705742? Bitcoin Hits 63983 As US Treasury Curve Steepens (As Mortgage Rates Rise?)

I have no idea why Jack Dorsey tweeted “705742.” But I do know that Bitcoin hit 63,982.92 this morning as the US 10Y-3M curve has been steepening.

Since the 3-month Treasury yield has been repressed to near zero, the 10Y-3M curve is pointing to rising 10-year yields. Which likely means that 30-year mortgage rates will be rising too.

UPDATE! Bitcoin hits 66,615 as Proshares Bitcoin Strategy E rises as well.

Goin’ Down! US GDP Nosedives To 0.5% On Bubbles And Bottlenecks

Goin’ down! GDP, that is.

The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2021 is 0.5 percent on October 19, down from 1.2 percent on October 15. After recent releases from the US Census Bureau and the Federal Reserve Board of Governors, the nowcasts of third-quarter real personal consumption expenditures growth and third-quarter real gross private domestic investment growth decreased from 0.9 percent and 10.6 percent, respectively, to 0.4 percent and 8.4 percent, respectively.

US real GDP nosedived to 0.5% according to the Atlanta Fed GDPNow real-time tracker.

Again, The Fed and Federal government pumped trillions of stimulus into an unprepared economy resulting in massive bottlenecks. So, we are getting declining GDP and rising inflation.

Yesterday’s industrial production dove leading to the 0.5% GDP figure. Today’s housing starts didn’t impact GDP in a meaningful way.

And she was.

Has The Fed Lost Control With Its Abnormal Policies? $2.7 Trillion in Crisis Savings Stay Hoarded by Wary Consumers

Has The Federal Reserve lost control of the economy? And inflation? The answer is likely yes. Why?

The Covid crisis has been played by the Federal government as an excuse for insane levels for spending coupled with massive monetary stimulus from The Federal Reserve.

As an example of The Fed losing control is US savings. The Fed’s model is to drive savers into consumption, therefore raising production and increasing GDP growth. But alas, The Fed can’t overcome the fear faced by consumers with Covid, Covid shutdowns, and rapidly rising prices.

(Bloomberg) — Consumers in Europe and the U.S. aren’t rushing to spend more than $2.7 trillion in savings socked away during the pandemic, dashing hopes for a consumption-fueled boost to economic growth on both sides of the Atlantic.

In the wake of lockdown easing during the northern hemisphere’s summer holiday season, excess savings in euro-area bank balances declined only marginally in August, and Italy still recorded an increase, according to calculations by Bloomberg Economics. In the U.S. there has also been no drawdown, the figures show. 

The absence of a consumption surge that had been anticipated by some economists may speak against the prospect of a lasting inflation shock feared by central banks. While higher balances could help households cope with skyrocketing heating bills, tepid demand might temper businesses’ ability to push through permanent price increases.  

In the USA, we see accumulated savings despite near-zero deposit rates at banks.

To be sure, The Fed reacted (or overreacted) to the Covid outbreak by increasing the money supply and their purchase of Treasuries and Agency MBS as the Federal government went on a wild spending spree.

But with trillions in Stimulypto Federal spending and Fed money printing, the bottlenecks in the economy (which apparently weren’t known before … ) have contributed to massive price increases that aren’t going away any time soon.

Notice how Fed monetary policies changed after the housing bubble burst and ensuring financial crisis/Great Recession. Before 2008, The Fed periodically whipsawed their Fed Funds target rate. But since late 2008, we have seen hardly any move from The Fed (except for 2017-2020 while Trump was President). For Obama,

Here is a look at The Fed’s record under Obama, Trump and Biden. The Fed raised their target rate only once under Obama until Trump was elected. Then The Fed raised rates 8 times. Then began lowering them again (5 times) leading to a big drop when Covid stuck. So for Trump, The Fed changed their target rate 13 times compared to 1 rate change under Obama and none under Biden.

And the above chart is only The Fed’s target rate. My point is that Yellen failing to raise rates under Obama has resulted in this over DC-Stimulypto we are seeing today.

Note the difference in Fed policies BEFORE the financial crisis. We need to return to a normal Fed policy rather than the hyper-inflationary zero-rate, QE policies since 2008.

M2 Money velocity (GDP/M2 Money) remains near an all-time low.

But given DC’s spending spree and all-time lows for M2 Money Velocity, The Fed is going to need to keep purchasing trillions in debt at low interest rates. The abnormal Obama years (Bernanke/Yellen) are the NEW abnormal. Or should I say abby normal policies?

Dr. Frederick Frankenstein : Now that brain that you gave me. Was it Hans Delbruck’s?

Igor :No.

Dr. Frederick Frankenstein : Ah! Very good. Would you mind telling me whose brain I DID put in?

Igor : Then you won’t be angry?

Dr. Frederick Frankenstein : I will NOT be angry.

Igor : Abby someone.

Dr. Frederick Frankenstein : Abby someone. Abby who?

Igor : Abby… Normal.

Dr. Frederick Frankenstein Abby Normal?

Igor : I’m almost sure that was the name.

Dr. Frederick Frankenstein Are you saying that I put an abnormal brain into a seven and a half foot long, fifty-four inch wide GORILLA?

So, yes, Bernanke and Yellen put into place abnormal policies that Powell is following into the world’s largest economy (or gorilla).

Only Igor and The Federal Reserve would pick such abnormal policies that ultimately lead to massive misallocations and inflation.

On a side note, do Biden and Transportation Secretary Pete Buttigieg really believe that they can fix the backed-up ports that are flooded with cargo thanks to Stimulypto? By Christmas??

Not with natural gas prices up 90% since January 4th!

Here is a video of where The Fed comes up with their abby normal monetary policies.

Victory? US Real Average Hourly Earnings “Rise” To -0.8% YoY (Too Bad Real Home Prices Are Rising At 14.34% YoY Clip)

Good news on the wage front. Sort of .

US REAL average hourly earnings rose in September to -0.8% YoY.

Too bad that REAL home prices are growing at a 14.4% YoY clip.

The Federal Reserve’s new motto: making home unaffordable! With help from the US Treasury.

Bank of Japan Stops Printing Money, Will The Fed Follow? (US Misery Index Above 10%, Housing Misery Rate At All-time High)

My Kuroda!

金融政策に限界があるとは考えておりません 
(I do not believe that there is a limit to the effect of monetary policy.)

Haruhiko Kuroda, Bank of Japan, 13 April 2016

The Bank of Japan is one of the top three Quantitative Easing (QE) Monsters in terms of the absolute amount of assets it purchased. The Fed and the ECB round out the trio. The BoJ started QE over 20 years ago, and went hog wild under Abenomics, which became the economic religion of Japan in 2013. But the era of Prime Minister Shinzo Abe ended in September 2020, and Abenomics is now finished.

What’s left of it is that the BoJ (and Bank of Japan Governor Haruhiko Kuroda) now holds about half of the huge pile of the central government’s debt. With their target rate at -0.10% and a gargantuan balance sheet, what could go wrong?

But BOJ’s QE has ended. The BoJ’s overall assets stopped growing, and its holdings of government bonds have started to decline.

As of the BoJ’s balance sheet dated September 30, released on Thursday, total assets declined to a still monstrous ¥724 trillion ($6.4 trillion), below where it had been in May 2021.

But look at Japanese home prices with the growth of the BOJ’s balance sheet and general decline in mortgage rates. Like the USA, there was a balance sheet spike associated with Covid and a resulting spike in home prices.

The USA? We also saw a surge in home prices following The Fed’s monetary “stimulypto.”

But will The Fed follow BOJ’s lead and stop asset purchases? Not yet, anyway. It seems that The Fed can’t turn market forces loose and let interest rates rise.

Bear in my that the US Misery Index is above 10% (U-3 unemployment + inflation).

And if I define the US Misery Index as U-3 unemployment + home price growth, we can see we are at record misery rates. Miserable for households that don’t own a home or are trying to move to a higher housing price area).

What I like about The Fed’s monetary policies?? Nada.

Alarm! Big Short Resurfaces in U.S. Bonds, Wary of ‘Convexity Trigger’

Alarm!

It was great to be a “Master of the Universe” (Treasury and MBS trader) since October 1981 when the US 10Y Treasury yield peaked at 15.84% and mortgage rates peaked at 18.63%. Treasury and mortgage rates have generally fallen ever since. But what happens if Treasury and mortgage rates rise?

Bond investors are piling back into short positions, motivated not only by the specter of inflation but also by the risk that yields are approaching levels that will unleash a wave of new selling by convexity hedgers. 

That level is around 1.60% in the U.S. 10-year Treasury yield, less than 10 basis points from its current mark, according to Brean Capital’s head of fixed income strategy, Scott Buchta. It’s the mid-point of “a key threshold” between 1.40% to 1.80%, an area “most critical from a convexity hedging point of view.”

Convexity hedging involves shedding U.S. interest-rate risk to protect the value of mortgage-backed securities as yields rise, slowing expected prepayment rates.

It’s already begun to pick up as yields stretched past the 1.40% level. Another wave is expected at around 1.6% — a point of “maximum negative convexity” in agency MBS, “where 25bp rallies and sell-offs should have an equal effect on convexity-related buying and selling,” Buchta says. 

Signs that short positions are accumulating include Societe Generale’s “Trend Indicator.” Among its 10 newest trades are short positions in Japanese 10-year debt, German 5-year debt futures, U.K. 10-year gilts, U.K. short sterling and U.S. 2- and 5-year notes. Meanwhile, CFTC positioning data for U.S. Treasury futures show asset managers flipped to net short in 10-year note contracts in the process of dumping the equivalent of $23 million per basis point of cash Treasuries over the past week. Hedge-fund shorts also remain elevated in the long-end of the curve, as measured by net positions in Bond and Ultra Bond futures. 

“Bond-bearish impulses remain in place,” says Citigroup Inc. strategist Bill O’Donnell in a note, citing tactical and medium-term set-ups. Traders should be aware of short-covering rallies in the meantime, however, he says. 

“Potentially extreme short-term positioning and sentiment set-ups could easily allow for a counter-trend correction under the right conditions,” he said.

U.S. 10-year yields topped at 1.57% this week, the cheapest level since June, spurring the breakeven inflation rate for 10-year TIPS to 2.51%, the highest since May. Friday’s September jobs report could add fuel to this inflationary fire, rewarding bond shorts. 

Here is a chart of the rising 10Y Treasury yield against The Fed’s 5Y forward breakeven rate.

Here is a Fannie Mae 3% coupon MBS. Note the rise in Modified Duration with an increase in interest rates.

Convexity for the FNMA 3% MBS?

There is something on the wing. Some-thing.

Bizarro World! 1-month T-bill Yield Lower Than 1-year T-bill Yield (U.S. Faces A Recession If Congress Doesn’t Address The Debt Limit Within 2 Weeks, Yellin’ Yellen says)

Treasury Secretary Janet “Go big or go home” Yellen is beating the hysteria drum by saying that the US faces a recession if Congress doesn’t increase the debt ceiling.

Well, Janet, we are headed there anyway with GDP crashing to a measly 1.33%.

The fear of not approving a debt ceiling increase (laughable since Democrats can do it on their own) has caused there to be a “little dipper” in the US Treasury actives curve. Meaning that the 1-month T-bill yield is higher than the 1-year T-bill yield.

How bizarre is this getting?

US Real GDP Plummets To 1.33% As Fed Continues To Help Inflate Prices (Baltic Dry Shipping Price Index Soars!)

The Atlanta Fed’s real-time GDP tracker fell … again … to 1.33% as The Federal Reserve continues its bizarre monetary stimulus.

The culprits? Declining auto sales, manufacturing, etc.

I have discussed soaring prices since Biden’s election (food, energy, housing, rent, etc). But another soaring price component is shipping costs. Up 315% since mid-February.

While Trump’s slogan was “Make American Great Again”, Biden and The Fed’s slogan should be “Make America Far More Expensive For The Middle Class.” But that won’t fit on a bumper sticker.

And Biden/Democrats now want to RAISE taxes!

Median-Income Buyers Priced Out Of Housing Market With Fed Stimulus (Why Won’t The Fed Stop?)

The Atlanta Fed has interesting research paper on the housing market.

Key points

  • The national HOAM index stood at 92.2 in June, its lowest level since 2008.
  • National housing affordability fell 11.9 percent in June, the sharpest drop since 2014.
  • Home sale prices were up 23.8 percent over the past year.
  • On average, a median-income household would need to spend 32.6 percent of its annual earnings to own a median-priced home.
  • Although demand for housing remains strong, steadily declining affordability is beginning to affect buying decisions.

The latest reading of an Atlanta Fed measure and US housing trends show home ownership is becoming out of reach for many buyers and resistance to higher prices is building. More than 80 percent of US metro areas had a drop in affordability.

Where is housing most and least affordable?

ddd

Of course, the one chart that The Fed never includes is home price growth and Fed monetary policy.

So, if The Fed is so concerned with median-income households being priced out of housing markets, why are the still sticking with their unorthodox monetary policies?

Is Joe Biden Actually Dwight Schrute From “The Office”? Natural Gas Prices EXPLODING And Americans Being Punished!!!!

Since Joe Biden took office in January 2021, we have seen several actions from The White House. First, was the cancellation of the Keystone Pipeline (making the US more energy dependent on others). Second, Biden waived US sanctions on Russian pipeline to Germany. Big winner? Russia. Big loser? US consumers trying to heat their homes.

Here is a chart of natural gas prices since Biden took office in January.

Biden reminds me of Dwight Schrute from the TV show “The Office” as he loves to punish people. In this case, families trying to heat their home. And have his own currency, Schrute Bucks.

Perhaps The Federal Reserve should rename the US Dollar as “Biden Bucks.”

Here is Joe Biden lecturing the American people on Covid compliance.