Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
Rising energy prices, rising home prices, rising mortgage rates, declining hope.
But as The Federal Reserve begins to withdraw it Covid stimulus, existing home sales declined -3.39% in May from April.
But like Covid itself, The Fed’s outrageous monetary stimulus is still in place, helping caused median home prices to rise 14.8% YoY. And inventory for sale is rising, but still remains low.
Jointly, Treasury Secretary Yellen and Fed Chair Powell are “Mr Freeze.”
How crazy was The Federal Reserve’s overreaction to the government shutdowns surrounding the Covid epidemic? While most analysts talk about California, I am going to discuss … Cleveland Ohio as an example of how The Fed can destroy markets.
The Case-Shiller home price index for Cleveland rose 31.5% since January 2020 just before The Fed unleashed its massive monetary stimulus on an unsuspecting city.
But as The Fed starts to tighten monetary policy after Yellen’s too loose for too long policies followed by Powell, foreclosure rates are soaring in Cleveland. In fact, according to Attom Data, 5 of the top 10 zip codes with the worst foreclosure rates in May 2022 were in Cleveland.
Of course, Cleveland is much like much of the rust belt (except Columbus Ohio). The rust belt is losing population along with heavy tax states like New York and Illinois. Destination states? Texas, Florida, the Carolinas and Tennessee.
Then at the national level, Atlanta Fed’s GDPNow real-time tracker fell to 0% growth.
We’ve got a line on The Federal Reserve. They don’t seem to care about housing and the mortgage market.
Monthly mortgage payments are soaring as home prices soar AND mortgage rates soar.
Mortgage rates have soared with Fed noose tightening.
Something has to give. Otherwise, winter is coming.
The theme song of The Federal Reserve thinking that rising prices can be tamed by raising rates is “Dear Mr Fantasy.”
I couldn’t sleep at all last night … after The Fed cranked up their target rate 75 basis points.
The odds of a recession grew to 71.7% as The Fed hikes rates.
Over the next 24 months, the probability of a US recession is 98.5%.
The NASDAQ index tanked -4% today on the fallout from yesterday’s Fed actions.
Do I detect a trend in The Fed’s latest Dot Plot??
So, will The Fed continue to go head-over-heels on monetary tightening?
Like in the movie The Poseidon Adventure, we can all sing “The Morning After.”
On the heels of The Fed’s 75 basis point surge in the target rate, the US Treasury yield jumped +11.5 BPS as of 8:30 AM EST. The S&P 500 E-mini futures contract is down -1.8%.
As investors brace for a recession, mortgage rates dropped to 6.03%.
Gasoline prices remain near $5 per gallon, diesel prices are near $6 per gallon and The Fed’s massive balance sheet is still in force.
On the housing front, US housing starts plunged -14.4% MoM in May, the biggest decline under Biden.
While housing starts were down -14.4% MoM in May, single-family detached home were down only -9.16%. It was 5+ unit (multifamily) starts that were down -26.83% MoM.
Good morning peeps! Reality is dawning after the market surge yesterday after investors celebrated that The Fed could have raised rates even more.
Sometimes I wonder if The Federal Reserve Board of Governors pays attention to economic news. For example, the Atlanta Fed’s GDPNow forecast for Q2 was released today at -0.002%. So what does The Fed do? They raised their target rate by 75 basis points to 1.75%.
Apparently, The Fed has chosen to fight inflation rather than help the economy.
While expected, it is still unwelcome news.
The Atlanta Fed’s GDPNow real-time GDP forecast for Q2 just sank into negative territory at -0.002%.
Let’s see how Real GDP does if The Fed actually withdraws its stimulus needle.
And consumer purchasing power keeps diving as The Fed keeps printing money.
US home prices are still skyrocketing as The Federal Reserve kept its massive foot on the monetary accelerator pedal.
CoreLogic’s home price index grew at a 20.9% YoY pace in April, but is expected to slow to 5.6% YoY in late 2022.
Remember peeps, The Fed still have its staggering monetary stimulypto in place.
The Fed is signaling its withdrawal of stimulus, causing mortgage rates to soar.
Given the slowdown of the US and global economy, we shall see if The Fed keeps to its tightening plans. As of today, the market is expecting The Fed to raise its target rate from 1% to 3.819% by February 2023. That is a 291% increase in The Fed’s target rate.ng
The Fed trying to tame inflation (caused by The Fed and Biden’s energy policies and Congressional spending) is like Curly trying to eat oyster stew.
The US Treasury 10Y-5Y yield curve has gone into negative territory (which usually occurs before a recession). At the same time, US mortgage rates are climbing like Tom Cruise in “Top Gun: Maverick” to 5.87% as The Fed tightens its choke hold on markets.
The 10Y-5Y Treasury curve typically goes negative before a recession.
And then we have today’s PPI report (Producer Price Index), rising 10.8% YoY as M2 Money stock starts to decline a bit.
Here is a better view of mortgage rates under Biden/Powell.
I hate this chart from John Burns.
Biden/Powell/Pelosi/Schumer are collectively “Mr Freeze.”
Today’s opening bell is “Opening Hell!”
US Treasury 10Y yields are up +12.1 basis points as of 9:40am EST. And rising across the globe.
Equity markets? Dow is down -621.93 points and the NASDAQ is down almost -3%. But equity markets are down across the globe.
Commodities? Once again, all commodities in the red except corn (which I don’t eat) and natural gas.
Speaking of opening hell. The US Treasury 10Y-2Y yield flattened to 7 basis points.
And then we have Markit’s Credit Default Swaps index rising to the highest level since Covid (April 2020).
Markets are in a “Sea of Red.”
Confounded Interest - Anthony B. Sanders 
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