The Powellenburg Omen! Will Powell Pop The Asset Bubble Created By The Fed’s Repeated Policy Errors? (Blackrock Rises, NVR Homes Gets Crushed)

As of today, Jerome “Nero” Powell and The Gang at The Federal Reserve have not trimmed the Fed’s balance sheet and have only raised their target rate once under President Biden.

Here is the Hindenburg Omen, named for the catastrophic explosion on May 6, 1937 at Lakehurst Naval Air Station in New Jersey. The Hindenburg Omen was flashing red before the stock market correction of late 2007-2009. But, the Hindenburg Omen has flashed red repeatedly since the financial crisis, yet the S&P 500 index has kept rising. The reason? Repeated policy errors by The Fed leaving monetary stimulus in place for too long leading to a bubble forming in the stock market.

The Shiller CAPE (Cyclically-adjust price-earnings) ratio is at the second highest level since the 1800s. The highest point was the infamous Dot.com bubble and bust in 2000/2001.

Since The Fed continues to say “We have a plan!” to slow/shrink The Fed’s balance sheet and raise their target rate … it has not done anything yet (other than a 25 basis point bump at the March meeting).

I am not advocating technical analysis for stocks, but the Bollinger Band analysis for the S&P500 index is showing the S&P 500 index near the top band indicating that a decline in likely.

Today, the US equity market in essentially flat given the massive uncertainty about the Russia/Ukraine situation and whether the US economy is slipping into darkness. But this morning, Federal government blessed companies (healthcare, solar energy and Blackrock) are doing quite well, while homebuider NVR is taking it on the chin thanks to hints that The Fed will raising rates.

Now, NVR (Northern Virginia Homes, Ryan Homes) had explosive earnings growth in their February 1, 2022 report.

But the market is pricing in the crushing Fed rate hikes that are expected.

So, will Foul Powell pull a Volcker and raise rates and crush the economy (and stocks)? Or will Foul Powell And The Fed gang let inflation burn out of control, but preserve the massive asset bubbles?

Weekend Update! US 10Y Breakeven Inflation Rate Hits Record High As WTI Oil And Lithium Surge (Toronto Home Goes From $613k Over Asking Price)

Unfortunately, the US Breakeven 10Y inflation rate hit another all-time high as West Texas Intermediate Crude Oil (Cushing Spot) soars.

But note that the WTI Crude spot rate is still lower than it previous peak in June 2008. What is notable in the above chart is that M2 Money growth YoY has slowed after Covid “Stimulypto”. But M2 is still growing at an 11% YoY clip, much faster growth than pre-Covid rates. So, Federal stimulypto is still in place, helping to drive inflation to the moon.

Example of how crazy this is getting? A house in Toronto Canada (our cousins to the north) just went to $613,000 OVER ASKING PRICE! While some may dismiss this as “Well, that is Canada” it does show how inflation is ravaging home affordability in North America.

As The Biden Administration and Congress pushes Green Energy and demonizes fossil fuels, we are seeing Green Energy commodities such as Lithium (for batteries) soar even faster than oil prices.

Gold may be set to party like its 1999!

And just an update on The US Dollar, Crypto Currencies and Gold. This is just a sample of alternatives to the US Dollar for transactions. Freedom of choice is a great thing!

What a wonderful time to be a politician! As Winston Churchill once uttered, “Never let a crisis go to waste.” To quote Dwight Schrute from The Office, “It is part of the green initiative. And by green, I mean money.”

Fed Expected To Raise Rate 8+ Times Over Next 12 Months Leading To Surge In 2-year Treasury Yield And Mortgage Rates (Powell’s Money Gun To Slow Rate Of Fire)

This is the chart from hell as The Fed is expected to take interest rates higher.

At least mortgage rates are down slightly today.

With 8+ rate hikes forecast over the next twelve months. Meaning that Powell’s Fed money gun is going to slow.

Trouble With The (Yield) Curve! 10Y-2Y Slope Approaching Inversion As Fed Plans Rate Hikes And Bitcoin Falls

The US Treasury yield curve (10Y-2Y) is rapidly approaching inversion at 20.5 bps (where the 10-year yield is lower than the 2-year yield). But the 10Y-3M curve is generally steepening at 173.33 bps.

Of course, the driving force behind the flattening of the 10Y-2Y curve is the rapidly rising 2-year Treasury yield (orange line). The last time the 10Y-2Y curve inverted was in 2019, prior to the COVID outbreak in early 2020.

The Wu Xia United States Federal Reserve Funds Shadow Rate has finally climbed back into positive territory.

At last look, The Federal Reserve is forecast to raise their target rate 7 times over the coming year. And with the increasing forecast of rate hikes, we are seeing the cryptocurrency Bitcoin fall from near $70,000 to $41,817.

President Biden announced that he will be issuing an executive order to combat rising energy prices (the rising energy prices that he caused in the first place with … executive orders). Let’s see what happens next.

Hello t-r-o-u-b-l-e.

Weekend Update! Crude Oil Above $100, Diesel Fuel UP 155%, Coal UP 256% Under Biden, Mortgage Rates Now Above 4.5%

The news just keeps getting worse and worse. Russia is still assaulting Ukraine, WTI Crude prices are above $100 a barrel and climbing, the Cleveland Browns signed Deshaun Watson to replace Baker Mayfield at quarterback, etc.

But back to energy prices. Since Biden was sworn-in as President, WTI Crude Oil futures are up 125%, regular gasoline prices are up 89%, and diesel fuel prices are up 155%. Diesel is important since America uses diesel-powered trucks to transport goods to market.

Globally? The world inflation rate has grown from 2% in January 2021 to 6.82%. Global food prices are up 24%.

Yes, WTI Crude and Brent Crude are above $100 per barrel.

And coal prices are up 256% under ~~Shoeless~~ Brainless Joe.

Mortgage rates? Bankrate’s 30-year mortgage rate is now above 4.50%.

Let’s see if Dr. StrangeFedpolicy raises rates as aggressively as signaled.

Powell And The Fed Gang Stick With Negative REAL Treasury And Mortgage Rates (US Housing Starts SOAR 6.8% In February)

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).

Do I Detect A Trend? US Treasury 10Y-5Y Slope Hits Zero (Inversion Imminent) As USD OIS Curve Steepens (Nickel UP 66.25%)

Today’s hawky-dove announcement by The Fed (raises rates by only 25 basis points, but hints that many rate hikes are around the corner.

The US Treasury 10Y-5Y curve has slumped to zero as inflation climbs and the number of rate hikes hits 7. Do I detect a trend?

And then there is the USD Overnight Indexed Swap (OIS) curve. Steep much?

And electric battery metal, nickel, is surging … again. Up 66.25%.

When they made Narcos, Pablo Escobar should have said “Nickel or Lead” instead of “Silver or Lead.”

Fed Week! 10Y Treasury Yield UP 11.1 BPS, Mortgage Rates UP To 4.33%, Oil Down 7.5% (Russian, Ukraine Sovereign Curves Collapsing)

Yes, it is the much anticipated Fed Week! The Fed Open Market Committee (FOMC) will announce it decision (probably the first rate hike under Biden of 25 basis points).

This morning, the 10-year Treasury yield rose by 11.1 basis points and the Bankrate 30Y mortgage rate rose to 4.33%.

Actually, sovereign yields are up around 10 basis points in the US, Canada, and across the pond.

Fed Funds Futures are pointing to 7 rate hikes over the next year with 1.114 rate hikes on Wednesday. That means The FOMC may raise rates MORE than the 25 basis points expected my many (including me).

The US Treasury actives curve remains steeply upward sloping while both the Russian and Ukraine sovereign curves are steeply inverted and crashing.

Russia has pushed the weighted average maturity of its dollar sovereign bonds out to almost 12 years.

The most hilarious headline of the day is a Bloomberg opinion piece: “Fighting Inflation May Require the Fed to Be Brutal: Clive Crook” How about the Biden Administration relaxing oil drilling and pipeline restraints? Otherwise, brutal translates into causing a recession. Great suggestion, Clive! … NOT!

Pelosi Cola! Latest Congressional Spending Spree Includes 21% Increase In Congressional Staff Allowance While Social Security Increases (COLA) By Only 5.9% (Pelosi/Schumer Prioritize DC Staffers Over Retirees)

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.

As part of the $1.5 trillion omnibus spending bill released Wednesday, the $5.9 billion fiscal 2022 Legislative Branch funding portion would substantially boost the office budgets of House members to pay staff more.

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.

Unfortunately, retirees received a Social Security Cost of Living Adjustment (COLA) of only 5.9%.

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.

The Hill has a nice summary of the latest Pelosi/Schumer Spendapalooza, “Lawmakers feast on pork in omnibus.”

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)”?

Consumer Confidence Plunges As Inflation Worsens (UMich Conditions For Buying Homes Declines To 70)

As inflation worsens, the University of Michigan survey of consumers fell again as US inflation worsens.

On the housing front, buying conditions for houses fell to 70 as a result of soaring home prices.

MY confidence in Biden and Congress has certainly declined.