Russian Stock Market Drops Over 30% As Their 10-year Yield Rises To 15.23%, Ruble Crashes And UK Natural Gas Rises 51% (As Biden Throws The Booklet At Russia)

We now know that Russia has invaded Ukraine and President Biden really threw the booklet at Putin in a speech today. Rather than removing Russia from the SWIFT banking system which would have really hurt Russia’s trade with Europe, he gave a surprisingly cogent speech about the US and NATO agreeing to do … not much. He did warn us that energy prices would rise (which he helped do when he took office) and told energy companies not to gauge consumers.

The reaction in Russia? Their stock market tanked over 30% (not because of Biden’s speech, but because of negative costs of war).

Russia’s 10-year sovereign yield rose to 15.23%.

The Russian Ruble crashed and burned.

UK natural gas prices rose 51% today.

And while 17 Euro nations have negative 2 year sovereign yields, Russia has 2-year sovereign yield of 28.65% which is nothing compared to Ukraine’s 75% 2-year yield (in US Dollars).

The SWIFT system, or Society for Worldwide Interbank Financial Telecommunication, facilitates financial transactions and money transfers for banks located around the world. The system is overseen by the National Bank of Belgium and enables transactions between more than 11,000 financial institutions in more than 200 countries around the world. Removing Russia from the SWIFT system would really hurt Russian trade with Europe. I assume that Europe is scared of soaring energy costs, so probably doesn’t want Russia removed from SWIFT.

Queue Creedence Clearwater singing “Lookin’ Out My … Limo Window.”

Putinesca! European Markets Tank, Energy Prices Explode, US 10Y Treasury Yields Plunge 13.3 BPS After Russia Invades Ukraine (Russian 5Y CDS Soars To 917)

I admit, I follow market data to get a signal of what is happening to mortgage rates and I got one. With Putin and Russia invading Ukraine, markets are in turmoil

WTI Crude is up 8.14% this morning, Brent Crude is up 8.45% and NBP (UK) Natural gas is up 40%.

Europe is having a bad day equity market-wise. Eurostoxx 50 was down 4.92%. The US Dow is braced for a 2.5% opening.

Now to bonds. The 10-year Treasury yield is down 13.3 bps this morning. Sweden and UK are down 10 bps as well.

How about the new Russian front? Ukraine’s 10y yield rose 691.0 bps while Russia’s 10Y yield rose 435 bps.

Russian 5Y Credit Default Swaps (CDS) leaped to a Greek-like 917.

Well, it looks like the sanctions imposed by Winken (US VP Harris), Blinken (US Secretary of State) and Nod (US President Biden because he always looks half-asleep) apparently didn’t work as intended.

Putin finally made up his mind.

Fed Monetary Stimulytpo Now Almost 14 Years Old And Still Running Strong! Top 1% Share Of Net Worth Now Higher Than Bottom 50%, Income Inequality Getting Worse

It has been almost 14 years since The Federal Reserve under Ben Bernanke unleashed zero interest rate policies (ZIRP) and quantitative easing (QE) in late 2008. And Fed monetary stimulypto is still running strong after almost 14 year of monetary mismanagement and asset bubble stimulation.

The Federal Reserve under Bernanke and Yellen raised their target rate exactly once under President Obama before the election of Donald Trump. After Trump was elected, The Fed raised their target rate 8 times, lowered it 5 times. There have been no rate hikes under Biden.

There seemingly never-ending Fed monetary stimulus has resulted in the top 1% seeing their share of total net worth soar relative to the share of net worth of the bottom 50%. But note that starting in 2014 just as The Fed was engaged in QE 3. But the real divergence occurred after The Federal government heaped trillions in fiscal stimulus on top of the skyrocketing monetary stimulus.

In terms of income inequality (as measured by the GINI coefficient), it just keeps getting worse and worse.

Let’s see if The Fed actually delivers by reducing their monetary stimulypto.

My Kuroda! Japan’s Inflation “Miracle” (0.5% Inflation) Despite $5 Trillion BOJ Balance Sheet And -0.10 Policy Rate

My Kuroda!

Forbes has an interesting article on the Japanese “miracle” entitled “The $5 Trillion Inflation Time Bomb No One’s Talking About.”

It’s taken nine years and the Bank of Japan supersizing its balance sheet to the $5 trillion mark, but Asia’s second-biggest economy finally has some inflation.

Officials in Tokyo are realizing the hard way, though, that it’s best to be careful what you wish for as bond yields spike.

Granted, the gains in consumer prices Japan is reporting are negligible compared to those in the U.S. and China. And inflation is still a good distance from the BOJ’s 2% target. Still, the 0.5% rise in consumer prices in January year-on-year is already unnerving the bond market. It followed a 0.8% jump in December and marks the fifth straight month of increases.

The worry is that Japan’s inflation is the “bad” kind. Haruhiko Kuroda was hired as BOJ governor in March 2013 to end deflation. Kuroda unleashed tidal waves of liquidity. That drove the yen down 30%, generated record corporate profits and sent Nikkei 225 Average stocks to 31-year highs.

Despite a staggering balance sheet with a -0.10 bps policy rate, Japan has only 0.5% inflation.

And Japan’s yield curve is negative at 3 year tenor and less.

How is it that Japan has virtually no inflation with negative rates but the USA has 7.5% inflation with a 0.25% target rate? Could it be the USA undertook massive fiscal spending related to COVID and reduced energy sources in an effort to go “green” that led to 7.5% inflation??

My Kuroda!

Good governments don’t go on wild, wasteful spending sprees and shut off energy sources like the Biden Administration and Congress.

Whip It! US Misery Index Highest In Modern History As Energy, Food And Building Material Prices SOAR (Flexible CPI Overwhelms Declining Unemployment Rate)

It is truly a miserable time for many Americans as demonstrated by the Misery Index (inflation rate + unemployment rate). But rather than using the CPI YoY measure at 7.5%, I am using the FLEXIBLE CPI YoY to compute the misery index. And is it ever miserable!

In January, the CORE flexible CPI YoY + U-3 unemployment rate hit a modern high at 22.99%. Or at least since 1967.

Like the movie “50 Shades of Gray,” we have 50 shades of inflation. Examples?

How about hardwood? Producer Price Index for hardwood is up 30.8% YoY.

How about diesel fuel prices? They are UP 40% since January 1, 2021.

How about housing? UP 20% YoY according to Zillow’s home value index.

Global food prices? UP 20% YoY.

I could go on and on, but you get the picture. Rising energy, food and construction materials are soaring making many Americans miserable.

But Powell and The Fed have promised to whip inflation. Whip it good … with interest rate increases.

Double Whammy, Staglflation Style! US Rents Soaring (12%) As Real-time Q1 GDP Slows To 0.7%

Call this a double whammy! Red-hot rents combined with a slowing economy.

According to CoreLogic, single-family annual rent growth finished 2021 at a new record: 11.7% YoY for high tier rental properties and 10.4% YoY for low tier rental properties.

Of course, southern and southwest rental properties are seeing the fastest rent growth. Particularly Miami at 36% YoY. Phoenix is no slouch at 19% growth in rents.

Inflation is really ripping the insides out of America’s working class. Especially with real-time GDP slowing to 0.7%.

Double whammy, indeed!

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US Mortgage Rates Jump To 4.2%, Spread Between Fixed-rate Mortgages And 5/1 Adjustable-rate Mortgages Now 133 Basis Points (Broken ARMs??)

The US 30-year mortgage rate broke through the 4% barrier. According to Bankrate’s mortgage survey, the 30-year mortgage rate is now 4.2%.

Even more interesting is the 5/1 Adjustable Rate Mortgage (ARM) rate falling slightly to 2.87%. That is quite a spread between the 30-year fixed and 5/1 ARM rates! That is 133 basis points.

Broken ARMs??

Fed’s Bullard Backs Supersized Hike, Seeks Full Point by July 1 (10Y-2Y Yield Curve Crashing)

Call this “The running of the Bull(ard)s mouth.”

Federal Reserve Bank of St. Louis President James Bullard said he supports raising interest rates by a full percentage point by the start of July — including the first half-point hike since 2000 — in response to the hottest inflation in four decades.

“I’d like to see 100 basis points in the bag by July 1,” Bullard, a voter on monetary policy this year, said in an interview with Bloomberg News on Thursday. “I was already more hawkish but I have pulled up dramatically what I think the committee should do.”

Bullard’s plan involves spreading the increases over three meetings, shrinking the Fed’s balance sheet starting in the second quarter, and then deciding on the path of rates in the second half based on updated data. He said he was undecided on whether the March meeting should begin with 50 basis points, and would defer to Fed Chair Jerome Powell in leading the discussion. Powell, at a press conference in January, didn’t rule out the idea of such a move.

Bullard’s comments, along with the war drums along The Potomac about a Russian invasion of The Ukraine, are causing the 2-year Treasury yield to rise faster than the 10-year yield.

Resulting in a crashing 10Y-2Y curve.

The GINI measure of income inequality is at an all-time high as the purchasing power of the US Dollar is at an all-time low. Way to go, Federal Reserve and Congress!

What will The Fed decide at their emergency, closed-door meeting today? Nice transparency, Powell!

Bidenflation? WTI Crude UP 91% Under Biden, Foodstuffs UP 47%, 30Y Mortgage Rates UP 39% (6-7 Rate Increases, What’s It Going To Be?)

Well, it has been a cringe-worthy year+ under President Biden. West Texas Intermediate Crude futures price is up 91% and the Commodity Research Bureau Foodstuffs index is up 47%. Talk about Biden’s energy folicies being passed through to American households in the form of higher food costs and energy prices!

And then we have mortgage rates. Bankrate’s 30Y mortgage rate is up to almost 4%, up 39% since the beginning of 2021.

Other central banks are raising rates like banshees on the moor, while The Federal Reserve continues to send conflicting signals about possible March rate hikes.

Goldman Sachs sees 7 rate hikes in 2022, culminating in an eventual 2% rate in December.

Fed Funds Futures are signalling 7 rates increases by the February 1, 2023 meeting.

6 or 7 rate hikes, what’s it going to be?

It’s just like Biden to blame COVID for reckless Federal monetary and fiscal policies that overloaded the system.

US Inflation Surges To 7.5% YoY, REAL Weekly Wage Growth Falls To -3.1% YoY (Taylor Rule Now Suggests Fed Funds Target Rate Of …18.90%)

As expected, US inflation surged from 7.0% in December to 7.5% in January.

REAL average weekly earnings growth YoY fell to -3.1%.

Energy prices YoY lead the wage (fuel oil UP 46.5% YoY). Used cars and trucks UP 40.5%. At least food is up “only” 7%.

At 7.5% CPI, the Taylor Rule suggests that The Federal Reserve should have their target rate be 18.90%.

At least CORE inflation is “only” 6% YoY.

How about rent CPI? The owner’s equivalent rent of residences rose to 4.09% YoY. Seems a little misleading since home prices nationally are growing at 18.81% YoY.

Fed Funds Futures data points to 6-7 rate HIKES over the coming year. BRACE FOR IMPACT!!

Yes, this is Powell’s famous chili recipe if The Fed actually starts to raise rates and pare back the balance sheet stimulus.