Strange Days! US Mortgage Rate Falls To 6.97% As Banking Crisis Persists (Yellen, Bank Consolidations, Bailouts And The Return Of QE)

Strange days, indeed.

Despite endless promises from Washington DC that there would never be another bank bailout, the Biden Administration bailed out Silicon Valley Bank (SVB) by removing the $250,000 cap on deposit insurance. Then Treasury Secretary Janet Yellen added that in the future, only banks that posed SYSTEMIC RISK to the economy will be bailed out. Translation: only the big four Too Big To Fail (TBTF) banks will be bailed out. Meaning that the Biden Administration prefers big banks to community banks. “Middle-class Joe” loves BIG Pharma, BIG defense, BIG tech, BIG media and now BIG banks. He should rename himself “Big Joe” Biden for the 2024 Presidential election.

Of course, we are aware of The Fed’s about face on shrinking their balance sheet (green line). While Bankrate’s 30-year mortgage rate has now declined below 7% to 6.97%, it has only fallen -15 basis points since the recent peak of 7.12% on 3/2/2023 when the 10-year Treasury yield was 4.056%. So, the 10-year Treasury yield has fallen -62.7 basis points since 3/2/2023 while the 30-year mortgage rate dropped only -15 basis points.

On the European banking front, Credit Suisse is kaput and both Swiss Bank and Deutsche Bank are considering buying the assets of Credit Suisse. In other words, MORE bank consolidation.

Here is a chart of US bank consideration as of 2009 with 37 banks in 1990 shriveling to 4 mega, TBTF banks in 2009 that remain today. But will the now unprotected community and local banks be absorbed into the 4 superbanks? Time will tell, but if history is repeated, the answer is yes.

The KBW bank index continued to fall despite the bailouts of SVB and Signature Banks. But at least total returns on Treasuries and MBS that banks hold increased with the return of QE!

Yellen and Biden compete for the Knucklehead Of The Century Award. While not as sloppy as the sudden Afghanistan withdrawal, bailing out the Silicon Valley elites will not end well.

US Leading Economic Indictors Plunge -6.5% YoY In February, Consumer Sentiment Falls (S&P 500 Down -1%)

Apparently, the only thing that is strong in the US economy is low-paying jobs. The economy as a whole is sucking wind as we can see with the Conference Board’s Leading Indictors plunging -6.5% Year-over-year (YoY) in February.

US consumer sentiment fell again … and has not been near 100 (baseline) since Covid struck.

And on the fears that the banking system is not well, the S&P 500 index is down -1.1% this morning.

Fed Dead Redemption! Flight To Safety As US Treasury 10-Year Yield Drops -16 Basis Points And Fed Discount Window Soars (Wrong Way Yellen Strikes Again!)

Its crisis time again.

First, The Fed’s discount window soared to its highest level since … you guessed it … the previous financial crisis of 2008/2009.

Second, the 10-year Treasury yield declined -16 basis points this morning as investors flee to safety.

Bankrate’s 3-year mortgage rate rose to 7%, but with today’s decline in the 10-year Treasury yield we should see mortgage rates declining.

Yes, much of the blame belongs to The Fed’s leadership (Bernanke, Yellen, Powell) for leaving rates too low for too long, then suddenly try to lower inflation by raising rates. Now we have The Fed’s balance sheet INCREASING again as the use of The Fed’s discount window soars to highest level since Lehman Bros fiasco.

Argentina Raises Benchmark Leliq Rate By 300 Basis Points To 78% To Fight Inflation Of 102.5% (While Fed INCREASES Balance Sheet To Fight Banking Crisis)

Cry for Argentina! Their central bank boosted its benchmark Leliq rate by 300 basis points to 78%. The monetary authority’s board considered the increase in response to accelerating inflation and after leaving the key rate unchanged for several months.

Of course, the US Federal Reserve is going in the opposite direction to combat the US banking crisis created by inflation and Yellen’s “Too low for too long” Fed policies.

I am beginning to wonder in Treasury Secretary Janet Yellen and Chicago Mayor Lori Lightfoot are the same person. Both complete Statist screw-ups.

The NEW Banking Crisis In One Chart (Hint: Inflation = Fed Rate Hikes = Treasury/MBS Duration Increases = Bond Losses = Bank Runs) Bond Volatility Highest Since 2008

So, the Biden Administration made a horrible error by guaranteeing deposits at Silicon Valley Bank for deposits over $250,000. Essentially, Biden bailed out big tech that kept their deposits at SVB.

But what triggered the run on SVB and other banks? Simple. Biden and Congress spent like drunken sailors with Covid and The Federal Reserve went nuts printing money. Viola! We got inflation. But with inflation came The Fed’s attempt to get inflation back to its 2% target (difficult since Biden/Congress refuse to return spending to pre-Covid levels). But as interest rates rise, duration (weighted average life of MBS) rose dramatically meaning that risk increased. But banks like SVP ignored the risk, or didn’t hedge, or were spending time worrying about non-bank related issues.

So, what happened? Banks are holding Treasuries and MBS (orange line) that are getting clobbered with rate hikes (yellow line).

Talk about volatility. Today, the 2-year Treasury yield is up over 20 basis points as bond volatility hits levels last seen in 2008, just prior to the subprime credit crisis.

So, Biden’s bailout of SVP depositors stopped the deposit run for the moment. But if The Fed keeps hiking rates, banks are going to be hurting worse and worse. They could rebalance their portfolios and/or hedge. But with Uncle Spam (Biden) at the helm, bailouts are always on the table.

Don’t Cry For Argentina! Inflation Hits 102.5% As M2 Printing Hits 80% YoY (Suicide By Printing Press)

Don’t cry for Argentina! Their leaders did this to them.

Argetina’s inflation rate just hit 102.5% as their M2 Money printing hit 80%

Argentina’s central bank is considering raising its benchmark rate on Thursday for the first time since September after inflation data showed prices increased by more than 100% annually last month, according to two people with direct knowledge.

The monetary authority’s board will consider an increase after leaving the key Leliq rate unchanged at 75% for several months, the people said, asking not to be named discussing internal decisions. The board has not yet decided on the size of the hike in case they opt for such move, they said.

A cautionary tale for Washington DC spendacrats and Fed officials.

Brought to the same country that gave us Statist Juan Peron and his wife Eva.

Reversal Of Fortune! Fed Expected To Hike Once By 25 BPS, Then Cut Rates By 125 BPS By End Of 2023

Market now expects FED to hike max. one more time by 25bps followed by 125bps cuts in total by end of 2023.

And bond volatility is up the most since … the last financial crisis.

No, not the Klaus von Bulow “Reversal of Fortune.” Just a Fed/Biden murder of the US economy.

Markets Still Stressed Despite Fed Guarantees For Depositors (Volatility Spread In STRESSED Range)

Well, the banking fiasco CREATED BY THE FEDERAL RESERVE is still with us. Why? Because the FDIC guaranteed deposits above $250,000 for the first time in history, bailing out millionaires/billionaires. I call this Crony Socialism (but I repeat myself).

Congress doesn’t understand banking, only how to spend money.

US Inflation Comes In Hotter Than Expected, Real Weekly Earnings At -1.9% YoY, Negative For 23rd Consective Week (Treasury 2-year Yield Rises 34 Basis Points!)

The Federal Reserve is some hard thinking to do. Inflation came in hotter than expected, so raise rates to fight inflation or lower rates to prevent bank contagion. Similar to Kevin Malone’s “Double fudge brownies or Angela” debate.

While headline inflation (CPI) came in a 6% (considerably higher than The Fed’s 2% target), core inflation came in at 5.5% year-over-year (YoY), which was expected.

The truly nasty number is today’s inflation report is that weekly earnings YoY remained the same at a terrible -1.9%. Meaning that inflation is higher than nominal wage growth. This is the 23rd straight month of negative real weekly earnings. Well done, Fed and Biden!

Food is up 10.2% YoY. Electricity up 12.9%, shelter up 8.1%.

On the news, the US Treasury 2-year yield rose 34.3 basis points.

Somehow I doubt that Biden’s press secretary will tout 23 straight months of negative weekly earnings growth as one of Biden’s economic accomplishments.

Gold Soars 2% On Failure Of Fed And Bank Regulators

All together now. The Fed has been printing too much money for too long and Biden restricts fossil fuel production. Ad in rampant Federal spending and we have INFLATION. Inflation led to The Fed to raise rates. And with rate increases and down go the banks.

Of course, The Fed and Biden Administration will overeact (e.g. offering deposit insurance on ALL deposits above $250,000 creating moral hazard risk). As such, we are seeing gold prices soar by 2% this AM.

In adddition to gold rising 2%, natural gas futures are up 6%