Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
The mortgage market is really hurting under the stewardship of “Inflation Joe” Biden.
Bankrate’s 30yr mortgage rate hit 7.35% yesterday, up 155% under Biden.
Here is a photo of Inflation Joe taking aim at the mortgage industry and housing market.
It has been a wild and mostly negative ride under Biden’s Reign of Error. 40-year highs in inflation (caused by Biden’s fossil fuel mandates and Federal spending) have left the US mortgage market FINALLY seeing positive REAL mortgage rates (now 0.32%), even though the REAL 10yr Treasury yield is still negative (-2.50%).
Even Joe Biden’s hate speech towards Republicans can’t mask the horrid inflation on his watch. As if Biden watches anything other than ice cream cones.
On a YoY basis, US Productivity is down for the 3rd straight quarter (and 4th quarter of the last 5).
On the mirror image of productivity, unit labor costs rose 3.5% QoQ (a notable slowing from the 8.9% QoQ growth in Q2). This was the 6th quarter in a row of rising unit labor costs (but was less than the +4.0% QoQ expected)…
However, on a YoY basis, that is the fastest growth since Q3 1982.
Yikes! The 2s10s Yield Curve Inversion Is the worst since the 1980s.
Markets are getting stranger than the Paul Pelosi hammer attack.
The S&P 500 index tanked -2.35% after Powell and The Fed failed to pivot.
Federal Reserve Chair Jerome Powell opened a new phase in his campaign to regain control of inflation, saying US interest rates will go higher than previously projected, but the path may soon involve smaller hikes.
Addressing reporters Wednesday after the Fed raised rates by 75 basis points for the fourth time in a row, Powell said “incoming data since our last meeting suggests that ultimate level of interest rates will be higher than previously expected.”
Powell said is it would be appropriate to slow the pace of increases “as soon as the next meeting or the one after that. No decision has been made,” he said, while stressing that “we still have some ways” before rates were tight enough.
“It is very premature to be thinking about pausing,” he said.
Fed Funds Futures data point now to a June peak in the target rate of 5.055%, then a decline.
US mortgage applications declined for the sixth consecutive week despite a slight drop in rates.
Mortgage applications decreased 0.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 28, 2022. This week’s results include revised data to reflect an update to last week’s survey results.
The Refinance Index increased 0.2 percent from the previous week and was 85 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 41 percent lower than the same week one year ago.
This morning’s WIRP (Fed Funds Futures data) is pointing to a 75 basis point increase from The FED FOMC (open market committee) at 2pm EST, rising to over 5% by the May 2023 meeting before declining again.
I feel like The Fed is fixing to let the economy die.
US 30-year mortgage rates are above 7% as The Federal Reserve slowly withdraws its Covid-related monetary stimulus and attempt to combat near 40-year highs in inflation under Biden (aka, Bidenflation).
However, the US Treasury 10-year yield is down -12 basis points this morning.
And we have an important predictor of recession, the Treasury 10yr-3mo yield curve.
And if the Republicans win The House (and maybe the Senate) at the midterms, Biden can blame Republicans for the recession.
Joe Biden, Hunter and Biden’s brother James must be singing “Damn, it feels good to be a Biden!“
The housing and mortgage markets are suffering with impending recession and Fed monetary tightening.
MBS returns extended their negative run during their worst year on record as 10-year Treasury yields topped 4% and the trend in MBS spreads widened.
The MBS sector has had only two positive months in both total and excess returns this year — May and July.
Take a look at the 4.5% coupon agency MBS price and risk (duration) with Fed tightening (orange line) and crashing M2 Money growth (green line).
Time for something new in the MBS market?
The next Federal Reserve Open Market Committee (FOMC) meeting in on Wednesday, November 2nd. Let’s see what The Fed does with its BIG GREEN BAG … OF MONEY.
As I set here on Sunday morning waiting to see how the Cleveland Browns will lose to cross-state rival Cincinnati Bengals, I see that both the US Treasury 10yr-2yr and 10yr-3mo yield curves are inverted (below zero).
Core inflation (CPI less food and energy) YoY (blue line) was only 1.3% in February 2021 shortly after Biden was sworn-in as President and is now 6.6% in September 2022. That is over a 400% increase in core inflation!
We have this tantalizing headline on Bloomberg:
Goldman Sachs Now Sees Fed Rates Peaking at 5% in March By Simon Kennedy(Bloomberg) —
Goldman Sachs Group Inc. economists said they now expect the US Federal Reserve to raise interest rates to 5%, higher than previously predicted.
The central bank will lift its benchmark rate to a range of 4.75% to 5% in March, 25 basis points more than earlier expected, economists led by Jan Hatzius wrote in an Oct. 29 research report.
The route to the new peak includes increases of 75 basis points this week, 50 basis points in December and 25 basis points in February and March, they said.
The economists cited three reasons for expecting the Fed to hike beyond February: “uncomfortably high” inflation, the need to cool the economy as fiscal tightening ends and price-adjusted incomes climb, and to avoid a premature easing of financial conditions.
Well, not exactly earth-shattering. Fed Funds Futures data point to a peak of near 5% (4.905%) for the May 2023 FOMC meeting, so Goldman Sachs is calling for an earliest peak at the March 2023 FOMC meeting,
Regardless of what Goldman Sachs thinks, Fed officials are expecting a peak in 2023 followed by a decline to 2.5%.
Brainard and Bostic are the only “doves.” Which is silly because Chicago’s Evans is a perma-dove. Let’s see how the Dots Plot changes at the November 2nd meeting.
America’s distressed debt pile is biggest since September 2020.
I was in an MRI tube getting a scan of the brain tumor that is causing me problems. So, I missed this morning’s new dump. And what a dump it was!
First, pending home sales have collapsed (down -30.4% YoY) for September. Look at pending home sales against M2 Money growth.
Then we have the employment cost index, up 5%. This will encourage The Fed to tighten further, even if it causes a recession.
How about the US Personal Saving Rate YoY?? It is down -59.3%.
US Q3 GDP numbers are out and they are … meh. Only Biden and Karine Jean-Pierre would cheer about 1.8% real GDP growth. At least real GDP growth wasn’t negative!
Real GDP rose 2.6% after -0.6% in Q2 and 1.8% YoY. But the most interesting data bit is the GDP Price Index. It fell to 4.1% in Q3 down from a whopping 9.0% in Q2.
But wait! Also declining at a stall speed is M2 Money.
And brace yourself for a cold winter. Heating oil is UP 162% under Biden.
Confounded Interest - Anthony B. Sanders 
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