Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
Of course, it is easy to blame the figure on rapidly rising mortgage rates and Federal Reserve tightening.
But the rest of the story (as Paul Harvey used to say) is that US REAL wage growth has been NEGATIVE for 19 straight months. This alone makes housing unaffordable for the middle class and low wage workers.
Again, why are Biden and Trudeau wearing Mao jackets in Bali? And why is Biden looking like a robot?? Biden does look like he is saying “Take me to my leader, Pei.”
US mortgage rates fell last week by the most since the end of July, slipping below 7% and helping generate a bounce in purchase applications that otherwise remain depressed, but only in the Seasonally Adjusted data. The NON-Seasonally Adjusted data show a hefty decline.
The contract rate on a 30-year fixed mortgage decreased 24 basis points to 6.9% in the week ended Nov. 11, according to Mortgage Bankers Association data released Wednesday. The group’s index of applications to buy a home rose 4.4% — the most since June — but is still near the weakest level since 2015.
But the bounce was in Seasonally Adjusted data only. The NON-seasonally adjusted data remained depressed.
Mortgage applications decreased -10.0 percent SA from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 11, 2022. This week’s results include an adjustment for the observance of Veterans Day.
The Refinance Index decreased -11.44% percent from the previous week and was 88 percent lower than the same week one year ago. The unadjusted Purchase Index decreased -10 percent compared with the previous week and was 46 percent lower than the same week one year ago.
Mortgage purchase applications will continue to fall in NSA terms since it is the Winter and home buying season won’t really start until January. Refinancing applications actually dropped -11.44% even with the drop in mortgage rates.
The data. As my former students know, I like the “raw” data, better known as NON-seasonally adjusted (NSA) data and avoid seasonally-adjusted data (SA) since it hides what is going on.
And on The Fed Futures Front, The Federal Reserve is still looking a hiking their target rate from 4% to just under 5%.
Between Biden’s green energy mandates and the spendathon by the Pelosi/Schumer led Keynesians in Congress (or Kongress), we saw a 40-year high in inflation.
But with roaring Bidenflation, we have the S&P 500 index experiencing, in real terms, the worst performance since 1872.
That is, the worst since President Ulysses Grant.
President Biden is dressed in his Mao outfit with Canada’s Justin Trudeau.
And the WEF’s Klaus Schwab.
At least Biden, Trudeau and Schwab are wearing different colored Mao jackets.
Like the disastrous Bernie Madoff debacle where investors lost millions of dollars, Sam Bankman-Fried has apparently cost investors like Steph Curry, Shaq and Tom Brady considerable sums as well.
What do Bernie Madoff and Sam Bankman-Fried have in common? Greedy investors who apparently didn’t bother to monitor what was going on.
Yes, had they monitored FTX, Bankman-Fried’s company, they would have noticed that FTX held less than $1bn in liquid assets against $9bn in liabilities.
Generally, with buyer beware, the onus falls on investors to monitor what is going on. But The Fed’s completely dropped the ball on Bernie Madoff where investors didn’t seem at all curious about earning supercharged returns. The same is the case for FTX.
FTX had partnered with Ukraine to process donations to their war efforts within days of Joe Biden pledging billions of American taxpayer dollars to the country. Ukraine invested into FTX as the Biden administration funneled funds to the invaded nation, and FTX then made massive donations to Democrats in the US.
The SEC’s Gary Gensler blew it again. After his agency failed to warn investors about Terra and Celsius—whose collapses this spring sparked a trillion-dollar investor wipeout—the Securities and Exchange Commission chair allowed an even bigger debacle to unfold right under his nose. I’m talking, of course, about the revelation this week that the $30 billion FTX empire was a house of cards and that its golden boy founder, Sam Bankman-Fried, is the crypto equivalent of Theranos’s Elizabeth Holmes (Stanford University is where Holmes was an MBA student and Stanford Law School is where both SBF’s parents are professor).
To be fair, Gensler was not the only one suckered by SBF. Nearly everyone else fell for the narrative that SBF, with his cute afro and aw-shucks demeanor, was exactly the savior crypto needed to shake off its dodgy reputation and emerge as part of the mainstream financial system. The problem is that cop-on-the-beat Gensler not only failed to spot the crime—he appeared set to go along with a legislative strategy that would have given SBF a regulatory moat and made him king of the U.S. crypto market.
While it is easy to blame Gensler, the onus still falls on investors (and their managers) to MONITOR. Buyer beware.
What will happen to Sam? Likely nothing. He is a golden child of Democrats and was the second biggest donor to Biden and the Democrats after America-hating George Soros. Just like Biden’s son Hunter will never pay for his many inappropriate antics, I doubt that Merrick “Double Standard” Garland will do much to Sam.
Steph Curry, Shaq and Tom Brady should fire their investment advisors and possibly sue then for failure to monitor. No one noticed $1bn in assets against $9bn in liabilities??
Gary Genslar is more like Inspector Clouseau than a serious regulator.
Here is the SEC’s Gary Genslar interviewing Sam Bankman-Fried about FTX.
Maybe Sam’s Stanford law school professor parents didn’t tell him that it is against the law.
Former Obama economist and Harvard University President Lawrence Summers says that the FTX meltdown whiffs on an Enron-like scandal.
“A lot of people have compared this to Lehman. I would compare it to Enron,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin. “The smartest guys in the room. Not just financial error but — certainly from the reports — whiffs of fraud. Stadium namings very early in a company’s history. Vast explosion of wealth that nobody quite understands where it comes from.”
Lehman, Enron? How about Solyndra, one of the biggest political boondoggles in US history.
About two years after the Obama administration co-signed $535 million loans to Solyndra, the company filed for bankruptcy on September 1, 2011. A 2015 report from the Department of Energy found major flaws in Solyndra’s business practices and claimed the company made “inaccurate and misleading” statements to obtain the loan guarantees, and also found fault with Department of Energy oversight.
Which brings us to FTX and Sam Bankman-Fried (the son of Stanford law professor Barbara Fried and co-founder of the political fundraising organization Mind the Gap, which advocates for progressive political candidates and funds get-out-the-vote groups). Sam Bankman-Fried was a big Biden donor. What are the odds that The Federal government will impartially investigate SBF and the FTX fiasco? ZERO!
Why did FTX run into trouble?
FTX has a native cryptocurrency token called FTT, which traders use for operations like paying transaction fees. Last year, Mr. Zhao sold his stake in FTX back to Mr. Bankman-Fried, who paid for it partially with FTT tokens.
On Nov. 2, the crypto publication CoinDesk reported on a leaked document that appeared to show that Alameda Research, a hedge fund run by Mr. Bankman-Fried, held an unusually large amount of FTT tokens. FTX and Alameda are meant to be separate businesses, but the report claimed that they had close financial ties.
Binance announced on Nov. 6 that it would sell its FTT tokens “due to recent revelations.” In response, FTT’s price plummeted and traders rushed to pull out of FTX, fearful that it would be yet another fallen crypto company.
FTX scrambled to process requests for withdrawals, which amounted to an estimated $6 billion over three days. It seemed to enter a liquidity crunch, meaning it lacked the money to fulfill requests.
How did Binance intervene?
On Tuesday, Binance said it had reached an agreement to bail out FTX by buying the company. But, Mr. Zhao added in the announcement, “Binance has the discretion to pull out from the deal at any time.”
In a concurrent announcement, Mr. Bankman-Fried said the deal would protect customers and allow FTX to finish processing their withdrawals. He attempted to dispel rumors of conflict between FTX and Binance, adding, “we are in the best of hands.”
His last quote made me laugh.
Bitcoin plunged another -6% today as gold (gold line) and the S&P 500 (yellow line) rose. Moral to the story? Nothing has been the same since The Fed started tightening.
All cryptos are down today (except Litecoin). The three biggest, Bitcoin, Ethereum and Binance Coin are all down over 5%.
Why does Sam Bankman-Fried remind me of the late John Belushi?
Here is Sam Bankman-Fried defending his actions to his law professor Mom.
The October Senior Loan Officer Opinion Survey on Bank Lending Practices came out yesterday and its a doozy.
The Net Percentage of Domestic Banks Reporting Stronger Demand for Mortgage Loans is sinking faster than Joe Biden’s oratory skills as The Fed tightens their monetary belts.
Jumbo mortgages, those that are greater than FHFA’s conforming loan limit, are tanking as well.
And today, the University of Michigan (BOOO!!) consumer survey for housing buying conditions fell to the lowest level in recorded history.
Given the latest inflation numbers (improving from disastrous, 8.2% YoY to really horrible, 7.70% YoY), and unemployment rate rising from 3.5% to 3.7%, we now see that Taylor Rule estimate for Fed Funds is now … 13.85%. The US is currently at 4.00%. THAT is a big gap!
Yes, The Fed will not be able to fill the gap between the Taylor Rule and the current Fed Funds Target Rate, without incredible damage being done.
Unfortunately, this is an ACTIVE FAILURE for The Fed which has left monetary stimulus too high for too long since late 2008.
On a personal note, I am glad the midterm elections are over. We saw John Fetterman arguing until he was blue in the face that he loved fracking and will continue to let Pennsylvania frack. Then PA governor-elect Josh Shapiro came out yesterday and said that PA will end all fracking. And we are to believe that Lt Gov Fetterman did not talk with PA Attorney General Shapiro about fracking? To quote Joe Biden, “C’mon man!”
Now that the midterm elections are over (except for counting of million of mail-in ballots, a massive moral hazard risk), President Biden has proclaimed that he isn’t changing any of his horrid policies. And apparently, neither is The Federal Reserve.
Despite the headlines that The Federal Reserve is rapidly downsizing its massive balance sheet of assets, The Fed is just letting their enormous holdings of mortgage-backed securities (MBS) run off. That is, just letting MBS mature. So, The Fed’s System Open Market Holdings of Agency MBS has barely declined.
Here is the table of MBS run-off. The mass of MBS doesn’t start to mature until … 2039. It is Treasuries that are maturing.
So, The Fed is raising its target rate rapidly, although that is likely to reverse course in the first half of 2022.
Meanwhile, mortgage applications fall to lowest level since 1997 with Fed tightening.
“So Mr Bond…let me tell you my plan for global domination.”
Biden’s magic trick was to turn the economy into a train wreck.
Example? The 30-year mortgage rate was 2.88% on Biden’s inauguration day (January 20, 2021). They are now 7.32%, a 154% increase under Biden.
The US economy is suffering from knucklehead energy policies, reckless Federal spending and rampant inflation.
And why I won’t watch of subscribe to Peacock.
Yes, this is an economic double whammy!
First, according to Black Knight, US home values declined -2.6% over the past three months.
Second, the US Treasury 10Y-2Y yield curve remains near 1980s low.
There is a third whammy, rising utility costs (highest in a decade).
Yes, its a double whammy!
The US midterm elections are Tuesday. I was denied an absentee ballot for some reason, but I will get my disabled body over to the local precinct to cast my ballot.
Fortunately for Democrats, the next inflation report is not due out until November 10th. Because the forecast for the next inflation report is ugly.
Headline CPI YoY = 7.9%
Core CPI YoY = 6.5%
These numbers are slightly lower than the last inflation report, but Americans are still suffering mightily under Biden’s Reign of Error.
Diesel fuel prices, the lifeline of the food industry, is up 102% under Biden’s mandates with the inventory of diesel fuel down 36%.
Inflation is relentless like Jason from Halloween.
Inflation is UP 486% under Inflation Joe, The Bully of DC.
I am going for a few Tequila shots on Wednesday.
Confounded Interest - Anthony B. Sanders 
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