Hot, Hot, Hot! Mortgage Purchase Applications UP 6% WoW, Refi Applications DOWN -3.1% WoW As Fed Keeps Massive Covid Stimulus In Place (AEI Home Price Index UP 17% YoY In May)

Although mortgage rates have been rising quite fast, The Fed’s balance sheet is only being reduced quite slowly, leading to a continuation of the hot, hot, hot housing market.

But the expectation of Fed rate hikes is causing mortgage rates to soar and borrowers are trying to get buy housing before The Fed chokes off rates.

Mortgage applications increased 4.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 17, 2022.

The seasonally adjusted Purchase Index increased 8 percent from one week earlier. The unadjusted Purchase Index increased 6 percent compared with the previous week and was 10 percent lower than the same week one year ago.

The Refinance Index decreased 3 percent from the previous week and was 77 percent lower than the same week one year ago.

The American Enterprise Institute (AEI) national home price index for May 2022 averaged 17.0%, down from 17.5% a month ago but up from 15.3% a year ago.

So, the housing market remains hot, hot, hot but not mortgage refi applications. But Powell and Company will likely choke-off purchase applications as well.

Winter Is Coming 2! Mortgage Rates Hit 6%, Gasoline Prices Hit $5, Inflation Continues To Rage (Taylor Rule Implies 22.10% Target Rate, Only At 1.75%)

Where is Stanford’s John Taylor when we need him?

Even since the housing bubble burst and ensuing financial crisis on 2007-2008, The Federal Reserve under Ben “The Savior!” Bernanke, Janet Yellen and Jerome Powell let their zero/low interest rate policies be too low for too long that anyone with common sense knew would lead to serious problems when The Fed was forced (this time by inflation) to end the massive OVER monetary stimulus. We are now living through The Great Reset of the US economy.

Since Biden was sworn-in as President (or El Presidente) in January 2021, 30-year mortgage rates are up 108% to 6%, regular gasoline prices are up 108% to $5 a gallon nationally. Inflation is up to 8.6% YoY.

Bernanke, Yellen and Powell did not follow any rule per se, just a “seat of the pants” panic button approach. Using the Mankiw specification of the Taylor Rule model, the Fed Funds target rate should be 13.25% based on CORE PCE. Notice starting in 2014, The TR suggested target rate started to be higher than the actual Fed target rate. And since the Covid monetary blast of 2020, the gap between the Taylor Rule and Fed target rate (red area) has grown to near the highest level in history. Even now Mohamed A. El-Erian, Chief Economic Advisor at Allianz, is starting to admit that The Fed’s ZIRP policies are beginning to hurt.

But if we use total inflation rather than core inflation, the measure that picks up the actual pain that Americans are feeling from rising gasoline prices and mortgage rate, we get a Fed Target rate of 22.10%. Since The Fed’s current target rate is only 1.75%, The Fed has “Room To Move.”

And in a painful. bad way.

Bernanke, Yellen and Powell must think that The Taylor Rule is the New Jersey ham pork roll.

Feelin’ Hot, Hot, Hot! US Inflation Soars To 8.6% YoY For May, Fed Expected To REALLY Start Jacking-up Rates (Mortgage Rates Rise To 5.58%, The Highest Since 2009)

Feelin’ hot, hot, hot!

Inflation, the bane of the middle class and working families, just rose to 8.6%.

Core inflation, that excludes energy and food, actually declined slightly to 6% from 6.2% in April. But since most families are concerned with gas prices and food, (not to mention home prices growing at 21.17% YoY), core inflation really underestimates the suffering.

Under Biden’s leadership in cooperation with eternal Fed stimulus (until now), inflation started at 1.4% YoY and has increased to 8.6% YoY. The Fed’s balance sheet has increased by 20.27% (more monetary Stimulypto!), Case-Shiller home prices started at 10.44% YoY and has now doubled to 20.55% YoY. Regular gasoline started at $2.57 and is now at $5.42, up 102%. Food is up 61%.

The Fed is expecting two half-point hikes followed by quarter-point increases.

And mortgage rates keep rising as The Fed fights the inflation fire.

Here is a video of Milton Friedman speaking on inflation.

On the hotter than expected inflation news, the US Treasury 10Y-2Y curve flattened to 12 bps.

Tower of … inflation?

Pennies From The Fed! Who Gained The Most From Fed Stimulypto? The Top 1%, Of Course! (Fed Helps Homeowners, Not Renters)

Pennies from Heaven. That is what the bottom 50% received from The Federal Reserve’s massive doses of monetary stimulus (or stimulypto).

There was one big dose of monetary stimulus in late 2008 surrounding the financial crisis and housing bubble burst, another doses (aka, QE 2 and QE3) then the biggest dose of all with the outbreak of Covid in early 2020.

President Biden should have mentioned on Jimmy Dimmel last night that The Federal Reserve has helped the bottom 50% with its endless monetary stimulus.

But if you were fortunate enough to own a home (the top 1% are likely homeowners), then you benefited from The Fed’s monetary stimulypto.

And I noticed that Biden didn’t mention plunging REAL average weekly earnings YoY.

The Federal Reserve’s monetary “policies” have benefited the top 1% and homeowners relative to the bottom 50% (who often rent and got clobbered with 20% growth in rents).

Great job, Fed! Making housing more unaffordable for rents (combine rising rents and declining REAL wages and we have a real affordability problem).

Home affordability for first time homebuyers?

And what is with Biden’s ear lobes? As inflation is rising, his ear lobes are shrinking.

Weird, wacky stuff.

The inflation numbers are out tomorrow. I noticed that Biden and Jimmy Dimmel only discussed gun control, not the sad state of the economy under Biden.

Moving? Diesel Prices UP 117% Under Biden, Gasoline UP 106%, Natural Gas UP 281%

As I line up my move from Fairfax VA to Columbus OH, I am getting a variety of quotes from moving companies. And wow! The cost of moving using a national moving company for a 4 bedroom house is $15,000 to $20,500. That includes International, North American and Bekins.

One of the reasons for the high cost of moving is the massive increase in diesel fuel used for trucking. Diesel fuel under Biden has risen 117%. And since it was revealed that natural gas often is used for electric charging stations, and NATGAS is up 281% under Biden (but there aren’t many electric moving trucks yet).

The other problem facing moving companies is labor scarcity. Despite our open borders with Mexico and millions flowing across the border, moving companies STILL can’t find crews. Both Mayflower and United refused to give me a quote for moves under $1,000.

And for any of you who say “Do it yourself!”, I am physically disabled and can’t do it.

I wonder if it would be less expensive if we used horse-drawn moving vans?

German Inflation Hits 60-Year-High As German 10Y Bund Rises +9.4 BPS, US 10Y-2Y Curve Stabilizes At 25.8 BPS After Initial Fed Shock (Mr. President, Have Pity Of The Working Man)

German inflation hit another post-World-War-II record high, piling pressure on The ECB’s need to exit from crisis-era stimulus after numbers from Spain also printed hotter than expected.

Driven by soaring energy and food costs, this morning’s data showed consumer prices in Europe’s largest economy surged 8.7% YoY – far hotter than the +8.1% expected (the highest since the start of the monthly statistics in 1963).

And top of that, the German 10-year Bund rate rose +9.4 BPS this morning, although Finland, Hungary and Slovakia all rose above +10 BPS.

While US markets are closed today in honor of Memorial Day, the US Treasury curve (10Y-2Y) has stabilized at 25.8 basis points after the initial shock of The Fed finally raising rates for the first time under Biden.

Then there is this headline: Biden to Meet Powell to Discuss Economy Amid Inflation Pain. So much for Fed independence. I wonder if Powell will say “Joe, have you ever considered canceling your executive orders on oil and natural gas exploration?”

Or perhaps Powell can bring Randy Newman to The White House to sing “Mr. President, have pity of the working man.”

OR maybe Biden can tell Powell to pause monetary tightening to avoid mortgage rates from rising to disastrous levels.

Fed Carrying $330B In Unrealized Losses On Its Assets As of Q1 (Purchasing Power Of US Dollar And M2 Money Velocity Collapsing Like Dying Star)

Yikes! One of the unmentioned costs of Fed monetary tightening is the one to US taxpayers.

Fed carrying $330B in unrealized losses on its assets according to Q1 financial statement. Which US tax payers are on the hook.

Adjusting for the appreciation in its assets the Fed had seen through the end of last year, the unrealized losses were an even larger $458 billion.

This makes the Ukrainian relief bill of $30 billion look like chump change. Although it is about the same amount as Biden’s student loan forgiveness plan which would about to $321 billion.

Nobody spends other peoples’ money like politicians and now The Federal Reserve. Who are also DC-based politicians.

And yes, the purchasing power of the US Dollar and M2 Money Velocity (GDP/M2) appear to be collapsing like a dying star.

How The Fed Killed Mortgage Current Coupon Rate – MBS Index, Back To 1985 Levels (As It Tries To Fight Inflation, A Fight It Can’t Win)

As The Federal Reserve tries to fight inflation (it can’t thanks to Federal energy policies and bottlenecks), it is causing a disconnect between mortgage current coupon rate and the MBS index coupon. The disconnect is so bad that it is back to 1985 levels.

The Fed can certainly try to cool inflation, but Biden is intent on raising energy prices (leading to food price increases, and everything else) to shift us to electric cars. So, Biden is unlikely to back off.

So, The Fed is left trying to fight a war against inflation that only Biden can fight.

Meanwhile, the US mortgage market is getting pulverized

Inflation Fightin’ Fed? Fed Can’t Fight Food And Energy Inflation, But They Can Crash The Housing Market (To Tame Total Inflation, Fed Would Have To Raise Rates To 21.38%!)

Inflation Fightin’ Fed?

Kansas City Fed President Esther George said The Fed isn’t focused on impact of rates on stocks (or pension funds, apparently).

The inflation that is crushing Americans is due to energy and food price increases. That is, the non-core inflation. Under Biden, food is up 63%, gasoline is up 92% and diesel prices are up 112%. But The Fed doesn’t consider food and energy prices, per se.

If we look at the Taylor Rule considering fighting inflation including food and energy, The Fed would have to raise their target rate to … 21.38%.

Now, The Fed can clearly cool-off the housing market by raising rates. In fact, my fear is that they go too far and crash the housing market. The Fed will NEVER get to 20% again like we last saw under Volcker in 1981. 20% rates certainly cooled home prices back then and Fed rate hikes helped crash the housing market in 2008.

So, when The Fed says they want to be the inflation-fightin’ Fed, we must be aware what The Fed can and cannot do. They can’t tame the inflation beast in the form of food and energy prices (unless they crash the economy), but they can crush home prices.

Let’s Get Ready To Stumble (Into Recession)! Gasoline Prices UP 89% Under Biden, WTI Crude Oil UP 115% (As REAL Wage Growth Declines)

Let’s get ready to stumble!

Seriously, with soaring energy prices and soaring EVERYTHING prices (except for real wage growth), it is difficult to see how the US will avoid a recession.

Yes, everything is seemingly rising in price, yet REAL average hourly earnings growth keeps falling. Rising price + declining real earnings growth = eventual recession.

So, let’s get ready to stumble … into recession.