Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
Well, at least construction materials are growing more slowly than energy prices!
The Producer Price Index for Construction Materials rose at a 34.7% YoY pace in November.
So it is no surprise that the median sales price for new homes rose 18.8% YoY in November.
There is a lot going on in the US housing market. Excessive monetary stimulus keeping mortgage rates low, historically low inventory available for sale, and FOMO (fear of missing out … on rapidly rising home prices).
The Case-Shiller repeat sales index for October is out … and the national home price index “slowed” to 19.08% YoY as mortgage rates rose. Note that available inventory of homes for sales remains very low.
By metro area, Phoenix AZ once again leads with 32.3% YoY. Minneapolis MN is the slowest growing metro area in terms of home prices at 11.5% (tied with Chicago, IL).
A distant relative of Anthony Fauci.
The global economy has certainly been turned on its head by the COVID outbreak in early 2020. Not so much by the virus itself, but by Central Bank hysteria in terms of rate lowering and balance sheet expansion. Which The Fed has not yet unwound.
Let’s look at what has happened since the mini-recession caused by COVID in early 2020. The shortest recession in US history, a measly 2 months. The Fed expanded its balance sheet from $4.17 million in February 2020 to $8.79 million today. That is, The Fed over doubled the size of their balance sheet in reaction to the shortest recession in US history. Overreaction much?
What has happened since the mini-recession and The Fed’s massive overreaction?
First, gold (gold line) surged then calmed down. Then cryptocurrency Bitcoin (while line) surged, then calmed down, then surged again only to calm down again. Then crypto Ethereum surged, calmed, surged, calmed. Meanwhile the US Dollar Index crashed only to start rising again.
The Fed’s overreaction and failure to withdraw excessive stimulus has led to the rise of alternatives to the deflating dollar due to inflation.
When will The Fed ACTUALLY start removing the overreaction stimulus? Let’s get it started.
Perhaps only April Ludgate can kill The Fed’s overreaction stimulus.
Housing in the US is getting “simply unaffordable.” And it has gotten far worse over the past year. Thanks to BAD government policies.
While wage growth is positive, inflation is sucking the life from consumers. REAL average hourly earnings growth is -2.0133%. Even worse, home prices are rising at a 14.12% pace in REAL terms. So, wages are losing to inflation and housing is pulling away from renters in terms of affordability.`
So it is not surprising that the University of Michigan consumer survey for “Buying Conditions For Housing” remains below 100 (meaning that more people think buying conditions for housing are negative than positive). With the Case-Shiller National home price index growing at a 19.51% YoY pace, it is no wonder that consumers are getting scared of the housing market.
Yes, US inflation is at a 40-year high and the 30-year Treasury Inflation Protected (TIP) yields is at -0.424%. That says quite a bit about the pickle US consumers are in.
US consumer confidence overall has declined to the lowest level since just after the financial crisis and housing bubble burst of 2008-9.
Doctor, Doctor (Yellen), please don’t try to make housing more “affordable” which will result in housing being even LESS affordable.
But I do like how Biden took credit for lowering gasoline prices a little after his anti-energy policies drove up gasoline prices in the first place from $2.20 to $3.40 a gallon, a 55% price increase. Thanks for nothing, Joe!
And with Omicron raging (with few reported deaths), Anthony Fauci, President Biden’s top medical adviser, indicated support for making vaccinations a requirement for domestic fights.
More loss of personal freedom, more government control. We are truly addicted to gov.
2021 has been a very weird year. Inflation has boomed (highest in 40 years) after the election of Joe Biden as President of the USA (call it Bidenflation). Then we have The Federal Reserve barely acting on the booming inflation (keeping rates at 25 basis points while withdrawing the COVID-related monetary stimulus).
Then we have the rise of cryptocurrency Ethereum and the surge meme stocks such game store GameStop, a favorite of the internet site Reddit.
Given the volatility of GameStop (Reddit-inspired), you can see the strange shape of GameStop’s volatility surface.
By contrast, gold is now where it was was at the beginning of 2021 and the surge of Bidenflation.
Here is volatility surface for gold.
So, there are a number of meme stocks (GameStop is just one example), gold, silver, cryptos such as Bitcoin and Ethereum. But gold seems to be placid with respect to inflation, but the meme stocks and cryptos seem to be motoring. Or is it rage against the financial machine? Or rage against Bidenflation??
The US stock and bond markets are closed today and tomorrow, Christmas day.
Have a Merry Christmas! And celebrate the “Santa Pause” as Powell refuses to raise rates to combat inflation until 2022.
Inflation keeps clubbing Americans to death. This time in the form of New Home Sales prices.
November’s New Home Sales figures are out. New Home Sales declined 14% YoY while the median price of New Home Sales is up 18.8% YoY.
The West saw a MoM increase in new home sales of 53%! While the Midwest saw a decline of -25.35%.
I can this the Baker Mayfield effect. The Los Angeles Chargers drafted superb QB Justin Herbert, the Cleveland Browns drafted QB Baker Mayfield. The West wins, the Midwest loses.
As a long-time Browns fan, I dread the upcoming Browns-Packers game.
The core Personal Consumption Expenditures (PCE) deflator numbers for November were released this morning and the print was a whopping 4.7% YoY, the highest rate since 1989.
Meanwhile, U.S. consumer spending, adjusted for inflation (aka, REAL personal spending), stagnated in November as the fastest price gains in nearly four decades eroded purchasing power. Stagnated to 0.
Purchases of goods and services, after adjusting for higher prices, were little changed following a 0.7% gain in October, Commerce Department figures showed Thursday.
And as Paul Harvey would say, here is the rest of the story.
Core PCE growth YoY of 4.68% implies a Fed Funds target rate of 11.84%. Powell and the gang have the target rate at 0.25%. But the Taylor Rule doesn’t take into account the latest FEAR raging in Washington DC … the Omicron variant. Just another excuse for The Fed to do nothing and let asset bubbles blow out of control.
Tiny bubbles? How about HUGE bubbles!
The good news is that US Real GDP grew at 2.3% QoQ in Q3 thanks to massive Federal government and Federal Reserve stimulus. The bad news? Prices are growing at rate of 6% QoQ, three times higher than the growth of real personal consumption.
Runaway inflation, cooling personal consumption. This is the definition of “stimulyltpo”: the excessive spending by Washington DC in conjunction with excessive monetary stimulus from The Federal Reserve.
Let’s see if Christmas season is jolly with Sewage Joe trying to scare everyone about Omicron.
(Bloomberg) — The amount of money that investors are parking at a major central bank facility climbed to yet another all-time high as supply-demand imbalances continue to dog U.S. dollar funding markets.
Eighty-one participants on Monday placed a total of $1.758 trillion at the Federal Reserve’s overnight reverse repurchase agreement facility, in which counterparties like money-market funds can place cash with the central bank. That surpassed the previous record volume of $1.705 trillion from Dec. 17, New York Fed data show.
Demand for the so-called RRP has climbed further as principal and interest payments from government-sponsored enterprises has entered short-end funding markets. However, that cash is expected to exit the overnight space by the end of the week as the Treasury ramps up its issuance of Treasury bills now that Congress has increased the debt limit.
Overall volume has been rising this year as a flood of cash continues to overwhelm the U.S. dollar funding markets due to central-bank asset purchases and the drawdown of the Treasury’s cash account, which is pushing reserves into the system. The larger takeup looks set to persist even as the Fed tapers its asset-purchase program — something it began this month — because the supply-demand imbalances in short-end securities are likely to persist.
Then we have the Turkish Lira volatility hitting an all-time high.
And finally we have the US Current Account Balance rising to levels last seen in 2006 just after the peak of the US housing bubble.
The Federal Reserve’s zero-interest rate policies (ZIRP) has The Fed Funds Target Rate at a measly 25 basis points or 0.25%. While this is great for some, it is disastrous for savers. Once we subtract off the inflation rate (CPI YoY), we find that the REAL 90-day Certificate of Deposit (CD) rate is a horrifying -6.74%.
I don’t think that Congress or the Biden Administration really think about how their spending may contribute to inflation and crush savers. Or the American worker who is seeing NEGATIVE real average hourly earnings growth (yes, Biden said that Americans have more money this holiday season … but not if we account for reduced spending power, also known as inflation.
Here is US Treasury Secretary Janet Yellen singing “Goodbye Savers.”
Goodbye Savers
Will we ever meet again
Feel sorrow, feel shame
Come tomorrow, feel lots of pain
Confounded Interest - Anthony B. Sanders 
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