Mortgage applications increased 3.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 9, 2022.
The Refinance Index increased 3 percent from the previous week and was 85 percent lower than the same week one year ago. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 38 percent lower than the same week one year ago.
You can see the impact of seasonalilty on mortgage purchase applications (white line). They peaked in the week of May 6, 2022 and have been generally declining since. While refi applications (orange line) increased over the past week, they have been pummelled by The Fed tightening.
It is quiet today as investors wait for The Fed to announce a 50 basis point rate increase. Fed Funds Futures point to almost another 100 basis point hike by May 5, 2023, then a slow decline in The Fed Funds target rate (upper bound).
And here is Sam Bankman-Fried and his high-powered legal defense.
In August 2020, the Federal Reserve unveiled its new strategic framework. One major objective of the Fed was to address its concerns over the potential consequences for the conduct of monetary policy when the policy rate was constrained by its effective lower bound. This article concludes that there are significant flaws in the new strategy and that it encourages a more discretionary approach to monetary policy and increases the risks of policy errors. The new framework is an overly complex and asymmetric flexible average inflation targeting scheme that introduces a significant inflationary bias into policy and expands the scope for discretion by broadening the Fed’s employment mandate to “maximum inclusive employment.” In a postscript, the article describes how quickly the flaws have been revealed and urges a reset toward a more systematic and coherent strategy that is transparent and broadly understood by the public.
I attended a speech by macoeconomist Gershon Mandelker at the National Association of Realtors where he called on the Federal Reserve to follow some observable rule rather than the complex (or seat of the pants) approach to monetary policy.
With today’s inflation report (core inflation YoY of 6%) results in a Taylor Rule estimate of The Fed Funds Target Rate of 12.07%. We are struggling to reach 5% as a “terminal” Fed target rate (currently at 4% and likely to rise 50 basis points at tomorrow’s Fed meeting).
The matrix of CPI and unemployment under the Taylor Rule shows that The Fed’s target rate isn’t at even 5% for any relevant combination of core CPI (inflation) and unemployment rate.
Note that since the financial crisis the Fed’s target rate (white line) has been consistely below the Taylor Rule implied rate (blue dashed line).
Fun week ahead. US inflation numbers are out on Tuesday (forecast? CPI YoY = 7.3%, Core CPI YoY = 6.1%) and The Federal Reserve’s Open Market Committee (FOMC) rate decision is on Wendesday.
So, where are we sitting on Monday?
First, the US Treasury 10Y-2Y yield curve has been inverted (a precursor to recession) for 116 straight days). Second, the likelihood of recession in 2023 is 100%. Third, with the forecast of core inflation at a still numbing 6.1%, The Fed seems dead set on raising their target rate by 50 basis points to 4.50% on Wednesday.
dddd
So, as The Fed debates recession versus fighting inflation (partly caused by The Fed), we have Kevin Malone from The Office debating Angela versus double-fudge brownies:
Central bankers won’t ride to the rescue when growth slows in this new regime, contrary to what investors have come to expect. They are deliberately causing recessions by overtightening policy to try to rein in inflation. That makes recession foretold. We see central banks eventually backing off from rate hikes as the economic damage becomes reality. We expect inflation to cool but stay persistently higher than central bank targets of 2%.
For some investors, this year’s rout in high-flying technology stocks is more than a bear market: It’s the end of an era for a handful of giant companies such as Facebook parent Meta Platforms Inc. and Amazon.com Inc.
Those companies — known along with Apple Inc., Netflix Inc. and Google parent Alphabet Inc. as the FAANGs — led the move to a digital world and helped power a 13-year bull run. And FAANG drawdown have reached over $3 trillion.
FAANGs (Meta, Amazon, Apple, Alphabet, Netflix) are getting clobbered in 2022.
Typically, when The Fed prints too much money, such as 10% or higher (red line), inflation follows. Particularly when The Fed prints at 25% YoY in Q4 2020, it was followed by the highest inflation rate in 40 years. But if M2 Money continues to slow, inflation will likely slow, but not to The Fed’s target of 2%.
Despite what Minneapolis Fed’s Neal Kashkari said about The Fed having infinite printing resourses, The Fed is going to fight inflation THAT THEY HELPED CAUSE. Biden’s energy policies (did you see that Elon Musk has a car that uses plentiful hydrogen?), and excessive Federal spending by Biden/Pelosi/Schumer, are culprits in creating the supply chain problems facing America. BUT after the 25% surge in M2 Money in 2020 and 2021, we saw M2 Money VELOCITY crash and burn to its lowest level in history. Which means the “bang for the buck” for printing more money is negligible.
Of course, big tech firms got caught influencing the 2020 Presidential election (see Musk’s release of Twitter files) and engaged in restriction of the 1st Amendment (Freedom of Speech). How much will that impact FAANG stocks going foward?
And yes, the US Treasury yield curve is inverted pointing to a recession in 2023.
And yes, apparently Biden was complicit in the Twitter fiasco.
The Federal Reserve is removing the massive punch bowl from the US economy and markets. And with the rising US mortgage rates, we got crashing buying conditions for housing.
The UMich consumer survey for buying conditions for house rose slightly in December to 36, well below 100 (the baseline).
The good news for Americans? The global slowdown is helping to lower US Treasury yields which, in turn, helps to help to lower US mortgages rates. Kind of a perverse “good news” story when you think about it.
The bigger picture is the slowdown caused by 1) a global economic slowdown and 2) the tightening of Fed monetary policy to fight inflation.
Look at the Case-Shiller national home price growth YoY (blue line) against M2 Money growth YoY (green line). Just move the green line to the right and it covers home price growth. Both are slowing down with anticipated Fed rate hikes (red line) now at 50 basis points for the December 14th FOMC meeting. And note that The Fed’s balance sheet (orange line) has barely budged.
The start of a new week and the US Treasury 10-year yield is up 10 basis points, always a noteworthy change. And with it, the 30-year mortgage rate should climb.
Since Biden/Pelosi/Schumer are in a lame duck session with Republicans taking the House in January, let’s see if Republicans can halt the insanity in Washington DC.
Be that as it may, Fed Funds Futures are pointing at a 50 basis point rate hike at the December 14th FOMC meeting.
Seriously, how is The Federal Reserve going to cope with $204 TRILLION … and growing Federal debt AND unfunded liabilities?
We are truly living in Strange Days under Joe Biden. And with Elon Musk’s release of Twitter’s suppression of the Hunter Biden laptop scandal, they call Joe Biden the Sleaze.
As The Federal Reserve tries to crush Bidenflation, we are seeing Fed Remittances to the US Treasury soaring (white line). At the same time, we see the Biden Administration draining the Strategic Petroleum Reserve (orange dashed line). And as The Fed tightens, M2 Money growth crashes (green line).
And with tech layoffs, I predict that 2023 job growth will be pretty bad.
As I have discussed before, I am a fan of ADP’s job reports and not a fan of the BLS NFP reports. As M2 Money growth slows, we can see declining ADP jobs added (yellow line), but BLS’s NFP report shows huge spikes.
Lastly, we have Sam Bankman-Fried and FTX. SBF should be in custody for being involved in one of the biggest fraud cases in history, but like Hunter Biden, is roaming free and trying to raise MORE funds. Why are these lapses in justice occuring with “10% for The Big Guy” Biden?
As The Federal Reserve continues its assault on inflation by raising their target rate, Blackstone Inc.’s $69 billion real estate fund for wealthy individuals said it will limit redemption requests, one of the most dramatic signs of a pullback at a top profit driver for the firm and a chilling indicator for the property industry.
Blackstone Real Estate Income Trust Inc. has been facing withdrawal requests exceeding its quarterly limit, a major test for the one of the private equity firm’s most ambitious efforts to reach individual investors. The news, in a letter Thursday, sent Blackstone stock falling as much as 10%, the biggest drop since March.
You can see the problem facing commercial real estate. Since December 31, 2021, NAREIT’s all-equity REIT index has fallen -23.6% while NAREIT’s mortgage REIT index has fallen -28.6%. It looks like Blackstone’s Real Estate Income Trust has a decline coming.
If I look at NCREIF’s commercial property index, we can see that The Fed helped boost CRE values. But what will happen if and when The Fed actually shrinks its balance sheet.
I call The Fed’s attempts at cooling inflation “Fed Dead Redemption” since it resulted in redemptions from real estate funds.
Confounded Interest - Anthony B. Sanders 
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