The Perils Of Fed Tightening In One Chart (Or Sweet Home DC!) Treasury Yield Curve Remains In Reversion And Stock Market Declining As Fed Reduces Money Supply Growth

Sweet home DC! At least for the ruling elites. For the rest of us mortals, Bidenflation is crushing our finances.

To combat Bidenflation, The Fed has signaled that they will continue to raise interest rates. But at what cost?

(Bloomberg) — The world’s leading central banks are finally pushing their interest rates into restrictive territory, causing fears of overkill in financial markets and stoking chatter that policymakers may need to pivot at some point.

And with the withdrawal of monetary stimulus comes the slowdown of US M2 Money growth (green line). And with that slowdown, we see a declining stock market and an inverted US Treasury yield curve.

Of course, Biden could reverse his green energy agenda and allow for oil and natural gas exploration … again. Or begin building nuclear power plants again. But nooooo.

Another peril is rising mortgage rates.

Here is the S&P 500 against global liquidity.

Speaking of Freddie King, here is Joe Biden’s favorite song: hideaway.

US Economy Adds 263K Jobs In September, REAL Average Hourly Earnings Growth At -3.06% (100 Million NOT In Labor Force)

Yesterday, I told my family “The good news is that Rotolo’s Pizza tastes even better reheated in the morning. The bad news? I ate the only two piece left.”

Which brings me to the September jobs report. The good news is that 263k jobs were added to the US economy. That means 10,521k jobs have been added in the 21 months under Biden! (Bear in mind that 12,100k jobs were added in the 7 months under Trump following the Covid economic shutdown, yet no media outlet trumpeted that accomplishment).

The bad news? While nominal average hourly earnings grew by 5% YoY, when I subtract Bidenflation from that number I get -3.06% growth. Or should I say that REAL wages are shrinking under Biden.

Now for the “Biden Miracle” of jobs being added. Here is a chart of NFP jobs added (white line) against M2 Money and headline inflation. Both The Fed and the Federal government pumped trillions into the economy leading to the highest inflation rate in 40 years. Once governments stopped with their Covid shutdown nonsense, jobs would return regardless of who was President. BUT Federal spending and Fed money printing went off the rails in early 2020.

As Paul Harvey used to say, “Here is the rest of the story.” Labor force participation fell in September and the U-3 unemployment rate fell slightly to 3.5%.

But labor force dropouts increased leading U-3 unemployment to decline. The number of people NOT in the labor force grew to nearly 100 million. Nothing has been the same since Covid.

So what will The Fed do? According to Fed Funds Futures data (WIRP), The Fed will keep raising rates until March ’23 then slowly start lowering interest rates again.

And with that “positive” jobs report, The Dow is down almost -500 points and the NASDAQ is down over -3%.

And with Fed tightening, we are seeing a collapse in M2 money supply.

Down, Down, Down! Challenger Job Cuts Rises 67.6% Following Worst US JOLTS Report Since Covid Outbreak (Conference Board Predicts 96% Probability Of Recession Over Next 12 Months)

Challenger US Job Cut Announcements for September rose 67.6%, the highest since … Covid-19 outbreak in early 2020. This comes after the JOLTS (job openings) fell the most since … Covid-19.

And with rising US job cuts, we are seeing an increase in the probability of a US recession over the next year. But the Conference Board predicts a 96 percent likelihood of a recession in the US within the next 12 months.

Apparently, the US is going down, down, down.

This index quantifies sentiment using 6 factors — price breadth, pairwise correlation, low vol perf, defensive vs. cyclical sector perf, high vs. low leverage perf and high yield spreads.

It’s currently as panicked as in 2008!

Chain Gang! US Mortgage Rates Rise for Seventh Week to Highest in 16 Years (Basic Mortgage Applications Fall To May 1997 Levels, Refi Apps DOWN 86% YoY, Purchase Apps DOWN 37% YoY)

In addition to creating the highest inflation rate in 40 years, we are now seeing the highest mortgage rate in 16 years. I feel like we are all on a chain gang.

(Bloomberg) — US mortgage rates jumped to a 16-year high of 6.75%, marking the seventh-straight weekly increase and spurring the worst slump in home loan applications since the depths of the pandemic.

In fact, mortgage application just fell to the lowest level since May 1997.

The contract rate on a 30-year fixed mortgage rose nearly a quarter percentage point in the last week of September, according to Mortgage Bankers Association data released Wednesday. The steady string of increases in mortgage rates resulted in a more than 14% slump last week in applications to purchase or refinance a home.

Over the past seven weeks, mortgage rates have soared 1.30 percentage points, the largest surge over a comparable period since 2003 and illustrating the abrupt upswing in borrowing costs as the Federal Reserve intensifies its inflation fight.

The effective 30-year fixed rate, which includes the effects of compounding, topped 7% in the period ended Sept. 30, also the highest since 2006.

The Refinance Index decreased 18 percent from the previous week and was 86 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 13 percent from one week earlier. The unadjusted Purchase Index decreased 13 percent compared with the previous week and was 37 percent lower than the same week one year ago.

Here is today’s table of MBA mortgage applications and its ugly.

Meanwhile, the politicians in Washington DC are twisting the night away while the rest of the nation suffers.

Unfortunately for the US chain gang, gasoline prices are rising again as the US drains its petroleum reserve. Because, that’s the way … uh-huh … they like.

America! US 30yr Mortgage Rates Declines To 6.85% As US Home Prices Retreat From Highs (Will The Fed Pivot To Increase M2 Money Again?)

I was confused when President Biden claimed ‘I was sort of raised in the Puerto Rican community’ in Delaware.” Here are Joe and Jill Biden singing “America.” Apparently, Biden was in the Sharks gang and Trump’s MAGA supporters are the Jets.

On the real estate side, Bankrate’s 30-year mortgage rate dropped to 6.85% as the 10-year US Treasury yield drops.

On the home price front, according to the Black Knight Home Price Index (HPI), median home prices fell 0.98% in August, only marginally better than July’s upwardly revised 1.05% monthly decline July. August 2022 marked the largest single-month price declines seen since January 2009 and rank among the eight largest on record. The monthly rate of home price decline is now rivaling that seen during the Great Recession – the question is how long it will continue to do so, and how far off peaks prices will fall.

Now, will The Fed pivot to correct the plunging M2 Money growth?

Here is Joe Biden’s memory of a Maga rumble from Wilmington Delaware. I assume Trump is Riff and Biden is Bernado. But where is Corn Pop??

Great Reset?? US Treasury 10yr Yield Tanks -20 Basis Points (UK 10yr Tanks -24.1 BPS)

As I frequently told my investment and fixed-income securities students at Chicago, Ohio State and George Mason University, any 10 basis point change in the US Treasury 10-year yield is significant.

But how about today’s 20 basis point decline in the US Treasury 10-year yield?

The UK’s 10-year yield is down even more at -24.1 basis points. Germany is down -18 bps and France is down -10.3 bps.

Speaking of credit default swaps, Credit Suisse is back to financial crisis levels while UBS and Deutsche Bank are not … yet.

And gold jumped $28.5 dollars today as POP goes the yield.

With all the turbulence in markets thanks to the war in Ukraine and Biden’s green energy mandates and spending (not to mention Statists like Klaus Schwab screaming about a Great Reset), I was reminiscing about more simple times.

Lehman Debacle 2? Credit Suisse Market Turmoil Deepens After CEO Memo Backfires (Credit Suisse’s CDS Now Higher Than During 2008-2009 Financial Crisis)

New CEO Koerner sought to reassure employees in Friday memo
Shares fall to a fresh record low, gauge of credit risk rises

It is like the Lehman Brothers debacle in 2008 all over again.

(Bloomberg) — Credit Suisse Group AG was plunged into fresh market turmoil after Chief Executive Officer Ulrich Koerner’s attempts to reassure employees and investors backfired, adding to uncertainty surrounding the bank.

The stock, which had already more than halved this year before Monday’s sell-off, fell as much as 12% in Zurich trading to a record low that values the firm at less than $10 billion. That was accompanied by a spike in the cost to insure the bank’s debt against default, which jumped to its highest ever.

Koerner, for the second time in as many weeks, had sought to calm employees and the markets with a memo late Friday stressing the bank’s liquidity and capital strength. Instead, it focused attention on the dramatic recent moves in the firm’s stock price and credit spreads, and investors rushed for the exit when trading reopened after the weekend.

One notable difference between 2008 and today is that Credit Suisse’s equity was flying high in June 2007 then crashed a the global banking crisis went into full motion. We then saw Credit Suisse’s credit default swaps soar in early 2009. But today Credit Suisse’s equity is a pale imitation of its former self, but its credit default swap is now higher than it was at its peak in early 2009.

Credit Suisse is now trading lower than its European rival Deutsche Bank (aka, The Teutonic Titanic).

Yes, this brings back sickening memories of the 2008-2009 global financial crisis. Let’s see how The Federal Reserve, ECB and Bank of Switzerland handle this debacle, particularly with M2 Money growth so low.

It appears that we are in another Lehman debacle. Or should I say “Lemur Bros.”

Wasting Away In Bidenville! Dow Tanks -500 Points On Friday As Fed Reaffirms Their Fight On Bidenflation

My investments are wasting away in Bidenville! Looking for my lost 401k value.

The Dow Jones Industrial Average was DOWN -500 points on Friday as The Federal Reserve continues their fight against inflation (green line).

If fact, since January 4, 2022, the Dow is down -22%.

Negative wage growth, relentless inflation, collapsing 401ks, we are wasting away in Bidenville.

Hey Joe! Where is the US economy? With Jackie Walorski??

Sink The Bismarck! German 10yr REAL Yield Plunges To -7.89% (US REAL 10yr Yield At -4.43%)

Sink The Bismarck! Or at least sink the German economy.

Between going green and the war in Ukraine, Germany is seeing economic distress (high inflation) and a -7.89% Real 10yr yield. At least the US is seeing “only” a -4.43% REAL 10yr Treasury yield.

Like the US, I wonder who in Germany studied game theory? That is, going green leaves nations vulnerable to foreign nations oil and natural gas supplies. Like Russian natural gas.

The Nash equilibrium is a decision-making theorem within game theory that states a player can achieve the desired outcome by not deviating from their initial strategy. In the Nash equilibrium, each player’s strategy is optimal when considering the decisions of other players.

Unfortunately, the US and Germany have deviated from the initial strategy are are paying dearly with skyrocketing energy prices. Particularly as we enter the winter season.

So, who blew up the Nordstream natural gas pipeline going from Russia to Germany?

I can take a guess.

UMich Buying Conditions For Houses Remain Depressed As Fed Tightens (Fed’s Brainard Calls For Fed To Keep Tightening!)

Bidenflation and The Fed’s counter-attack has caused considerable damage to the housing and mortgage markets.

Today, the University of Michigan consumer sentiment indices were released for September. Of note, buying conditions for houses remained in the tank.

Meanwhile, Fed Vice Chair Lael “Brainless” Brainard is calling for The Fed to NOT stop tightening money and raising interest rates.

As The Fed tightens, the entire range of Agency MBS TBA (to be announced) are under $100.

For example, the FNCL 2.5% TBA is now 84-17. And falling like a paralyzed falcon.

Here is Brainard with Fed Chair Jerome “Foul Owl” Powell, the dynamic duo of crashing markets.