Fear! Inflation Expectations Grow To 2.11% As Fed Prints (Bitcoin Backs Off High As US Dollar Rallies)

President-elect Joe Biden is scaring the world to death with his $11 trillion spending fantasy coupled with his $2 trillion Covid stimulus package. And The Federal Reserve has a lot of printing to do to pay for Biden’s spending fantasies (that Speaker Pelosi will undoubtedly approve). All has led to US inflation expectations to rise to 2.11%.

Bitcoin has finally backed-off its meteoric rise just as gold has backed-off its meteoric rise back in July.

Bitcoin rose with Fed money printing but backed-off as money printing slowed. Note: The rapid rise in money printing was pre-Biden and largely due to Covid and government shutdowns.

Bloomberg Galaxy was down 7.5% on Friday while Bitcoin is down slightly today. ZCash is the big loser today with Monero as the only gainer.

But with Biden’s prodigious appetite for spending other people’s money, we can see fear in the eyes of taxpayers.

US Industrial Production At -3.58% YoY With Capacity Utilization At 75.54% (Both Improving), Stock Market Declines On Biden’s $1.9 TRILLION Stimulus

Enter Biden/Harris.

President elect Joe Biden is touting a $1.9 trillion Covid relief package once he is seated.

Today’s industrial production reading for December show IP improving from -5.41 YoY in November to -3.58% YoY in December. Capacity utilization increased from 73.39% in November to 74.54% in December. So, Biden is inheriting an improving economy.

Meanwhile, equity markets are down across the board.

The aid package includes $415 billion to bolster the response to the virus and the rollout of COVID-19 vaccines, some $1 trillion in direct relief to households, and roughly $440 billion for small businesses and communities particularly hard hit by the pandemic.

Stimulus payment checks would be issued for $1,400 – on top of the $600 checks delivered by the last congressional stimulus legislation. Supplemental unemployment insurance would also increase to $400 a week from $300 a week now and would be extended to September.

$2,000 per person? Why not $2 million per person now that Democrats control the White House AND Congress? US Federal debt is about $27.8 trillion and rising fast. That is $222,191 per taxpayer.

Why are both Yellen and Powell frowning?

Biden’s team explores ways to oust Fannie-Freddie regulator, Mark Calabria (replace with Wharton’s Susan Wachter?)

President-elect Joe Biden’s team has held preliminary talks on how it could oust Fannie Mae and Freddie Mac’s regulator (Mark Calabria), a move that would let the new administration fill a post that’s crucial to the mortgage market and its goal of boosting affordable housing.

One candidate the transition team is considering as a potential Calabria replacement is Susan Wachter, a professor at the University of Pennsylvania’s Wharton School of Business, said the people who asked not to be named in discussing private conversations.

Well, there are only so many options to increase affordable housing that are in the realm of reason: 1) increase loan-to-value ratios on purchase (insured mortgages) and 2) lower the credit score required. Fannie and Freddie already have a sizeable affordable housing mission. so short of shutting down Fannie and Freddie, and expanding the FHA (aka, SUPER HUD), Fannie and Freddie may be cajoled into expanding their affordable housing mission.

After the housing market crash (and ensuring financial crisis), lenders and government insurance companies reduced the mortgage originations by low credit score borrowers. Yet home prices started to grow again despite the lack of originations by low credit score borrowers. In fact, the FHFA purchase only home price index YoY is almost back to the housing bubble peak of 2005.

Something is missing from the above chart. Jay Brinkmann (former Chief Economist for the Mortgage Bankers Association) and Alex Pollock (R Street) disagree about what is missing from the chart. I think that the omitted variable is The Federal Reserve’s balance sheet (purchase of Treasuries and Agency Mortgage-backed Securities).

Home price growth corresponds to changes in The Fed’s balance sheet, particularly in surges in the balance sheet (QE3, Covid).

It’s also an historic imbalance of housing supply and demand, exacerbated by low interest rates helped by The Federal Reserve’s policies.

Granted, the demand is driven by historically low interest rates, but it’s also driven by demographics, as a large number of Millennials are reaching prime home buying age. (Thanks to Rick Sharga!)

Wharton’s Susan Wachter is likely the replacement for Cato’s Mark Calabria to be the US housing finance Mandarin.

US Average Hourly Earnings Rise To 5.08% YoY, But Home Prices Rise 7.95% YoY (BAD Jobs Report)

Today’s Covid-19 impacted jobs report was lousy. The economy lost 140k jobs. The good news is that the unemployment rate remained at 6.7%.

Another piece of good information is that average hourly earnings YoY rose to 5.1% YoY in December from 4.4% in November. The bad news is that home prices (Case-Shiller 20) rose at almost 8% YoY.

Printing Our Lives Away: ISM Price Index SOARS As M1 Money Printing Soars (Inflation Around The Corner?)

Is the US printing its life away?

M1 Money is growing at 53.2% YoY as ISM Manufacturing Prices skyrocket to 77.6.

Since The Fed’s favorite inflation measure, core Personal Consumption Expenditure Expenditures (PCE) growth was 1.40% YoY at its Q3 2020 reading, the latest M1 and ISM Price readings indicate the US Core PCE YoY is likely to rise as well.

(Bloomberg) — Federal Reserve Bank of Chicago President Charles Evans said the U.S. central bank shouldn’t be shy about letting inflation run, as it has promised, above its 2% target in order to make up for years of undershooting that goal.

“If we try to fine-tune a very modest inflation overshoot of only a 10th or two, we run a very large risk of failing to achieve our 2% averaging goal within any reasonable amount of time,” Evans said Monday during a virtual presentation to the annual meeting of the American Economics Association.

Hmm. Don’t be shy, but why is The Fed’s Dots Plot showing an increase in the Fed’s Target rate AFTER 2023?

Electronic Tulip Bulbs? Bitcoin Suffers Flash Crash, Then Rebounds (There Is A Crypto Fund Named Bitwise Showing Extreme Volatility)

Venezuela currently has an inflation rate of almost 2,500 percent, according to Steve Hanke. This corresponds to Bloomberg’s Cafe con Leche index of the cost of a cup of coffee with milk (or espresso with scalding milk) which is now 1.767 MILLION Bolivars in Caracas Venezuela (or 5,790% for the last 12 months).

In 2017, with the bolivar in freefall, Maduro vowed that the nation would create a cryptocurrency called the Petro, backed by reserves of oil, gas, gold and diamonds. The Petro launched in 2018.

The Washington Post economic reporter Matt O’Brien said that “The petro might be the most obviously horrible investment ever… The petro is about creating something useless – that’s why only foreigners can buy them, but only Venezuelans can spend them“.

Which brings me to non-Venezuelan cryptocurrencies or “electronic tulip bulbs.” Like the tulip bulb craze that swept Holland in the 1600s, cryptocurrencies are a highly speculative investment. Take a look at Bitwise, a cryptocurrency fund that trades at 197.392% Fund Percent Premium. Sounds more like Pennywise, the clown from Stephen King’s “It” franchise. It fell from $139 on 12/16/2020 to $60.39 on 12/31/2020. That is a quite a loss.

Bitcoin, for example, experienced a flash crash, but has rebounded.

But while Bitcoin is down, Ethereum is way up.

Cryptocurrencies have a place for processing, for example, financial transactions. Or oil transactions like Venezuela is trying to do. And if you want to play the volatility game, cryptos may be your cup of tea … or oil.

Atlanta Fed GDP Forecast For Q4 At 10.4% QoQ, Thanks To Housing (Pending Home Sales +16% YoY!)

Joe Biden is having a marvelous Christmas thanks to Donald Trump. Trump’s gift? A Q4 GDP Forecast of 10.4% QoQ with improving unemployment rate of 6.7%.

And the gift gets better with pending home sales at 16% YoY.

The pending home sales YoY are not included in the Atlanta Fed GDPNow forecast for Q4, but housing starts, existing home sales and new home sales are included.

Merry Christmas and Happy Holidays everyone!

Deep In The Heart of … COVID! Case-Shiller Home Price Index Rises 8.41% YoY In October (Phoenix AZ Fastest Growing, NYC Slowest Growing)

We are “Deep in the heart of Covid.”

US home prices, according the S&P CoreLogic Case-Shiller US National Home Price Index, rose 8.41% YoY in October.

My old home town of Phoenix AZ is growing at 12.7% YoY. The slowest growing city? New York City at 6% YoY.

I am still trying to recover from pneumonia due to Covid-19 in one of the economic shutdown states, Virginia.

Speaking of Covid, The Federal Reserve responded to Covid with expanding their balance sheet … again … helping to drive the 30 year mortgage rate to near all-time lows.

US IPO Volume Hits $178.2 Billion In 2020 As Bitcoin Hits 27,251 (Trumps Signs DC-area Arts Bailout Bill)

It’s been the year of initial public offerings. Almost 500 companies listed in the U.S. in 2020, raising a combined $178.2 billion, a record amount, according to data compiled by Bloomberg. Some 230 offerings, or 44% of the fundraising volume, were newly listed special-purpose acquisition companies, or SPACs. The vehicle goes public as a shell and identifies an acquisition target later. Brand name technology listings also made a comeback in the second half of the year, with Airbnb Inc. and Doordash Inc. delivering some eye-popping gains in their debuts.

On the Bitcoin front, Bitcoin is now above 27,200 as Gold has been retreating since early August.

Bitcoin CASH and Ethereum lead today’s charge in Cryptos.

Today, President Trump signed the Porkulus Bill that gave small allotments ($600) to households suffering during the Covid lockdowns. The political cost? Foreign policy spending and the usual spending on DC-area arts (that are attended by the DC elites). It should have been called “The DC-area Arts Bailout Bill.”