Fear! Crypto Crash Erases More Than $1 Trillion in Market Value (As Dow Tanks 430 Points)

For Bitcoin, there’s only been one constant recently: decline after decline after decline. And the superlatives have piled up really quickly.

With the Federal Reserve intending to withdraw stimulus from the market, riskier assets the world over have suffered. Bitcoin, the largest digital asset, lost as much as 8.7% Friday and dropped below $38,000 to its lowest level in six months. Since its peak in November, it has lost 40% of its value. Other digital currencies have suffered just as much, if not more, with Ether and meme coins mired in similar drawdowns.

Bitcoin’s decline since that November high has wiped out more than $570 billion in market value, and roughly $1.17 trillion has been lost from the aggregate crypto market. While there have been much larger percentage drawdowns for both Bitcoin and the aggregate market, this marks the second-largest ever decline in dollar terms for both, according to Bespoke Investment Group.

“It gives an idea of the scale of value destruction that percentage declines can mask,” wrote Bespoke analysts in a note. “Crypto is, of course, vulnerable to these sorts of selloffs given its naturally higher volatility historically, but given how large market caps have gotten, the volatility is worth thinking about both in raw dollar terms as well as in percentage terms.”

Bitcoin plunge wipes out billions in a jiffy — Bloomberg

With the Fed’s intentions rocking both cryptocurrencies and stocks, a dominant theme has emerged in the digital-asset space: cryptos have twisted and turned in nearly exactly the same way as equities have.

The Nervous 19! Nineteen European Nations Have Negative 2Y Sovereign Yields (Only One Rate Increase Expected In 2022, ECB’s Stiff Monetary Policy)

Let’s see how The Federal Reserve is going to compete with other central banks when 19 European nations have negative 2-year sovereign yields. Call them the “Nervous 19.” Note that France has the lowest 2Y yield of the big 3 (France -0.664%, Germany -0.593% and Italy -0.092%).

True, The Fed’s reaction to COVID shutdowns was more extreme than the ECB’s reaction.

The ECB’s main refinancing rate is 0% and The Fed’s target rate is 0.25%.

Unlike the US with its 4 expected rate increases, the Eurozone is pricing in only 1 rate increase for 2022 … in October.

The ECB’s monetary policy is as stiff as French President Emmanuel Macron.

US Treasury Yield Curve Keeps Inching Up, Just Wait For Fed To Raise Rates (Trouble With The Curve And Federal Financing Of Debt)

Treasury Secretary Janet Yellen is having trouble with the curve (yield curve, that is). It keeps inching up, meaning that Treasury’s cost of debt financing is inching up too.

As Treasury yields keep rising, so does the problem of financing the massive Federal debt load. Here is a chart showing the interest outlays in the Federal budget against the cost of Federal funding at the 10-year and 2-year tenors.

Now, The Fed is predicted to raise their target rate 4 times in 2022 (according to Fed Funds Futures data) and it looks like a whopping 100 basis points (or 1%). Holding the rest of the yield curve constant, this will considerably flatten the 10Y-3M Treasury curve. Resulting in a more expensive refinancing of the Federal Debt load.

If we look at The Fed’s System Open Market Holdings (SOMH), we can see that The Fed’s holdings are primarily Treasuries with non-Treasuries (primarily agency mortgage-backed securities) not maturing (or running off) until 2050.

The majority of The Fed’s COVID expansion was picked-up by The Fed (light blue line).

How about the Treasury Inflation-protected Securities curve? Negative yields across the tenor range.

With Congress trying to spend trillions more (since Build Back Broke failed, Democrats are producing MORE spending legislation with the voting act included, of course), Treasury is going to have progressively more trouble with the (Treasury) curve.

The Fed Boogie! Homes Above $800,000 Drive Bidding Wars in U.S. Housing Market As Fed’s Stimulypto Persists

Massive Federal stimulus (both fiscal and monetary) have led to bidding wars among the wealthiest Americans. Despite clamoring for The Fed to increase rates and speed-up the shrinking of The Fed’s balance sheet, nothing has happened … yet.

(Bloomberg) — Home buyers willing to spend almost a $1 million are competing the most for a piece of the red-hot U.S. housing market.

Homes priced between $800,000 and $1 million saw the highest rate of bidding wars at 64.6%, followed by 62% for homes between $1 million to $1.5 million and 61.7% for homes above $1.5 million, according to December data from Redfin Corp.

“Buyers should anticipate that they may not win a house until their sixth or seventh bid,” Candace Evans, a Redfin team manager in New York, said in a statement. “If you’re the type of person who falls in love with a house, this is not your market.”

Salt Lake City had the highest bidding-war rate of 37 U.S. metropolitan areas analyzed, with 74% of offers facing competition in December, the firm said. Tucson had a 73.1% bidding-war rate and followed by 71.1% for San Diego.

Prospective buyers are competing for homes as relatively cheap mortgage rates and a proliferation of remote-working opportunities in the wake of the Covid-19 pandemic boost demand for homes in smaller cities. The number of available homes in several of the hottest markets continue to shrink.

Nearly 60% of home offers written by Redfin agents across the U.S. faced competing bids in December, the firm said. It was the lowest rate in 12 months but an increase from 54% in December 2020 as pandemic-driven demand for housing remains strong.

Vacation homes, which are often pricey and have increased in popularity due to Covid-19, may have contributed to bidding wars in the high-end market, Redfin said. Townhouses had a bidding-war rate of 62% followed by 61.3% for single-family homes, the firm said.

Now its a race against the clock as potential home buyers try to beat Powell and the Gang as they raise mortgages rates.

Yes, Federal stimulus has made the top 1% increase their share of total net worth that includes $800,000+ homes.

Try to calm down and listen to Torquay by The Leftovers. Or listen to Danse Fed.

The Empire Strikes Out! Empire Manufacturing Index Slumps To Negative Territory As Inflation Roars (WTI Crude Futures UP 79% Since Jan 1st)

Well, Omicron is hitting hard. Not the virus itself, but governments’ reaction to the virus. The NY Empire Manufacturing Index has tanked into negative territory.

New orders are down 5%.

On the energy front, West Texas Intermediate Crude Oil futures are up 79% since January 1, 2021 while regular gasoline prices are up “only” 50% over the same period.

How about inflation and the Treasury yield curve? Inflation has soared to 40-year highs under Biden as energy prices (WTI Crude Futures) have soared 79%.

Container ships are still backed-up at LA and Long Beach ports. I thought Mayor Pete was supposed to fix the port congestion problem!

Maybe they should play the Darth Vader theme when Biden goes to the podium to stammer.

Logan (Un)Lucky? China Cuts Rates As Omicron Worsens And Chinese Developer Bond Rout Deepens on Hidden Debt Concerns

The Chinese Real Estate Developer Debacles continues to spread from Evergrande to other developers as China’s Central Bank cuts rates due to Omicron spread.

First, China’s Central Bank cut their 1 year medium-term lending rate to 2.85% from 2.95%. And the growing malaise in China’s real estate development continues.

Fresh turmoil rocked Chinese property bonds on Monday on concern over the true scale of the industry’s hidden debts, deepening a selloff among higher-rated firms.

A Logan Group Co. note due 2023 sank 14.1 cents to a record low 62.9 cents after Debtwire reported the developer could be on the hook for $812 million of guarantees on outstanding obligations due through 2023. Country Garden Holdings Co.’s bond due 2024 tumbled 12.9 cents to 67.7 cents, extending last week’s selloff for the country’s biggest developer.

Let’s see if the US Federal Reserve follows through with it rates increases when China is cutting their rates.

Simply Unaffordable! Fannie Mae Multifamily Financing Grew 23% … While Home Prices Grew 19.1% And Real Hourly Earnings Fell -2.36% (Rising Mortgage Rates Make The Affordability Problem WORSE)

Mortgage Orb has the tantalizing headline: “Fannie Mae’s Financing for Multifamily Affordable Housing Grew Over 23%.” At first, this sounds amazing … until you realize how simply unaffordable housing is much of urban/suburban America.

If you look at the following chart, you can see multifamily (5+ unit) starts remain elevated (pink box) which is not surprising given that home prices at growing at 19.1% YoY nationally (orange circle) and REAL hourly earnings have declined (yellow triangle) thanks to reemergence of inflation after 40 years.

Then we have the humming dragon, rising mortgage rates, that will reduce housing affordability even further.

Home ownership has become simply unaffordable much like steaks. Doctor, doctor (Yellen), we got a bad case of unaffordable home ownership.

Inflation Nation! Commercial Real Estate Returns UP 22% YoY For Q4 2021 (Versus 19.66% YoY For Case-Shiller National Home Price Index)

Inflation is burning out of control. While home price growth has been off the cherts (as Jean-Ralphio would say), commercial real estate has jumped incredibly at 22% YoY. The Bloomberg charting function hasn’t updated for the Q4 NCREIF report yet so I had to manually write-in 22% on the following chart.

To quote Dean Martin, “Ain’t that a kick in the head.” Commercial real estate returns are now higher than house price growth.

So, what will happen IF The Fed follows through with its monetary stimulus reduction? JPMC’s Jaime Dimon warns that The Fed could hike 7 times in 2022 and not be ‘sweet and gentle’.

But The Fed seems to be stuck in underworld and doing a terrible job at signalling their intentions if Dimon thinks that The Fed could raise rates 7 times in 2022.

UMich Housing Sentiment “Rises” To 83 As Inflation Hurting Retail Sales (Industrial Production Declines -0.3%)

That Bidenflation is really hurting Americans.

Start with the UMich Buying Conditions for Houses. It “rose” to 83. Unfortunately, 100 is the baseline and any number below 100 is bad. The reason? The massive increase in US home prices since 2020.

But retail sales are hurting thanks to higher prices. Retail sales less food services and auto are DOWN 3.1% MoM.

Meanwhile, US industrial production fell to -0.3%.

Shipping Blues! Cass Freight Index Expenditures Rose 43.6% In 2021 While Baltic Dry Index Has Crashed Since October 2021 (Omicron Strikes!)

Ever wonder why prices are rising so fast? One reason is that with rapidly rising energy prices under the Biden Administration, the costs are getting passed-through to consumers in the form of higher prices.

According to the Cass Corp Freight Index, the total spent in December on shipping goods to their customers in the US spiked by 43.6% from December 2020 to December 2021. Not surprising since energy prices over the past year have soared by almost 50%.

But at the same time, the Baltic Dry index (The Baltic Dry Index (BDI) is a shipping and trade index created by the London-based Baltic Exchange. It measures changes in the cost of transporting various raw materials, such as coal and steel) is crashing thanks to FEAR created by Omicron.

And yes, energy prices are surging again in 2022 after cooling off in Q4 2021.

Covid strikes!