How The Banking Crisis And Covid Lockdowns Killed Money Velocity (Death Of King Dollar)

I have written numerous times about nothing has been the same since the housing bubble burst and ensuing financial crisis of 2008. The crisis led to bank bailouts (TARP) and banking legislation (Dodd-Frank) giving The Federal Reserve even more power. And then the COVID lockdowns led to even MORE power for The Fed. And a horrid decline in money velocity (the ability of printing money to increase economic growth … or GDP).

But let’s take one step backwards. One the causes of the housing bubble that burst was President Clinton’s infamous National Homeownership Strategy that encouraged “partners” with the Federal government to soften underwriting standards for mortgage lending, particularly for minority households. The intent was to increase the homeownership rate in the US and it worked! Too well. Along with increasing the homeownership rate came rising home prices, culminating with home price growth reaching 14.5% YoY in September 2005. Only to start slowing to a crash.

Of course, the housing bubble was associated with no/low documentation and subprime mortgage lending. But the relaxing of underwriting standards by the National Homeownership Strategy helped fuel the no/low doc and subprime lending crisis. But weakening underwriting standards to increase homeownership rates is a dangerous strategy.

Note the surge in M1 Money Velocity (GDP/M1) starting in 1994. M1 Velocity grew until Q4 2007, then crashed along with home prices. The second and more sudden crash in M1 Velocity occurred with the COVID outbreak in March 2020 and the ensuing economic lockdowns and the intervention of The Federal Reserve in terms of money printing. M1 Money surged 173% from October 2008 to February 2020 and then another 369% from March 2020 to today. THAT is a Fed Storm Surge!!

M2, the broader definition of money, has not grown as rapidly as M1, but it still grew at an alarming rate. Atlanta Fed President Raphael Bostic blamed inflation on COVID but not The Fed’s insane money printing or government lockdowns. C’mon man!

Finally, the banking crisis (and TARP bailouts) along with COVID have made consumer purchasing power of King Dollar even worse.

Be careful of government strategies to make housing more “affordable” because they seem to make housing more expensive and can help crash the financial system.

Renter Misery Index At 17.42% With Traditional Misery Index At 10.80% (Biden Says $5 TRILLION “Build Back Better Boondoggle” Will Relieve Inflation Over 10 Years)

Renters in the US are getting clobbered by inflation.

The US Zillow Rent Index All Homes YoY + CPI YoY is one measure of renter misery.

The classic misery index (CPI YoY + U-3 unemployment rate) is 10.80%.

Then there is inflation in food prices, gasoline, heating oil, natural gas, etc.

While Biden is releasing the Strategic Petroleum Reserves (SPR) in order to mitigate the problem that he created by terminating the energy pipelines and oil/natural gas drilling permits in the name of “Going Green!” But on the announcement of tapping the SPR, crude oil futures actually rose.

But never fear! Biden claims that his $5 TRILLION Build Back Better Boondoggle (BBBB) will ease inflation … over 10 years. And he claims that “17 Nobel Prize winners in economics have said that my plan will “ease inflationary pressures.”” I sincerely doubt that any of them actually read the 2,500 page BBBB. Rather, they likely just read the White House talking points and said “Hey, that sounds good!” Mo money, less problems?

Here is Joe Biden breaking the legs of America’s renters. Or is that multi-millionaire Nancy Pelosi?

Securitization Frenzy! Wall Street Repackaging Of Loans, Franchise Agreements, Royalties Surging As Alarm Sounds For Commercial Retail

Alarm!

I remember the surge in securitization of loans, receivables, etc during the housing bubble of the mid-to-late 2000s. Today seems like 2007 all over again.

(Bloomberg) — Bankers are repackaging everything from fast food franchises to fitness-center fees into bonds at the fastest clip since the global financial crisis as investors chase yield and inflation protection.

This year’s sales of U.S. asset-backed securities have already surpassed $300 billion, according to data compiled by Bloomberg — and more is expected by year-end. Post-crisis issuance records have also been set in private-label commercial mortgage bonds and collateralized loan obligations, which are also seen accelerating.

“Solar, consumer loans, container lease and whole business transactions to some degree all offer attractive yields and spreads,” said Dave Goodson, head of securitized credit at Voya Investment Management. “These so-called esoteric sectors remain well supported with plenty of money to invest.”

On Monday, Self Esteem Brands, a franchiser of businesses including its flagship gyms Anytime Fitness, priced a $505 million ABS that was backed by franchise agreements, royalties and fees. In whole business securitizations like these, companies mortgage virtually all their assets.

Last month, fried chicken restaurant chain Church’s Chicken sold a $250 million securitization backed by franchise and royalty collateral. Golden Pear Funding recently securitized litigation fees related to financial settlements on everything from personal injury cases to wrongful convictions. And Oasis Financial priced a similar deal linked to payments on medical liens.

Then we have this headline that will send chills through the CMBS market for retail space, particularly at a time when commercial real estate (particularly RETAIL) are trying to recover from COVID lockdowns and the growth of online shopping.

“Retailers Sound Alarm on Organized Theft as States Warn of Rise”

Retailers say shoplifting is getting more brazen in the U.S.: A California Nordstrom store was recently hit by a flash mob of more than 80 people who made off with designer goods, while more than a dozen people pilfered from a Louis Vuitton location in a suburb of Chicago.

On Tuesday, the impact of shoplifting reached Wall Street, with Best Buy Co. shares plunging after the electronics retailer said widespread theft contributed to a decrease in one gauge of profitability. Last month, Walgreens said it would close five San Francisco stores after theft rates there spiked.

Seemingly, no one learns from history. Or as the zen master Yogi Berra once said “It’s like déjà vu all over again.”

Or “You better cut the pizza in four pieces because I’m not hungry enough to eat six.”

October Country! US 1-Unit Housing Starts Decline -10.6% YoY As Housing Sentiment Crashes (High Housing Price Inflation Is Hurting)

US housing starts for October were less than expected. A 1.5% increase MoM was expected, but housing starts actually fell -0.7% MoM.

5+ unit (multifamily) starts were up 6.82% MoM. 1-unit single family detached units were down -3.89% MoM. Permits to build were up 4% MoM.

On a YoY basis, 1-unit start declined -10.6% as M2 Money growth continues to fall.

And 1-unit housing starts have fallen with the rapid decline in home buying sentiment.

1-unit starts have slowed to pre-COVID levels, thanks in part to The Federal Reserve’s money printing bonanza which may never end.

As housing sentiment crashes (due to rapid home price growth), we are seeing the demand for multi-family housing rise. 5+ unit (multifamily) starts were up 6.82% MoM in October.

It is October after all as winter sets in.

The Inflation Tax Levied By The Federal Government Rose To 8.62% In October (Biden Interviews Brainard For Fed Chair Position)

Now that President Biden is interviewing Lael Brainard for Federal Reserve Chair, I am really getting a peaceless, uneasy feeling that The Fed will NEVER raise rates and inflation will be perpetual. To whit, …

Prices paid to U.S. producers accelerated in October, largely due to higher goods costs, fueling concerns about the persistence of inflationary pressures in the economy.

The producer price index for final demand increased 0.6% from the prior month and 8.6% from a year earlier, matching forecasts, Labor Department data showed Tuesday. The annual advance was the largest in figures back to 2010.

Excluding the volatile food and energy components, the so-called core PPI rose 0.4% and was up 6.8% from a year ago.

Prices paid to U.S. producers rose in October, reflecting in part higher energy costs

More than 60% of the headline increase was due to goods, which jumped 1.2%. Higher energy costs, including that for gasoline, drove the gain. The cost of services rose a more moderate 0.2% for a second month, reflecting a further pullback in the cost of securities brokerages and investment advice.

The report underscores how transportation bottlenecks, materials shortages and increasing labor costs have sent prices soaring across the economy in recent months. Trucking freight costs jumped a record 2.5% from September.

Inflation is a tax created by printing too much money and stupid Federal economic policies (or follicies).

Lael Brainard? Discussing the chairmanship with Brainard could signify that the Biden team is weighing how a break with Powell might help advance their goals for the central bank. Brainard and Powell work closely together on multiple issues and are viewed as holding similar views on monetary policy, but she’s favored a tougher stance on big banks.

Remember, The Federal Reserve is a privately-owned entity independent of The Federal Government. A Brainard appointment would make The Fed the financing arm of the Democrat Party.

COVID And The CMBX Cliff (Retail and Office Sectors Still Limping Along Thanks To Shutdowns And Fearmongering)

Nothing has been the same since Covid struck in early 2020.

CMBX BBB-, the reference basket for CMBS 6, was climbing to around $95 prior to the Covid outbreak and resulting recession. The CMBX reference basket is now at $72.25.

CMBX 6 is largely composed of retail and office, both hit hard by Covid and the ensuing lockdowns and fearmongering by the Federal government and main street media.

Escape From LA II? Corelogic Home Price Index UP 18% YoY, But Forecast To Slow To 1.9% YoY In 2022

Yes, home prices are still growing at a super-hot pace of 18%, according to Corelogic.

But the forecast for home price growth is for 1.9% YoY in 2022.

As home price growth crashes back to earth as wages don’t keep pace with home prices.

Home prices have been growing in most states out west where The Fed’s money pump has resulted in a boom in second homes and people escaping high tax California and Oregon for Nevada, Idaho, Arizona (again), Utah and Montana. The east coast is seeing the Carolinas booming along with Florida and Indiana. Escape from New York?

Escape from LA … to Arizona, Nevada, Idaho and Utah?

Powell Flags Rising Inflation Risk While Playing Down Rate Hikes (US Dollar, 10Y Treasury Yield, Gold Fall With Powell’s Comments)

Like the old EF Hutton ads, “When Powell speaks, people listen.”

Federal Reserve Chair Jerome Powell sounded a note of heightened concern over persistently high inflation as he made clear that the central bank will begin tapering its bond purchases shortly but remain patient on raising interest rates.

“The risks are clearly now to longer and more persistent bottlenecks, and thus to higher inflation,” Powell said Friday during a virtual panel discussion hosted by the South African Reserve Bank and moderated by Bloomberg’s Francine Lacqua.

“I would say our policy is well-positioned to manage a range of plausible outcomes,” he said. “I do think it’s time to taper and I don’t think it’s time to raise rates.”

Good luck with that, Jay! You are going to raise the short-end of the yield that will lead to a flattening of the Treasury yield curve. But you are going to continue to buy Treasuries and Agency MBS in order to monetize the rampant spending by Congress and the Biden Administration? C’mon man!

You can see where Powell spoke today. It is when gold tanked along with the 10-year Treasury yield. Both rebounded a bit, but the 10-year Treasury yield continue its fall to 1.6324%.

The US dollar (green) fell when Powell opened his pie-hole. But Bitcoin (blue) fell in advance as if they knew what Powell was going to say.

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.

US Housing Starts Drop 1.58% In September (Permits Drop 7.67%) As Interest Rate Increases And Inflation Loom

US housing starts slowed in September to at a -1.58% MoM rate. Permits dropped 7.67% MoM.

Now that interest rates are expected to rise … in late 2022, we may be a slowing in the housing market.

Here are the numbers.

The US Treasury 10Y-3M slope is rising as inflation rises (that inflation curve looks like the ARCTAN function from prepayment modeling!)