Mortgage Rates in the U.S. Soar to the Highest Since March 2020 (3.45% Nominal Rate, -3.59% REAL Rate)

Mortgage rates in the U.S. rose for a third straight week, reaching the highest point in almost two years.

The average for a 30-year loan was 3.45%, up from 3.22% last week and the highest since March 2020, Freddie Mac said in a statement Thursday.

Rates tracked a jump in yields for 10-year Treasuries, which climbed to levels not seen since early 2020, before the pandemic roiled financial markets. Signs point to borrowing costs rising further as the job market improves and the Federal Reserve steps up its efforts to tame inflation.

That would increase the burden on homebuyers who are already stretching to afford a purchase. Rates for 30-year mortgages tumbled to a record low of 2.65% a little more than a year ago.

Cheap loans have helped fuel a housing rally that’s still running hot even as home prices soar out of reach for many Americans.

But wait! The REAL 30-year mortgage rate (nominal 30-year rate – CPI YoY) is -3.59%.

Lael Brainard, Biden’s nominee to be Vice Chairman of The Federal Reserve, has been one of the “inflation is transitory” crowd. US Senator Toomey is questioning Brainard in today’s hearing. From Toomey’s opening statement:

Last year, Governor Brainard repeatedly insisted that inflation was transitory. We have now had nine consecutive months where inflation has been more than two times the Fed’s 2% target. That makes it pretty clear that inflation is not transitory. Yesterday’s CPI release of 7.0%—the highest in 40 years—confirms that.

Inflation is a tax that is eroding Americans’ paychecks every day. Even though wages are growing, inflation is growing faster and causing workers to fall further and further behind.

At least the REAL mortgage rate is negative!

I hope Senator Toomey shows Brainard this chart of “transitory” negative wage growth.

Negative wage growth and negative REAL mortgage rates. What a total mess!

10Y Treasury Yield Climbs To 1.783% As Mortgage Rate Hits 3.22% (Highest Since May 2020) As Soaring Nominal Wage Growth Hits

It looks like markets are buying into the prospect of The Federal Reserve raising rates three times (Bob) in 2022. And ceasing COVID monetary stimulus.

Today, the 10-year Treasury yield rose to PRE-COVID levels of 1.783%. And the Freddie Mac 30-year mortgage commitment rate rose to 3.22%, the highest since May 2020.

Today’s rising wage rates (although negative in terms of REAL wage rates) will likely put a Peruvian fire under The Fed’s behind. As of this morning, Fed Funds Futures are still pointing to three rate increases in 2022 (May, July and December).

And The Fed is supposed to be winding down the COVID monetary stimulus.

Why a Peruvian fire? Even Peru’s central bank is raising its key interest rate to 3% after soaring inflation.

Let’s see if Powell and The Gang follow through … or reveal themselves to be Peruvian Chickens.

Fed Minutes Flag Chance of Earlier Hikes, Balance-Sheet Rundown (When Jay Powell Speaks, People Listen [Dow Drops, 10Y T-yield Increases])

Federal Reserve officials said a strengthening economy and higher inflation could lead to earlier and faster interest-rate increases than previously expected, with some policy makers also favoring starting to shrink the balance sheet soon after.

“Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated,” according to minutes published Wednesday of the Dec. 14-15 meeting of the U.S. central bank’s policy-setting Federal Open Market Committee, when it pivoted to a more aggressive inflation-fighting stance.

“Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate,” the minutes said.

The S&P 500 stock index extended declines following the release and was on track for its biggest loss in more than a month. Treasuries also extended losses and the dollar pared its decline.

At the conclusion of the December meeting, the FOMC announced it would wind down the Fed’s bond-buying program at a faster pace than first outlined at the previous meeting in early November, citing rising risks from inflation. The new schedule puts the central bank on track to conclude purchases in March.

And with the minutes released, the Down dumped.

And the 10-year Treasury yield jumped 5.3 bps on the release.

When Jerome Powell speaks, people listen.

Tiny Or BIG Bubbles? Buffett Indicator, Shiller CAPE At Dangerous Levels Thanks To Fed And Their Champagne Policies

The Federal Reserve Open Market Committee meeting should have a Lawrence Welk bubble machine operating, particularly for their announcements.

When we look at the Buffett Indicator, we can see how The Federal Reserve’s loose monetary policies (or follycies) are driving up stocks to unsustainable levels that may not survive without The Fed’s “Do Ho Big Bubble Policies.”

How about the Shiller CAPE (Cyclically-adjusted Price/Earnings) ratio? While not up to dot.com levels yet, the Shiller CAPE ratio is climbing with the assistance of The Fed and their insane money printing.

How about house prices? The Case-Shiller National home price index is far above the level last scene during the housing bubble of 2005-2007. Again, with a little help from The Federal Reserve.

I can’t wait to see how the equity market and housing market reacts IF The Fed actually follows through with reducing monetary stimulus. Probably not just adding more stimulus, just reinvesting the Treasury and MBS proceeds (aka, not shrinking the balance sheet).

Speaking of Lawrence Welk and his Champagne Music Makers, watch the blazing-hot electric guitar work worthy of Steve Morse or Jimmy Page in this video.

Here is the new logo for The Federal Reserve.

Bad Santa! 10Y Treasury Yields Jump Above 1.60% as Expectation Of Fed Hikes Grows (Mortgage Rates Expected To Rise)

Happy New Year! And Treasuries are off to fast start with investors bailing on Treasuries and buying stocks. AND the expectation that The Fed will raise rates 3 times this year.

The 10-year Treasury Note yield rose above 1.60% this morning.

And the US Treasury 10Y-2Y curve rose to 80.601 basis points.

Fed Funds Futures data is showing 3 rates hikes in 2022. May, September and December.

The Fed Dots project is definitely showing an upward trend in the Fed Funds Target rate with FOMC member forecasting the median target rate to be above 2% by 2024.

Of course, Fed reverse repo activity grew to an all-time high (but it is expected to pare-back).

How about mortgage rates? I expect mortgages rates to rise over 2022 as the 10-year Treasury Note rises.

While The Fed has been acting like Santa Claus with monetary easing since 2008, they are predicted to act like Bad Santas in 2022.

6 months of telling inflation in transitory stories. Now you know why.

What do you say to the Fed Open Market Committee that has resisted raising rates while inflation is the highest in 40 years?

Cautionary note: The Fed is likely to protect economic growth and ignore inflation. So I expect FOMC will continue to reinvest prepayments into Treasury and MBS, pro-rata to the current portfolio.

Biden Delivering Fastest Economic Recovery In History. Why Hasn’t Anyone Noticed? (Because It Was Trump-era Stimulus)

The Hill has a misleading piece entitled “Biden is delivering the fastest economic recovery in history. Why hasn’t anyone noticed?”

Even crooner Barbra Streisand agrees.

A good quote from The Hill story: “Under Biden, the American economy has recovered from its Trump-era lows with remarkable speed.” As Leslie Knope said “That seems like an unfair phrasing.”

Hmm. Well, here is a chart that best explains the “Biden Miracle.” It shows the growth in Federal expenditures from the previous year during the banking crisis and then the COVID crisis. During the banking crisis, the increase in Federal expenditures (red) was normal. It was the increase in The Fed’s balance sheet (blue) that was staggering. But for the mini-recession related to COVID (only two months so you can barely see it on the chart below), it was the growth in Federal expenditures (red) combined with another round of staggering Federal Reserve stimulus (blue).

A different view of Federal “Stimulypto” is show below. Since COVID and the election of Joe Biden as President, Fed monetary stimulus is at an all-time high and Federal expenditures, while they have slowed, are still above the pre-COVID spending levels.

Please note that the massive surge in Federal expenditures and Fed monetary stimulus began under Trump, but were only continued under Biden. That is why no one notices … it was Trump.

And if we look at the 10Y-2Y Treasury curve slope, the US is slippin’ into darkness since the slope typically rises after a recession, then falls. And we are in the falling (or slippin’) stage.

So, President Biden is benefiting from Trump’s and The Fed’s Stimulypto. I don’t expect partisan outlets like The Hill or crooner Barbra Streisand to look at the data.

With Build Back (Inflation) Better not passing in the US Senate, I fully expect The Federal Reserve to continue “low riding” interest rates. Inflation will probably cool as well as Federal expenditure growth slows.

So, Streisand’s statement should have said “Joe Biden’s economic record in his first year is the best in 40 years. The media largely ignores this … because the unsustainable Federal stimulus began under Trump, not Biden.”

Another thing The Hill and Barbra Streisand left out was declining REAL average hourly earnings growth (that is, average hourly earnings YoY – inflation).

Biden’s real contribution? Anti-fossil fuels actions have driven up energy prices. Regular gasoline prices, for example, are up 45% under Biden.

If The Fed actually follows through and removes COVID stimulus and Congress doesn’t keep the incredible rate Federal spending growing, I sincerely doubt that GDP will continue at this hot pace.

Just Hedge Funds And The Blues: Why Can’t Hedge Funds Beat The S&P 500 (Or The Federal Reserve)?

Just hedge funds and the blues. Or hedge funds got the blues in 2021.

2021 saw the S&P 500 index generate a return of 28.7%. Much of it thanks to The Federal Reserve “stimulypto” or excessive monetary easing.

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But only three hedge funds beat the S&P 500 index: Senvest, Impala and SR. Thanks to fees (trading and management), the other hedge funds underperformed the S&P 500 index. And underperformed The Fed!

Melvin Capital was the worst performing hedge fund of the ones examined.

Yes, hedge funds had the blues in 2021 with only 3 hedge funds beating the S&P 500 index.

Welcome to 2022!!

The Great Distortion! Since COVID And Fed Hysteria, First Gold Then Bitcoin, Then Ethereum Surged While The US Dollar Declined Then Rallied

The global economy has certainly been turned on its head by the COVID outbreak in early 2020. Not so much by the virus itself, but by Central Bank hysteria in terms of rate lowering and balance sheet expansion. Which The Fed has not yet unwound.

Let’s look at what has happened since the mini-recession caused by COVID in early 2020. The shortest recession in US history, a measly 2 months. The Fed expanded its balance sheet from $4.17 million in February 2020 to $8.79 million today. That is, The Fed over doubled the size of their balance sheet in reaction to the shortest recession in US history. Overreaction much?

What has happened since the mini-recession and The Fed’s massive overreaction?

First, gold (gold line) surged then calmed down. Then cryptocurrency Bitcoin (while line) surged, then calmed down, then surged again only to calm down again. Then crypto Ethereum surged, calmed, surged, calmed. Meanwhile the US Dollar Index crashed only to start rising again.

The Fed’s overreaction and failure to withdraw excessive stimulus has led to the rise of alternatives to the deflating dollar due to inflation.

When will The Fed ACTUALLY start removing the overreaction stimulus? Let’s get it started.

Perhaps only April Ludgate can kill The Fed’s overreaction stimulus.

Fed Reverse Repo Usage Rises to Record for Fourth Straight Day As Turkish Lira Volatility Hits All-time High And US Current Account Balances Rise To 2006 Levels

(Bloomberg) — The amount of money that investors are parking at a major central bank facility climbed to yet another all-time high as supply-demand imbalances continue to dog U.S. dollar funding markets.

Eighty-one participants on Monday placed a total of $1.758 trillion at the Federal Reserve’s overnight reverse repurchase agreement facility, in which counterparties like money-market funds can place cash with the central bank. That surpassed the previous record volume of $1.705 trillion from Dec. 17, New York Fed data show.

Demand for the so-called RRP has climbed further as principal and interest payments from government-sponsored enterprises has entered short-end funding markets. However, that cash is expected to exit the overnight space by the end of the week as the Treasury ramps up its issuance of Treasury bills now that Congress has increased the debt limit.

Overall volume has been rising this year as a flood of cash continues to overwhelm the U.S. dollar funding markets due to central-bank asset purchases and the drawdown of the Treasury’s cash account, which is pushing reserves into the system. The larger takeup looks set to persist even as the Fed tapers its asset-purchase program — something it began this month — because the supply-demand imbalances in short-end securities are likely to persist.

Then we have the Turkish Lira volatility hitting an all-time high.

And finally we have the US Current Account Balance rising to levels last seen in 2006 just after the peak of the US housing bubble.

Mele Kalikimaka!

China Contagion (Not Wuhan Virus, But Real Estate), Kaisa Down 13%, Evergrande Down 4.32%, Shimao Down 6.40%, Chinese Estates Down 30.42%

While the Chinese Wuhan virus (aka, the Fauci Flu) has plagued the world, another Chinese “export” is also suffering what is known as contagion: China’s real estate sector.

Real estate companies Evergrande, Kaisa, Shimao and Chinese Estates are falling like a rock today.

But it has been a steady decline since Q1 2021 except for Chinese Estates. But they have resumed their death dive.

On the debt side, Evergrande is down to 18.856 while Kaisa has lost less (but still quite a bit) and Shimao’s bond look almost like a good investment, relative to Kaisa and Evergrande. But they are all sucking wind. Maybe they all have the Fauci Flu?

Let’s see if this latest Chinese “export” washes ashore in the USA.