always been very high relative to any other rate. What drives credit card balances doesn’t seem to be a thoughtful analysis of rates. It has always been (at least to some degree) about instant gratification.
Bottom line is that while the trend may not be sustainable, the recent rise just brings us back to trend, which takes some of the sting out of the fact that the consumer is in dire trouble.
Delinquencies are Below the 5 and 10-Year Averages!
So, delinquencies aren’t even back to pre-COVID levels. This data series averaged 1.5% for the 5 years prior to April 2020, and was 2.1% for the 10-year period before COVID (and let’s not even think about where it was post GFC).
I’m not all warm and fuzzy about the consumer, but I’m not alarmed either.
Auto Loans
Auto loans are a bit trickier. From the consumer’s point of view, they tend to be at a fixed rate and many were entered into when rates were low. In fact, if memory serves me correctly, the average maturity of auto loans extended in recent years allowing consumers to lock in low rates for longer (hopefully the lenders hedged their rate exposure on those auto loans).
Used Auto Prices are Receding
Used car prices are declining from record highs. That may pose problems to lenders who calculated too much residual value on loans and leases to consumers who thought that we were in a brave new world where even used cars went up in value.
Having said that, the prices for used cars remain robust and my understanding is that it is still extremely difficult to buy the most popular new models (and they often fetch a premium to NAV). Nothing like in the heyday of the supply chain issues, but something that should “normalize” over time.
Auto dealers benefited from a lack of inventory, and I will be curious to see if they can retain their sales with low levels of inventory and (ultimately) pass some of those efficiencies through to the consumer.
With autos being such an important part of the economy, it is something that I watch, but much like the story we heard in credit cards, a lot of the negatives that I’m reading about are simply a “normalization” which may be healthy for generating not just a soft landing, but a sustainable soft landing. However, the “slowing” is something to think about.
The Excess Savings Lie
I will spare you the agony of going through bank deposit charts on a short-term and long-term basis and just jump straight to the long-term chart. I used purple and orange arrows because I generally reserve green for good and red for bad and I’m not sure that these are “good” or “bad” deviations from trend.
Bank Deposits are Falling! But to Levels Still Around Trend.
I have argued that the “excess” in bank savings was never going to be put into the stock market (one of the bull cases, which may even still be floating around). I also think that there is a lot more than meets the eye about why there is so much in “excess” savings. Sure, without a doubt, COVID boosted savings. One thing that I “forgot” to mention earlier (or maybe I saved it on purpose) about the good things that happened to consumers during COVID is that there were many moratoriums placed on various types of debt service (i.e., student loans).
We can all agree that some amount of cash stayed in savings accounts because while savings accounts earned 0%, so did everything else. As people realized that they could earn more on their money market funds, some amount was going to be taken out of savings accounts paying little interest. Though, I do have to say that I was at the local bank branch a few weeks ago taking out money from the ATM and someone before me had left a receipt showing $99k in their bank account. I immediately thought “who does that?”, but there are obviously people who want bank accounts up to the FDIC limit.
My view has been (and will continue to be) that many people “earmarked” money that they would have to pay in the future and set it aside in a savings account. If you know moratoriums will end (and let’s not forget, these loans typically accrued interest during these periods), then it would be prudent to set aside some money for when those payments got turned back on.
If my theory is correct, you should see bank deposits decline faster as these moratoriums end and the money that was “earmarked” for certain payments is withdrawn to make those payments. Please see American Ingenuity. Not great for the economy or spending, but is “normalization” really bad?
Generative AI
My intention is to use generative AI to help me do a report on “outliers”. This would include warning signs or positive things that the market may or may not be missing. After about an hour or so of brutally failed attempts this weekend, I gave up. I try to write these T-Reports with an estimate of how long it will take and how long the report will be but had absolutely zero clarity on whether the ChatGPT process would work. Hopefully I can make some interesting progress on the report early this week or I will declare it a failure. In any case, was Google trends (using generative AI) all you needed to buy or sell stocks successfully this year?
No one really cared about AI until February of this year. Yes, there were some searches, but very few. The Nasdaq 100 bounced in January, stagnated for a bit, and then started to do well from April until late July. It has sold off steadily since then. While not matching the trends in “generative AI” search, it might have been the best tool to use. The searches have stabilized and what will be interesting to see is if they peaked or if they increase as we end the summer and people are back at work fulltime across the board.
We will be focusing more on AI as Academy’s Advisory Board has grown the number of advisors with significant experience in the area and who are active today in the ongoing development of cyber and AI.
China
I promised that we’d get back to China, but for now I only want to highlight one chart. And, ironically, it is not a lie. It is the truth, and it is logical.
China’s Holdings of U.S. Treasuries
I highlight three periods.
Post GFC. When the U.S. economy was in tatters and much of the world was struggling, China was able to (or was willing to) accumulate more and more Treasuries. There is a lot of chatter about the decoupling of our economy from China’s right now, which is logical and will continue (the friction is real between the two nations and not getting better). I did, however, find it interesting that China accumulated so many Treasuries in the aftermath of the GFC. Prior to the GFC, the trend seemed obvious (U.S. was growing and buying stuff from China).
The tariffs sparked some discussion of potential retaliation from China, including the possibility that they would dump Treasuries. There was some decline in their holdings, but that could just as easily have been COVID related.
Since the Russian invasion of Ukraine and the decision to freeze Russia’s dollar holdings, there has been a steady decline in China’s Treasury holdings.
Some of the decline is due to the weakness in China’s economy and their potential need to prop up the property market (and maybe even those overly exposed to the “shadow banking system”).
Not only did we freeze Russia’s holdings (which tells me that we can do it again), but we have also been going after China on a myriad of fronts (most notably high tech, but increasingly for rare earths and critical minerals).
Our own debt ceiling issues and ratings may not help, but I’d be shocked if that entered into China’s calculus.
What I cannot tell from this chart is if it is an indication that China is successfully generating trade globally in yuan and has less need for dollars. That would fit my “shifting from made in China to made by China” view to a tee, but I’d be lying if I said that I could support that on this chart! Maybe generative AI will help me find evidence supporting that theory in places that I haven’t thought to look.
One thing that I think supports Treasury market bears is that there will be less of a global interest in holding Treasuries (with China leading the way).
Jobs
So much to do here and with or without AI, I will add more charts related to jobs later this week.
We have covered some of these areas in the past such as discrepancies in JOLTS between job openings and hires and the Establishment versus Household gaps. The fact that all these reports come in with declining response rates is another issue. It is difficult (mathematically) to accept the continuity of a data series when the response rate is declining without a serious investigation into why the response rate might be declining.
While we haven’t discussed it recently, the annual revisions always seem to dramatically reduce the published data for the prior year (but weirdly it doesn’t seem to have a market impact).
Today, I just bring up one chart because I find it fascinating in the lies, damned lies, and statistics theme.
The “Almost” Unbelievable Pattern of New Company Formation
The birth/death model is an estimate of jobs created or lost as new companies are formed or go out of business (or at least close enough for our purposes).
I challenge you to find any other jobs data that looks this “perfect”. It is a beautiful sawtooth pattern that looks almost uninterrupted! For most jobs data, the COVID period makes long-term charts almost impossible to review. The job losses and subsequent job gains are so large relative to any prior periods (or current periods) that these charts look like straight lines on either side of COVID.
Yet this chart seems almost perfect. This is a symmetrical “beauty”, but it is just a “plug”. It is something that clearly relies heavily on seasonality and I find it almost impossible to believe that this is so “predictable” (which makes me wonder how many other “plugs” or adjustments might be meaningless after the COVID shock). Meaningless, but this data is still used to determine policy and drive markets.
Inflation
I couldn’t be bothered. Sure, I will dig into this more, but I really don’t think that despite some Fed jawboning, anything (other than a large/sustained change in inflation) will do much to the Fed’s decision (which means that it will do little for bond markets). I am prepared to be wrong on this and will delve into it this week (with help hopefully from friends at ChatGPT), but inflation is low on my radar screen. However, there is one exception – will companies be able to grow earnings in the current inflation environment where it seems to be more difficult to push through final product price increases while input costs remain elevated?
Bottom Line
Seems like we are back to an “inflection” point where the debate between soft landing and “something less fun” is back on the table. The lag effect is regaining credibility (it always should have).
There are cases to be made for a variety of economic outcomes as we head into September and that is exciting from my seat!
I do think that we are in a period where price action drives what narratives we see: continued downward pressure on stocks will bring out more and more negative reports. One more short squeeze and suddenly AI, soft landing, and praise for Powell is all that we will see.
The US Treasury 10Y yield is now the highest post 2011 singaling further Fed rate increases.
What is the difference between a porcupine and the KC Fed Jackson Hole conference? At the annual Jackson Hole Federal Reserve retreat, the pricks are on the inside! (Source: Clive Owen from “Shoot ‘Em Up” about drivers of BMW cars).
Yes, the elites of The Federal Reserve System will gather at Grand Teton National Park in Wyoming to discuss “Structural Shifts in the Global Economy,” and will be held on Aug. 24-26.
Here is where we sit on Sunday. The 30-year conforming mortgage rate (blue-green line) is over 7% and up 154% under Biden. The Fed’s target rate is now 5.50% (dark blue line) and The Fed still has over $8 TRILLION on its balance sheet. So they haven’t really done all they can do to fight inflation.
Do you remember what happened in 2008? Many people believe that another historic financial disaster is coming and that it will absolutely devastate the U.S. economy. Earlier this week, I wrote about an investor named Michael Burry that has actually bet 1.6 billion dollars that the stock market is going to crash. He made all the right moves in 2008, and he fully intends to be proven right once again in 2023. Of course current conditions definitely resemble 2008 in so many ways. The residential housing market is so dead right now, and commercial real estate prices are plummeting at a very frightening pace. Unfortunately, officials at the Federal Reserve are making it quite clear that they are not done strangling the economy.
This week, mortgage rates jumped above the 7 percent mark to the highest level that we have seen in more than 20 years…
Mortgage rates surpassed 7% this week, hitting the highest level in more than two decades.
The average rate on the popular 30-year fixed mortgage increased to 7.09% this week, up from 6.96% the week prior, according to Freddie Mac’s release on Thursday. That’s the highest point since the first week of April 2002 and marks just the third time rates have exceeded 7% since then. The last times were in October and November of last year, when the rate reached 7.08%.
Needless to say, high mortgage rates have been crippling the housing market in recent months.
At the midpoint of this year, existing home sales were down a whopping 18.9 percent from the same time in 2022…
Total existing-home sales1 – completed transactions that include single-family homes, townhomes, condominiums and co-ops – receded 3.3% from May to a seasonally adjusted annual rate of 4.16 million in June. Year-over-year, sales fell 18.9% (down from 5.13 million in June 2022).
There are certainly lots of people out there that would like to buy homes, but thanks to how high mortgage rates have become they simply cannot afford to do so.
Housing has become extremely unaffordable in this country. According to Redfin, the percentage of teachers that can afford to buy a home close to the school where they work has fallen to just 12 percent…
The number of teachers who can afford a reasonably priced home in their school district nationwide has collapsed to just 12%, down from 17% last summer and 30% in 2019, amid the worst housing affordability crisis in a generation, according to data from Redfin.
Redfin’s analysis of median teacher salaries for 2022 across 50 major cities for over 70,000 PreK-12 public and private schools revealed no teacher in San Jose and San Diego could afford homes within “commuting distances” to their respective school, which means home and work are 20 minutes during typical rush hour conditions.
So much damage has already been done.
But apparently officials at the Federal Reserve believe that even more carnage is necessary, because they are indicating that more rate hikes are on the table…
Most Federal Reserve officials signaled during their July policy-setting meeting that high inflation still poses an ongoing threat that could necessitate additional interest rate hikes this year.
Minutes from the U.S. central bank’s July 25-26 meeting released Wednesday showed that central bank officials observed that inflation remains well above the Fed’s 2% target — and that policymakers need to see “further signs that aggregate demand and aggregate supply were moving into better balance to be confident that inflation pressures were abating.”
No.
Don’t do it.
Even if rates stay at current levels, we are headed for extreme pain.
Raising rates even higher would just be suicidal.
But it looks like they are going to do it anyway, and that could push mortgage rates up to the 8 percent level…
Economists have predicted mortgage rates could go above 8 percent if the economy continues to show signs of strength and the US Federal Reserve decides to raise interest rates again.
Mortgage Rates have not hit such levels since 2000, according to data compiled by Freddie Mac.
Do officials at the Fed actually believe that our system can handle such high rates?
Unless the Fed changes course, the housing market is going to absolutely implode.
And of course the commercial real estate market is already imploding.
The chaos that is already transpiring is putting an enormous amount of strain on our financial institutions, and Fitch is warning that we could soon see sweeping rating downgrades in the banking industry…
A Fitch Ratings analyst warned that the U.S. banking industry has inched closer to another source of turbulence — the risk of sweeping rating downgrades on dozens of U.S. banks that could even include the likes of JPMorgan Chase . The ratings agency cut its assessment of the industry’s health in June, a move that analyst Chris Wolfe said went largely unnoticed because it didn’t trigger downgrades on banks.
In many ways, I feel like I am watching a repeat of 2008.
Officials at the Fed can clearly see everything that is happening, but they just keep insisting on making things even worse.
So I hope that you have been preparing for turbulent times, because things are going to get crazy.
Sadly, the truth is that most Americans are not prepared for tougher times. In fact, one recent survey discovered that 72 percent of Americans are not financially secure…
For many Americans, payday can’t come soon enough. As of June, 61% of adults are living paycheck to paycheck, according to a LendingClub report. In other words, they rely on those regular paychecks to meet essential living expenses, with little to no money left over.
Almost three-quarters, 72%, of Americans say they aren’t financially secure given their current financial standing, and more than a quarter said they will likely never be financially secure, according to a survey by Bankrate.
Many of those people will lose their jobs during this new economic crisis, and because they don’t have any sort of a financial cushion to fall back on many of them will also end up losing their homes.
Delinquency rates are already starting to move higher, and that should deeply alarm all of us.
US personal savings are being exhausted as The Fed raises rates to fight inflation. I call this phenomenon “low riding” where consumers are being punished by The Federal Reserve and Biden Administration.
On a seasonally-adjusted basis, The Fed says that total deposits dropped $11BN last week (the first decline in 4 weeks). We also note that the prior week’s inflow was revised higher…
Source: Bloomberg
After last week’s enormous $121BN NSA deposits inflow, last week saw an $11BN outflow (on a non-seasonally-adjusted basis)…
Source: Bloomberg
The gap between SA deposits and NSA deposits remains more manageable (until the next time The Fed decides to fiddle)…
The divergence between money-market fund assets and bank deposits remains extreme…
Source: Bloomberg
On a seasonally-adjusted basis, Small Banks saw $5.6BN deposit inflows last week while Large Banks suffered $28.7BN outflows (with foreign bank inflows of $12BN making up the difference)…
Source: Bloomberg
And so, for a nice change, everything is tidy with domestic US banks seeing deposit outflows on an SA and NSA basis…
Source: Bloomberg
On the other side of the ledger, small banks continued to pump out loans (+$3.56BN, sixth straight week of increases), while large banks saw a $7.4BN contraction in loan volumes…
Source: Bloomberg
So, if The Fed’s data is to be believed, Small banks are ‘winning’ – deposit inflows and making loans; while large banks are leaking – deposit outflows and shrinking loans. All while Treasury prices tumble, stressing small bank balance sheets.
Just remember, the sitting US President Joe Biden goes under several psuedonyms like Robert Peters, Robin Ware, and JRB Ware in his email conversations about Ukraine with his son Hunter. But don’t forget another pseudonym: The Reverend Kane from Poltergeist 2!
Between The Federal Reserve’s outrageous overreaction to Covid (printing like there was no tomorrow), and Biden’s massive spending spree (lots of moldy (green) spending, we have see horrid inflation.
And The Fed trying (sort of) to combat inflation, we see that 30-year CONFORMING mortgage rate for 80% LTV or lower credit borrowers is up 163.5% under Bidenomics.
Under Bidenomics, public debt (owed by the US Treasury) is up 19% or greater than $5 triillion. Now wonder Biden throws are billions like it is water.
I seriously want the Biden Administration (and almost every member of Congress) why we are sending billions of dollars to Ukraine while barely giving Maui fire victims barely anything. The US is already $33 trillion in debt with >$193 trillion in unfunded liabilites. I want to ask Biden and Congress HOW the US is going to afford $193 trillion in unfunded liabilites?
Of course, NO ONE wants to face the reality of the disastrous fiscal poliicies of Washington DC politicians. Not McConnell, not McCarthy, not Schumer and especially not Billions Biden. Remember 10% for The Big Guy where Democrats argue that is meaningless. Or mini-me, Robert Reich (Clinton’s labor secretary) who claimed that the US economy is the best he has ever seen! Yes, Reich, for the top 1%. Of couse, no one will ask fools like Reich how we will pay for $33 trillion in debt and the $193 trillion in unfunded liabilies … and fund a war in Ukreiane in seeming perpetuity.
But REAL home price growth (Case-Shiller National HPI YoY – Core CPI YoY) has been declining as The Fed helped jack up mortgage rates above 7%. REAL home price growth was last reported as -5.8% YoY.
And real home price growth corresponds to negative REAL hourly earnings growth YoY.
The source of funding for mortgage lending is bank deposits. But bank deposit growth remains negative, along with M2 Money growth.
What has Bidenomics and The Fed brought us? DECLINING REAL home price growth as bank deposit growth has stalled.
On Monday, Argentina’s central bank raised #interestrates to 118% as Argentina 30-year mortgage is now at a record 82.2%.
There is a record 350 Argentine Pesos for each US Dollar. All courtesy of Argentina’ version of Bidenomics … top down direction of spending and regulation and an out of control Central Bank.
The themesong of Bidenomics is Randy Newman’s “Mr. President,” Have pity on the working man instead of paying off green energy BIG donors.
The massive green enegy spending spree by Biden and Congress (disguised as Inflation Reduction Act) is the keystone of Bidenomics. Or loadstone.
Since Biden became President, hourly pay has risen 12%! Unfortunately, Bidenomics spending spree (along with endless Fed monetary stimulus) has caused inflation to rise 16%. That is a net -4% decline in REAL earnings.
10-Year Treasury Yield is now 4.28%, the highest level since October 2007. From a total return perspective, the 10-Year Treasury Bond is now down 1% in 2023, on pace for its third consecutive negative year. With data going back to 1928, that’s never happened before. BUT we’ve never had Joe Biden as President before 2021.
And then we have the Conference Board’s Leading Economic Idicators, sucking wind.
This is very strange. Global Treasury Yields just rose to a 15-year high (2008). This is primarily due to Central Bank moneta
And REAL 10-year Treasury yields also the highest since 2009.
At the same time, US industrial production is at the same level as pre-financial crisis (2007). Despite Federal Reserve monetary stimulypto (remember, The Fed’s balance sheet remains abouve $8 trillion.
This is Obama/Biden/Yellenomics. Trillions of dollars of fiscal (green) stimulus and monetary stimulus only to have industrial production be at the same level BEFORE The Great Recession and financial crisis.
Confounded Interest - Anthony B. Sanders 
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