No, this isn’t the tilt effect in the mortgage market where inflation is front-loaded in mortgage rates making mortgage payments quite unaffordable. Although inflation is causing mortgage rates to be up 174% under Biden (while Biden continues to brag about how Bidenomics is helping). Meanwhile, the 10Y Treasury yield is up 402% under Biden (making refinancing the US staggering debt load more difficult to refinance. Higher mortgage rates tilt the present value of mortgage payments to the front, making housing even more unaffordable. Thanks Joe!
But the Tilt effect I am talking about is the TLT effect. TLT (iShares US Treasuries 20y+ ETF) calls. Friday was the largest TLT call volume ever.
Meanwhile, US real disposable income is declining.
Call it “The Rich Men North Of Richmond” economy. Where the coastal elites drive the US economy off the cliff with insane spending and borrowing with much of the benefits flowing to big political donors, not the middle class. Think of Span Bankfraud Parboiled as an example.
President Biden loves to spend billions and go on endless vacations (he is in Rehobeth Beach Delaware yet again). He (illegally) forgave student debt, keeps spending billions on Ukraine and keeps spending on failed green energy nightmares.
Biden and his allies will tout the latest GDP numbers as an example of how marvelous Bidenomics is. BUT that GDP report was driven largely by consumer spending.
Since the Covid outbreak in 2020, Federal (public) debt is up 45%! Wow. And consumer debt is up 19% under Biden to cope with inflation (caused primarily by massive Federal spending).
To fuel consumer spending, the personal savings rate has fallen to 3.4%. For point of reference, the personal savings rate in Februray 2020 was 7.7%, so the consumer is running out of gas thanks to inflation and spending.
And with a debt-stressed consumer, earnings call revealed concern about continued demand.
Note the trend in jobs added as The Fed tightened to fight inflation.
Appartently, Joe Biden and fellow big spenders in Washington DC, Mordor on The Potomac, don’t care about fiscal discipline. With seemingly endless spending of wars (Ukraine, Israel, Taiwan and the invasion at our southern border, and inane “green” spending,
Janet Yellen and the US Treasury will be auctioning off $776 billion of debt in the final quarter of calendar 2023, a bit below market expectations. Treasury said it will auction another $816 billion in the first quarter of 2024. So, that is yet another $1.6 TRILLION in debt.
Such large payments are negative for the economy. Interest is likely to be paid for using higher-velocity money (e.g. taxes) and received by holders less likely to spend the proceeds in the broad economy, and instead re-invest it. Independent monetary policy becomes increasingly difficult when the equivalent of 6% of US GDP is being diverted towards interest payments each year.
It’s not only the size of Treasury borrowing that’s a problem, but it’s maturity composition.
Issuance has latterly been skewed to bills, which has ameliorated the impact on liquidity as money market funds have been able to intermediate through the reverse repo (RRP) facility at the Fed. But as issuance skews back towards longer-term debt (watch for increases in auction sizes in 2y, 3y, 5y, 7y, 10y, 20y and 30y debt for insight on this), that will have an increasingly negative impact on liquidity, especially if the Treasury maintains its large cash balance at the Fed (as it said on Monday it expected to do).
The Fed has little (or no) say over any of this.
Monetary policy will become increasingly overwhelmed in such an environment, which is why today’s Fed meeting, where it is expected to keep rates on hold, is a bit of an afterthought.
Also of more consequence currently is Japan.
The BOJ’s decision to maintain negative yields and keep its yield curve control policy largely intact ladles on yet more underlying risks to the global macro environment.
Allegedly, The Fed isn’t interested in buying additional US debt, and likely China and Japan won’t be buying our debt either. But maybe the REAL Federal government, Blackrock and their friends will buy the debt!
The Market Composite Index, a measure of mortgage loan application volume, decreased 2.1 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 3 percent compared with the previous week. The Refinance Index decreased 4 percent from the previous week and was 12 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 22 percent lower than the same week one year ago. Back to 1995 levels.
At least mortgage refinancing applications are back to only 2001 levels.
Two-year yields have risen 5%.
At least it looks like Powell will pause rate hikes … for the moment.
I want a new drug, other than Biden’s top-down, big-donor friendly Soviet-style command economy. How about a free market without Fed interest rate manipulation??
Bidenomics is best represented by the novel “The Guns of August” since American’s middle class is getting blasted by Biden’s economic policies and The Fed’s rate rate hikes. Find out where Texas Governor Abbot is bussing illegal immigrants and buy in the market!!
The ongoing MoM rises pushed the YoY gain in home prices at America’s 20 largest cities up 2.16%, the most since January 2023. The National Home Price index rose even faster at 2.57% YoY.
Illegal immigration destinations Chicago, New York, and Detroit all saw major home price rises (+5.0%, +4.9%, and +4.8% YoY respectively). Las Vegas, Phoenix, and San Francisco remain lower YoY (-4.9%, -3.9%, -2.5% respectively).
But, judging by the resumption of the rise of mortgage rates since the Case-Shiller data was created, we would expect prices to also resume their decline…
Source: Bloomberg
Inventory is going nowhere, buyers and sellers are stuck (affordability for the former and the mortgage cost gap for the latter), and The Fed isn’t cutting rates any time soon. Not pretty…
Ford EV sales are almost nonexistant. High prices, big losses per vehicle sold, a dearth of charging stations for travel.
At least Biden will say the pain he is causing actually “hurts so good.”
Here is California governor and greaseball Gavin “Gruesome” Newsom test driving a Chinese EV on his trip to China to undercut Biden’s dying reelection prospects.
The benchmark small cap index, the Russell 2000, has hit the lowest levels since November 2020, when the world was still without a vaccine and shut down from Covid. And before Biden’s/Congress wild spending spree and debt volume explosion creating massive inflation causing The Fed to hike rates.
Speaking of over, under, sideways, down under Bidenomics, mortgage rates are up 181% and home prices are up 32.3% under Biden.
Bidenomics is a windfall for the donor class (high rate of return on campaign contributions) while the middle class gets beaten to a pulp. Waiting for Biden to lean over and creepily whisper “It’s working!” Even though it is clearly not working, at least for the middle class.
Evidence that Bidenomics is not working and destructive? Try the surging income needed to buy a house under Biden. Home prices are rising faster than median household income. As in $111,000 income needed to buy a house, while median household income is only $78,000. So, housing is simply unaffordable under Bidenomics. The Biden era is outlined in pink.
Mortgage purchase applications have collapsed to 1994 levels.
Meanwhile, stressed households are seeing credit card delinquencies at the highest level since 1991.
And thanks to Uncle Spam (given how Uncle Sam is destroying the middle class it is now Uncle Spam), 2023 interest payments are the same as the total debt from 1980! Spam, which the Federal government has devolved into, is very high in fat, calories and sodium and low in important nutrients, such as protein, vitamins and minerals.
2022 was a bad year for investments under Bidenomics. 2023 year to date is showing huge gains for Bitcoin, the NASDAQ and gold. Bringing up the rear are long duration Treasuries and REITs (real estate investment trusts), both earning negative returns thus far of less than -10%.
Let’s start with personal savings as a percentage of disposable income. It has been in the red (meaning very low) under Billions Biden.
And The Fed is really in the red under Biden’s inflation rattling spending with losses leading to a surge in remittances.
And then we have the growth in the Federal deficit as a % of GDP in the red.
And the S&P 500 is in the red since August.
Even Biden’s pro-censorship buddies in the tech world are in the red since July.
On the black side of the ledge, Bitcoin (along with gold) are through the roof.
The first inflow to golf since May ’23.
But at least Bidenomics has helped the donor class get wealthier and has helped the lessers get part-time jobs.
Yes, Bidenomics is a highway to hell for the 99%. But a stairway to heaven for the donor class and 1%. And the donor class (and defense/banking/tech/drug industries) have Biden under their thumbs.
My foolish US Senator Sherrod “The Mad Marxist” Brown claimed that he hasn’t noticed illegal immigrants.
Of course, Senator Brown could travel with Biden to the border to witness military age men crossing the border under Biden/Mayorkis “:Operation US Chaos.”
Biden’s leading “economist” Lael Brainard loves to brag about the strong economy under Bidenomics, and then pulled a brain freeze when asked about crashing savings rates as consumers struggle with inflation.
The good news? One of The Fed’s favorite inflation indicators – Core PCE Deflator – slowed to 3.7% YoY in September (its lowest since May 2021). Headline PCE was flat at 3.4% YoY. Both were in line with expectations… But 3.4% is still far too high compared to The Fed’s target of 2%.
Source: Bloomberg
Now for the bad news. However, while the YoY data slowed, Core PCE rose by 0.3% MoM – the biggest MoM jump in four months.
Services inflation excluding housing and energy accelerated to 0.4%, from 0.1% in the prior month.
The overall PCE price index, meanwhile, rose 0.4%, bolstered by higher energy prices.
Even more focused, is the Fed’s view on Services inflation ex-Shelter, and the PCE-equivalent shows that it is slowing/trending lower but very much still stuck at high levels (and rose a large 0.4% MoM)…
Personal Consumption soared 0.7% MoM while incomes grew at only 0.3% MoM…
Source: Bloomberg
Focusing on the income side alone, private workers wages plunged to 3.9%, down from 4.5% and the lowest since Feb 2021.
So where is the offset to hot wages you may ask? Why government workers: wages of govt workers are up 7.8% YoY vs 7.4% in August and approaching the record high of 8.7% in Oct 2021
All of which means the personal savings rate collapsed even further, from 4.0% to 3.4% of DPI…
Source: Bloomberg
The savings rate is down 4 straight months, back near record lows… AND this is after artificial revisions that artificially boosted the savings rate 3 times in the past year (see above chart)
Confounded Interest - Anthony B. Sanders 
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