The good news is that US industrial production rose 0.9% in March. The bad news? US capacity utilization rose to 78.3% indicating that the labor market is overheating.
Notice that prior to Covid, The Fed began rising raising its target rate as capacity utilization was increasing towards 80%. But once The Fed Funds Target rate (upper bound) hit 2.50%, capacity utilization started to cool off. Then Covid stuck.
Since Covid struck and The Fed massively expanded its balance sheet, capacity utilization has increased. But this time around, The Fed has been sloth-like in its removal of monetary stimulus.
Of course, The Fed has been slow to cool inflation which is the highest in 40 years. And supply-chain strains are peaking again (isn’t Mayor Pete in charge of infrastructure?) This is helping to drive prices up.
And don’t forget that REAL average weekly earnings YoY are falling.
As we are all aware, The Federal Reserve launched its monetary “stimulypto” in March 2020 to combat the Covid virus. Coupled with the surge in Federal stimulus, we have seen home prices rise over 20% since February 2020.
Specifically, New York City home prices are up 26.3% since February 2020, Chicago home prices are up 21.7%, and Los Angeles home prices are up 32.5%. Fed monetary stimulypto is up 113% since February 2020.
Of course, this has resulted in soaring PROPERTY TAXES as well. According to Attom Data Services, “Among 1,481 U.S. counties with at least 10,000 single-family homes in 2021, 16 had an average single-family-home tax of more than $10,000, including 12 in the New York City metro area. The top five were Kings County (Brooklyn), NY ($13,734); Marin County, CA (outside San Francisco) ($13,719); Westchester County, NY ($13,674); Essex County, NJ ($13,116) and Nassau County, NY ($13,095).”
Of course, not all metro areas raised their property taxes. Major markets with the largest decreases in average property taxes included Pittsburgh, PA (down 35.1 percent); New Orleans, LA (down 20.2 percent); Houston, TX (down 18.7 percent); Dallas, TX (down 12.2 percent) and Austin, TX (down 7.7 percent).
States with the highest effective property tax rates in 2021 were Illinois (1.86 percent), New Jersey (1.73 percent), Connecticut (1.67 percent), Vermont (1.55 percent) and Pennsylvania (1.37 percent).
Even if The Federal Reserve removes its massive monetary stimulypto (MMS), property taxes will remain elevated unless cities reduces their property tax rates. But Democrat-controlled cities tend to be addicted to spending much like The Federal government.
Export prices by end us YoY is up to 18.8%, the highest in recorded history (or since 1983 when they started recording export prices).
Import prices by end use rose to 12.5% YoY.
Unrelated to US export and import prices, the MBA’s mortgage credit availability index slumped with the Covid outbreak and the explosion of The Fed’s Balance Sheet. As I have said before, nothing has been the same since Covid.
With 8.5% YoY inflation, REAL average hourly earnings growth fell to -3% YoY.
And with The Fed intent on extinguishing their part of the inflation, Bankrate’s 30Y mortgage rate rose to 5.14%.
Energy is the biggest culprit (fuel oil up 70.1% YoY) thanks to the double whammy of 1) Russia’s invasion of Ukraine and 2) Biden’s restrictions on oil and natural gas production. Food at home is up 10% YoY.
Here is a colorful chart of MoM growth in prices.
The Taylor Rule model now says that The Fed Funds Target Rate should be 11.90%. Hence, Fed Stimulypto is still in place with the signal that rates will increase.
How about WTI Crude and Brent Crude soaring over 4% today?
Once again, the Four Horsemen of the Inflation Apocalypse (Biden, Powell, Pelosi, Schumer) overstimulated the economy and financial markets with excessive monetary stimulus (Powell) and excessive Federal spending (Biden, Pelosi, Schumer) where demand soared for products and supply naturally hasn’t caught up.
As we are painfully aware, The Fed’s exaggerated monetary flood combined with Federal stimulus spending has led to horrible inflation.
Yes, despite what government talking heads say, Federal stimulus increases demand for goods, the supply is generally slow to respond resulting in rising prices. Then government policies driving up energy prices also leads to highers prices. Throw in Federal Reserve monetary stimulypto and we have this chart from hell from Penn-Wharton. The chart shows that households earning less that $60,000 experience higher expenses due to rising prices than their gain in earnings.
Another chart from hell is the Russian USD Credit Default Swap (CDS) curve. It is spiking at over 20,000.
The one-year Russian CDS is currently at a whopping 20,336 indicating that there is about a 99% of a Russian default over the coming year. As someone who lived through the 1998 Russian credit default scare on Wall Street, this will send a shock wave through credit and Treasury markets.
On the US Treasury front, this chart shows how steeply sloped the US Treasury actives curve has become. Steep until 3 years, then flat. I call this chart “T-Dazzle!” T-Dazzle because I can’t believe how badly the Biden Administration and The Federal Reserve are screwing up the country.
Crude oil? WTI Crude is back to almost $100 per barrel while Brent Crude is at $102.78 per barrel. Wheat is up 3.22% thanks largely to problems related to Russia invading Ukraine (Europe’s bread basket) and a dismal Chinese wheat harvest.
Cryptocurrencies, the alternatives to the US fiat dollar, are rising (in particular, Bitcoin and Ethereum).
Of course, I have to finish up with the soaring 30-year mortgage rate.
Federal Reserve Governor Lael Brainard said the U.S. central bank will continue to tighten policy methodically and shrink its balance sheet at a rapid pace as soon as May.
Brainard’s hawkish remarks sent bond prices crashing and 10Y bond yields up over 16 bps.
While Bankrate’s 30Y mortgage rate is down slightly today, the surge in the 10Y and 2Y Treasury yields could push mortgage rates above 5% by tomorrow,
Even Europe is feeling Brainard’s wrath. Italian 10Y sovereign yields are up almost 20 bps.
The NASDAQ index is down 300 points on Brainard’s utterance.
Gee thanks Lael from all us wanting to finance the purchase of a house.
Well, Powell and The Fed Gang failed to tackle inflation with its 25 basis point increase in their target rate. The result? Inflation is still roaring and REAL Treasury yields remain NEGATIVE (nominal Treasury yields – inflation).
In fact, the US Treasury 10-year yield hovering around 0% when Biden first became President, then the inflation kraken was unleashed leading to progressively declining 10-year Treasury yields. As on late night, the REAL 10-year Treasury yield is -5.71%.
REAL mortgage rates (Bankrate 30Y rate – inflation) were positive at the beginning of the Biden Administration, but have sunk to -3.40%.
With negative REAL mortgage rates (and continued Fed Stimulypto), we saw February housing starts rise 6.8% in February.
The Fed is apparently jittery about Russia invading Ukraine (mentioned in The Fed minutes) as well as the possibility of China invading Taiwan (NOT mentioned in The Fed minutes).
But if we look at the Fed DOTS plot, we see a rise in The Fed Funds Target rate in 2022 (7 rate hikes), more rate hikes in 2023 and 2024 and then a slowing in the longer term (as if voting members have a clue about the long-run economy).
The WIRP (Fed Funds Futures) is signalling 7 MORE rate increases over the coming year.
Biden is relying on Powell And The Fed Gang to provide ample liquidity in the markets, particularly before the midterm elections in November (hint: Biden doesn’t want Powell to rock the boat).
Bankrate’s 30-year mortgage rate rose to 4.43%, up 55% under Biden/Pelosi/Schumer’s reign of error. Thanks to the rising Fed rate hikes priced-in the market.
US Speaker of the House and American Oligarch Nancy Pelosi together with Senate Majority Oligarch Charles Schumer passed yet another massive spending bill that seemingly benefited them and not the American middle class.
This legislation would provide $774.4 million for the Members Representational Allowance, known as the MRA, which funds the House office budgets for lawmakers, including staffer salaries. This $134.4 million, or 21 percent, boost over the previous fiscal year marks the largest increase in the MRA appropriation since it was authorized in 1996, according to a bill summary by the House Appropriations Committee. For paid interns in member and leadership offices, the House would get $18.2 million.
This is especially unfortunate given at inflation is growing at 7.9%. If we remove food and energy (two important categories for consumers and retirees), core inflation is growing at 6.4% YoY. As such, Social Security COLA doesn’t even keep pace with CORE inflation, let alone food and energy costs.
In August, Speaker Nancy Pelosi announced staffers’ salaries could exceed those of lawmakers. Members in both the House and Senate, with the exception of leadership, make an annual salary of $174,000. Staffers can make up to $199,300.
After an 11-year drought, congressional earmarks are back with vengeance.
The $1.5 trillion, 2,741-page omnibus spending package is loaded with funding for lawmaker pet projects, some of which could help incumbents in this fall’s elections.
The legislation includes more than 4,000 earmarks, according to a list of projects provided to The Hill by a Senate Republican aide that spanned 367 pages.
One of the biggest winners was New York — thanks to Senate Majority Leader Charles Schumer (D-N.Y.), who is up for reelection this year.
Schumer’s name is attached to 59 earmarks totaling nearly $80 million in the omnibus’s transportation and housing and urban development (HUD) section alone, according to a review by The Hill. He successfully requested funding for the projects either individually or with other lawmakers from his home state.
Is wild-spending Pelosi actually “The Bride of Chucky (Schumer)”?
Following the financial crisis of 2008/2009, The Federal Reserve began their dramatic purchase of assets such as Treasuries and Agency mortgage-backed securities (AgencyMBS). And then Covid struck and The Fed went berserk with asset purchases.
So, who benefited the most? The top 1% or the bottom 50%?
Answer? The top 1%. The share of total net worth spiked dramatically after the Fed infusion.
Even the bottom 50% benefited with The Fed’s Covid stimylpto, but no where near how the top 1% benefited.
World Economic Forum’s elitist Klaus Schwab approves of this message!
On an unrelated note, the US Treasury yield curve is strongly UPWARD sloping, while Russia’s and Ukraine’s yield curves are inverted and collapsing.
Confounded Interest - Anthony B. Sanders 
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