S&P 500 Posts Worst First Half Rout Since 1970 As 10Y Treasury Yield Tanks 14 Basis Points (Biden Approval Drops To 38.3% On Rising Inflation, Gasoline Prices)

Run runaway! For safety to Treasuries.

A “recession shock” begins for markets following the worst first-half for the S&P 500 in more than 50 years.

And investors are running to Treasuries for safety as US Treasury 10-year yields tank 14 basis points.

Biden’s approval rating has collapse with inflation and rising gasoline prices. Note that Biden’s approval rating dropped below 50 in mid-August 2021, long before the Russian invasion of Ukraine in late February 2022. Gasoline prices had risen 49% since Biden’s inauguration as President, but before the Russian invasion of Ukraine.

Winter is coming!

Slowing! US Personal Consumption Expenditures Drop To 0.2% MoM In May As PCE Deflator Hits 6.3% YoY (US Mortgage Rates Slip to 5.7%, the First Decline in Four Weeks)

The US economy is slowing as inflation ravages consumers. US Regular Gasoline prices, for example, are up 104% under President Biden which helps to slow the economy.

US personal consumption expenditures fell to +0.2% MoM in May as “inflation” or real personal consumption expenditures PRICES rose +6.3% YoY as The Fed’s balance sheet (aka, Master Blaster!) remains.

As I mentioned above, US regular gasoline prices are UP 103% under President Biden, diesel prices (the cost of shipping goods to markets like … food is up 119% under Biden while CRB foodstuffs is up 55% under China Joe.

Now we have mortgage rates in the US falling for the first time in four weeks. The average for a 30-year loan was 5.7%, down from 5.81% last week, Freddie Mac said in a statement Thursday.

This year’s Fourth of July celebration is going to cost 18% more than last year’s celebration.

Lastly, the Atlanta Fed GDPNow real time tracker for Q2 is showing … -1% GDP “growth.”

So, yes, the US economy is slowing.

Home Listings Surge in Turnabout for Supply-Starved US Market (Are Homeowners Seeing An End To Home Price Growth With Fed Rate Increases??)

The Federal Reserve under Berananke, Yellen and Powell kept monetary stimulus out there too long and rates too low, but Powell is now trying to reverse that trend to fight inflation. But how will that impact the housing market?

(Bloomberg – Prashant Gopal) The housing slowdown is helping to solve one of the US real estate market’s most intractable problems: tight inventory.

With fewer buyers competing, the number of active US listings jumped 18.7% in June from a year earlier, the largest annual increase in data going back to 2017, Realtor.com said in a report Thursday. And new sellers entered the market at an even faster rate than before the pandemic housing rally began.

The Federal Reserve is cooling off the red-hot housing market as it fights to curb inflation by driving up interest rates. The resulting spike in mortgage costs is making homes less affordable and pushing would-be buyers to the sidelines. That means properties aren’t selling as quickly and must compete with the growing number of new offerings. 

I wonder if it is all the Covid monetary and fiscal stimulus that is finally getting homeowners to put their houses on the market, perhaps fearing the end of the housing price run-up with Fed-induced rate hikes?

Let’s see if The Fed’s Frolic Room (aka, open market committee) keeps driving rates up and home affordability down. Or is it The End for the house price bubble?

Fed Is ‘Just at the Beginning’ of Raising US Rates, Mester Says, MBA Mortgage Purchase Applications Drop -21% WoW As Rates Rise (Mester Channels The Carpenters)

Cleveland Fed’s Mester is channeling The Carpenter’s song “We’ve only just begun … to raise rates.”

Financial markets are anticipating what Mester is saying: rapidly rising interest rates. But as you can see from the following chart, gasoline prices (orange line) are driving rising US prices. So it is doubtful that monetary tightening will slow price increases. But Mester and company can only control monetary stimulus.

Mortgage rates have soared as The Fed attempts to crush inflation. And mortgage purchase applications fell -21% WoW in the most recent Mortgage Bankers Association survey.

The Refinance Index increased 2 percent from the previous week and was 80 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 0.1 percent from one week earlier. The unadjusted Purchase Index decreased 21 percent compared with the previous week and was 24 percent lower than the same week one year ago.

It almost seems like Mester is following the Taylor Rule (not really). But using CPI YoY, the Taylor Rule is saying that The Fed Funds Target Rate should be … 22.10%. It is only 1.75% after years of excessive stimulus following the banking crisis of 2008/2009. And Yellen who seemingly never met a rate hike that she liked.

If we use core PCE as our measure of inflation, the Taylor Rule is still high at 13.25%, a whopping 11.50 spread over the current target rate.

Will The Fed drive up rates and risk a recession ala Paul Volcker? Are we sitting on top of the world or about to get fried?

Bear in mind that gasoline prices are up 104% under the Biden Administration and mortgage rates are up 105%.

More On Fed’s Bullard’s “Consumers Healthy” Remark (Consumer Sentiment At Lowest Level Since 1977 While Unemployment Rate At Only 3.6%)

St. Louis Fed President Bullard made a remark the other day that consumers are healthy so a recession is unlikely.

Consumers are healthy? It is true that the US U-3 uemployment rate is low (3.6% versus 14.70% in April 2020 thanks to government shutdowns over Covid). But even though unemployment is low, consumer sentiment is at its lowest point since 1977.

Generally, consumer sentiment is high when unemployment is low, but not this time around. Currently, inflation is at the highest level since March 1980 even though consumer sentiment bottomed-out in April 1980.

Here is my chart showing that REAL average hourly earnings growth YoY is negative and getting worse, hardly a sign of “healthy consumers.”

Of course, rising gasoline and diesel prices have risen dramatically since 2021, but are declining slightly thanks to the global economic slowdown (read “lower demand”).

And a M2 Money Stock (green line) declined, US rents (blue line) declined as well.

We are truly living in Birdland. As in bird-brain land.

Alarm! Fed’s Bullard Says US Recession Fears Overblown With Consumers Healthy (My Response In One Chart: REAL Average Wage Growth At -3.34% YoY, Real GDP Growth At … 0%)

Alarm!

No problemo, says James “Bully” Bullard, President of the St Louis Federal Reserve. Bullard said that US recession fears are overblown with consumers “healthy.”

Really Jim?

Inflation is so bad they REAL average hourly earnings growth keeps falling and is now -3.34% YoY.

Apparently, real GDP growth of ZERO doesn’t bother Bullard either.

Apparently, we are still Under The Thumb of The Federal Reserve.

The DC Stomp! New Home Sales Decline -5.9% YoY, Median Price Rises +42% YoY As Fed Stimulypto Still In Place

The kids running Washington DC are not as sharp as pistols (which they want to take away) when they do the DC stomp.

Thanks to massive Fed monetary stimulus still stalking the housing market, US new home sales rose +10.7% MoM (from April to May), but were down -5.9% YoY (from May 2021 to May 2022) as mortgage rates rose.

Median price of new home sales rose 42% since May 2021, thanks to Fed stimulypto. And Federal government stimulus spending.

Yes, like the predators from the movies, The Fed’s balance sheet is still stalking markets.

Fed Chair Jerome Powell.

Sign Of The Times! US Gasoline Prices Decline To $4.94, Diesel Prices Rise To $5.80 As Recession Fears Mount (Reverse Repos At Fed Hit All-time High)

The talk of a gasoline tax “holiday” out of Washington DC is pure Kabuki theater. It is purely a sign of the times with Biden still trying to blame Putin for rising gasoline prices and inflation and ignoring his anti-fossil fuel policies that helped drive energy prices AND inflation through the roof.

Daily regular gasoline prices have dipped below $5.00 to $4.94 while diesel fuel, the lifeline of the shipping industry, rose slightly to $5.80. I guess the folks shipping food and other goods don’t get a holiday.

Note that the implied Fed target rate has fallen a bit as the probability of a recession increases.

And why are banks stashing so much money at The Fed in the form of reverse repos? Fear of recession, perhaps?

The Biden Administration is settling all kinds of records, and none are good.

Slippin’ Into Darkness! US Mortgage Rates Decline Slightly As Recession Probability Spikes (Will Fed U-turn From Inflation Fighting To Recession Fighting?)

Slippin’ Into Darkness!

Despite what Biden and his muppets say, there is a good chance that the US will slip into recession over the next 24 months. And with that, we are seeing a slight drop in US mortgage rates.

Inflation is surging, and The Fed seems intent on “inflation fighting” but may have to pause that fight the impending recession. This is called a “U-turn” although Powell didn’t mention that is his testimony yesterday.

According to Mortgage News Daily, the 30-year fixed dropped below 6% to 5.88%.

Europe is signaling their u-turn to recession fighting as 10-year sovereign yield have dropped over 10 basis points this morning. Australia and New Zealand are dropping hard as well.

Here is the Federal Reserve’s open market committee deciding on the direction of interest rates … inflation fighting or recession fighting?

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.