Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
Surprise! Just in time for the November election, this is a negative surprise that Biden doesn’t want to hear.
The Citi Economic Surprise index crashed to -7.30, the lowest since January 2023.
Under Biden’s leadership (hell, he and his family already own several mansions … on a Senator’s pay), home prices are up 32% under Biden and mortgage rates are up a staggering 160%.
Getting young households who rent to buy a home in this environment will require magic.
In the time (dis)honored tradition of Haruhiko Kuroda, the former governor of the Bank of Japan, Japan likely conducted its second currency intervention this week, current account figures from the central bank suggest, in another sign of the government’s intensified battle to prop up the yen.
Tokyo’s latest entry into the market was likely around ¥3.5 trillion ($22.5 billion), based on a comparison of Bank of Japan accounts and money broker forecasts.
The BOJ reported Thursday that its current account will probably fall ¥4.36 trillion due to fiscal factors on the next business day of Tuesday. That compares with the ¥833 billion average forecast by money brokers of what the number would be without intervention.
The figures, released less than a day after the yen jumped sharply during US trading hours, indicate that Japanese authorities made the unusual move of stepping into the market shortly after a Federal Reserve meeting when investors were still digesting the announcement. That would signal the finance ministry is taking an increasingly aggressive stance in what could become a prolonged fight to support the yen.
“With Japanese holidays and US jobs data coming up, it was a very good time for the authorities to tackle speculators,” said Yuya Kikkawa, an economist at Meiji Yasuda Research Institute. “This will have a great impact on the market. I sense a strong determination by the authorities to defend the 160-yen-per-dollar line.”
The latest swing in the yen follows a similarly sudden jump on Monday. Central bank accounts suggested Monday’s move was likely an intervention by Tokyo worth around ¥5.5 trillion, close to the daily record of ¥5.6 trillion set in October 2022.
Ahead of the move late Wednesday in New York and early Thursday in Tokyo, Central Tanshi Co. and Totan Research Co. had forecast a ¥700 billion decline in the BOJ’s current account balance due to fiscal factors including government bond issuance and tax payments. Ueda Yagi Tanshi projected the balance to drop by ¥1.1 trillion.
The calculations based on a comparison of those estimates and the central bank accounts offer only ballpark figures rather than specific amounts. Similar analysis proved accurate in showing that a jump in the yen in jittery markets in October 2023 was not the result of Japan stepping in to buy the currency.
The calculations also estimated the size of intervention on Oct. 21, 2022 at around ¥5.5 trillion, closely matching the actual amount.
An official monthly figure for the size of intervention will come out on May 31. Traders will need to wait until August or later to see daily operation data.
Japan’s top currency official Masato Kanda declined Thursday to comment on whether the finance ministry had intervened two hours earlier in Tokyo, when the yen strengthened sharply against the dollar. Japan’s currency briefly touched 153.04 from around the 157.50 mark.
Kanda oversaw the previous cycle of interventions in 2022. The ministry bought the yen around 30 minutes after the BOJ’s governor press conference ended in September that year. Another round of moves came a month later with back-to-back business day interventions.
The pattern of Japanese officials declining to comment is aimed at keeping market participants in the dark. A lack of immediate clarity may help keep traders more on edge and less willing to bet against the yen even if the ministry hasn’t actually taken action.
“By acting right after the Fed decision and outside of Japan hours, they dished out a warning that they are in a position to intervene 24 hours a day,” said Hirofumi Suzuki, chief FX strategist at Sumitomo Mitsui Banking Corp.
“We are still waiting for US employment figures during the Golden Week holidays and depending on the outcome of that data, there is a risk of further intervention,” he said.
The US is having its own currency problems under Biden with its own bad fiscal and monetary polcies. The Purchasing Power of the US Dollars has fallen 17% under Biden.
The Fed will likely pause rate cuts/increases when The Fed reveals their plans today.
Breaking: Federal Reserve officials are likely to hold interest rates steady at 5.25-5.5%—a 20-year peak—for a 6th consecutive meeting.
With inflation still high, rate cuts seem off the table for now.
Rate decision at 2pm Washington time.
The Street seems aligned.
Conforming rates are already up 161% under Biden.
According to Fed Funds Futures, no rate changes until after the Presidential election.
MBS returns have been abysmal under Biden/Powell.
The Federal Reserve is playing the song “Don’t rock the boat” ahead of the Presidential election. Despite the horrible economic news.
1) 4 months of hotter inflation (like today’s stagflationary GDP report)
2) Nearly 1.5 million full-time jobs decline with 1.9 part-time jobs created over a year
3) $2 trillion annual deficits
Leading traders to price in 1 rate cut in December 2024. AFTER THE PRESIDENTIAL ELECTION!
Under Biden, home prices are up 32.5% and conforming 30Y mortgage rates are UP 160%.
One of my colleagues at George Mason University in finance (an economics PhD) constantly quoted Lenin’s famous “You have to break a few eggs to make an omelet.” But why is it always OUR eggs that have to be cracked, never the wealthy elite.
COVID was a gift to Biden. The furious Federal spending of Q2 2020 through Q1 2021 helped keep GDP growth above recession levels.
Ignore Biden’s demented rants/lies about cutting the debt in half. Biden has claimed he cut the $34+ trillion national debt by $7 billion, $1.4 trillion, $1.7 billion, $1.7 trillion, and “in half,” depending on the day he rants. He did no such thing. He is confused and is talking about the BUDGET DEFICIT (don’t look to Snopes to fact check “Trucker Joe”, they really only fact check Trump).
Not surprisingly, the Federal deficit spiked with the Covid lockdowns. But when the economy reopened, the budget deficit shrunk because … the economy was open and Federal tax receipts soared. But we are back to rising deficits again.
Today, Q1 GDP numbers were released and it looks great. Real GDP year-over-year was 2.97% while Federal government expenditures YoY were 4.21%. But the US is still processing the tidal wave of COVID-related spending out of Washington DC (red line). The YoY growth in Federal spending was 86.4% in Q2 2020, 48.9% in Q3 2020, 22.4% in Q4 2020, and 67.8% in Q1 2021. Like The Titanic trying to avoid the iceberg, it takes a while for massive Federal spending to work itself through the economic system.
On a QoQ basis, US GDP increased by only 1.60%. Here are the contributions to GDP.
GDP QoQ was up 1.6% while Core PCE Price Index rose 3.7%. Yikes!
Are we entering Stagflation with the worst GDP print in 2 years as prices soar. As COVID stimulus seems to be wearing out.
The election campaign for Biden should be Lloyd Price’s “Stagger Lee.” Redone as “Stagflation Joe.”
President Obama selected Slow Joe Biden as his Vice President because 1) he was white and 2) an alleged foreign policy wizard in The Senate. Between Afghanistan, Ukraine, Israel, Taiwan and every other foreign policy disaster under his leadership, I am beginning to doubt Biden’s foreign policy acumen. For example …
For the 9th month of the last 11, China’s Treasury holdings declined in February (the latest TIC data), dropping by $22.7BN. Additionally, it has now been 24 of the last 28 months that China’s Treasury holdings have declined, now back at practically its lowest level since June 2009…
While we are acutely aware of the fact that ‘correlation is not causation’, one would find it hard to argue that the practically perfect concomitance of China’s Treasury holdings and the yield of the US 10Y Treasury note over the past three years makes us wonder (in our out-loud voices), if – away from The QT, The FedSpeak, the macro-economy, the geopolitical crises, the AI-hype, the growth scares – if it’s not just all a well-managed (slow and steady) liquidation of China’s (still massive) US Treasury holdings…
It’s hard to argue they don’t have an incentive to a) de-dollarize, and b) not liquidate it all at once, shooting themselves in the face.
While the de-dollarizing has been steady in Treasury-land (enabled by a vast sea of liquid other players), things have been a little more ‘obvious’ in the alternative currency space – i.e gold.
The 2015 jump in the chart below was when China suddenly admitted to its gold holdings (well some of them we assume) after no disclosure since 2009. Since then both China and Russia (the gold line below), have been hoarding the precious metal while dumping Treasuries…
And in case you wondered, it’s not just China and Russia, world reserve Treasury holdings are ‘relatively’ flat (based on Fed’s custody data) while according to The IMF, the world’s sovereign nations have been buying gold with both hands and feet…
…happy to take whatever retail-ETF-sellers are offering into their physical vaults…
Finally, as we note in the chart, this all started to ‘escalate quickly’ when Washington really started to weaponize the dollar.
Assuming that all the US gold is still in Fort Knox (and assuming that China and Russia are honest about their holdings), the world’s ‘other superpowers’ are rapidly catching up to the US’ holdings…
Who could have seen that coming? With mortgage rates hitting 7.5%, the home price to median household income ratio just hit an all-time high.
The 10Y Treasury yield just hit 4.519%.
And we have The Federal Reserve posting record losses.
Did we REALLY elect this fool Biden as President??
Mortgage application increased on the latest survey from the Mortgage Bankers Association, but mortgage purchase application are still down compared to one year ago.
Mortgage applications increased 3.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 12, 2024.
The Market Composite Index, a measure of mortgage loan application volume, increased 3.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 4 percent compared with the previous week. The seasonally adjusted Purchase Index increased 5 percent from one week earlier. The unadjusted Purchase Index increased 6 percent compared with the previous week and was 10 percent lower than the same week one year ago.
The Refinance Index increased 0.5 percent from the previous week and was 11 percent higher than the same week one year ago.
Bidenomics, a massive subsidy to the political donor class, but heartless towards the middle class.
Joe Biden, his Administration, and The Federal Reserve are really “The Alligator People.” Despite what they tell you, they have small brains (particularly Biden) and are hyperfocused on spending.
A good example comes from “Wall Street On Parade” where they show that The Federal Reserve is still paying BILLIONS to US Treasury in the form of remittances (losses). While at the same time, paying the mega banks on Wall Street high interest loans.
As of April 3 of this year, the Federal Reserve (Fed) has racked up $161 billion in accumulated losses. We’re not talking about unrealized losses on the underwater debt securities the Fed holds on its balance sheet, which it does not mark to market. We’re talking about real cash losses it is experiencing from earning approximately 2 percent interest on the $6.97 trillion of debt securities it holds on its balance sheet from its Quantitative Easing (QE) operations while it continues to pay out 5.4 percent interest to the mega banks on Wall Street (and other Fed member banks) for the reserves they hold with the Fed; 5.3 percent interest it pays on reverse repo operations with the Fed; and a whopping 6 percent dividend to member shareholder banks with assets of $10 billion or less and the lesser of 6 percent or the yield on the 10-year Treasury note at the most recent auction prior to the dividend payment to banks with assets larger than $10 billion. (This morning the 10-year Treasury is yielding 4.41 percent.)
Operating losses of this magnitude are unprecedented at the of Fed, which was created in 1913. In a press release dated March 26, the Fed stated this: “The Reserve Banks’ 2023 sum total of expenses exceeded earnings by $114.3 billion.”
As of March 13 of this year, the Fed’s accumulated losses stood at $156.24 billion and yet on March 20 the Federal Reserve voted to sustain those high 5+ percent interest rates to its member banks – making it look like the captured regulator it is considered to be by millions of Americans.
As the chart above indicates, the Fed’s ongoing weekly losses have ranged from a high of $3.3 billion for the week ending Wednesday, January 31, 2024, to $1.86 billion for the most recent week ending Wednesday, April 3, 2024.
American taxpayers have good reason to sit up and pay attention to the Fed’s giant and ongoing losses. That’s because when the Fed is operating in the green, as it was on an annual basis for 106 years from 1916 through 2022, the Fed, by law, turns over excess earnings to the U.S. Treasury – thus reducing the amount the U.S. government has to borrow by issuing Treasury debt securities. According to Fed data, between 2011 and 2021, the Fed’s excess earnings paid to the U.S. Treasury totaled more than $920 billion.
The loss of remittances from the Fed means the U.S. government will go deeper into debt, putting a heavier tax burden on the U.S. taxpayer and raising the risk of another credit rating agency downgrade of U.S. sovereign debt.
Of course, The Allgator People like Joe Biden, Treasury Secretary Janet Yellen and Fed Chair Jerome Powell, will Treasury remittances as “free money” to spend. And its an election year, so Joe Biden (aka, King Gator) is canceling $7.4 billion in student debt for 277,000 borrowers. Only alligators in Washington DC considered this action to have no consequences.
WHO pays for the student loan forgiveness? It just doesn’t vanish, it is transferred to taxpayers. Alligators like Alexandria Ocasio Cortez going on talk shows to argue the benefits of being free from financial obligations that student voluntarily agreed to. Say, can AOC get my mortgage forgiven?? Just kidding. Now those same students can borrow additional money to get MBA degrees with the expectation that the student loan is “free money.”
Yes, Biden is acting recklessly (no surprise). Here is a picture of King Gator, Joe Biden.
The Biden Administration and The Federal Reserve ARE the alligator people. Except these gators are hungry for your money and votes constantly.
We are living in the USA where corruption, favoritism, open borders and an out-of-control Federal budget and debt are destroying this once great nation.
Former Kansas City Fed President Thomas M. Hoenig was absolutely right when he said recently that The Federal Reserve panders to Wall Street, Congress and special interest groups, prioritizing immediate relief over financial stability. Bernanke’s zero-interest rate policies (ZIRP) and Quantitative Easing (QE) were short-term fixes that never went away. Indeed, since the subprime mortgage crisis of 2008-2009, US Dollar purchasing power is DOWN -32% and M2 Money is up a staggering 177%. While Yellen stuck with zero-interest policies until Trump was elected, then raised The Fed Funds Target Rate 8 times. Yellen only raised the target rate once under Obama. Clearly playing political favoritism.
The Federal Reserve’s lack of transparency comes amidst reports that countries are removing their gold and other assets from the U.S. in the wake of the unprecedented Western sanctions imposed on Russia over its invasion of Ukraine. According to a 2023 Invesco survey, a “substantial percentage” of central banks expressed concern about how the U.S. and its allies froze nearly half of Russia’s $650 billion gold and forex reserves. Headline USA filed a FOIA request with the Fed for records reflecting how much gold the Federal Reserve Bank of New York currently holds in its vault, as well as records reflecting the ownership stake that each of FRBNY’s central bank/government clients have in that gold. The FOIA request also sought records about the Fed’s gold holdings prior to Russia’s February 2022 invasion of Ukraine. However, the Federal Reserve denied the FOIA request on Wednesday.
It influences the price of nearly everything, as well as the availability of jobs, the stability of our banking system, and the purchasing power of our money.
When the Fed Chair speaks, the entire world stops to listen.
But the average person has a poor understanding of how this colossally important entity operates. Or even why it exists.
And after a series of asset price bubbles — which some argue we’re in another one now — a chorus skeptical of the Fed’s actions has emerged.
So today we’re doing our best to shine as bright a light as possible on the Fed: how & why it operates, the good & as well as the shortcomings of its actions to date, what direction its policies are likely to take from here, and how all of this impacts the households of regular people like you and me.
Here are my top takeaways from from a speech by former KC Fed President Thomas Hoenig:
Here is the “Sound Money Parade” in 1896. By the aftermath of the subprime crisis, Janet Yellen (1993-2020) adopted the UNSOUND Money Fest, an orgy of printing and charging near zero interest rates. Powell in 2021 is ever-so-slowly unwinding The Fed’s balance sheet, but Powell has raised The Target Rate to its highest level since 1998 to fight inflation caused by Biden’s policies.
Combine The Fed not telling us how much gold they hold and their overprinting problems since 2008, and you can see why investors are turning to gold and silver and crypto currencies. The adoption of Central Bank Digital Currency (CBDC) is a step towards financial collapse.
Here is a parade you will NEVER see in Washington DC. A Sound Money Parade!
Powell is beginning to act like a sound money fan, but he still is taking his sweet time shriking the balance sheet.
I am thinking of fleeing to Lilliehammer Normay like Frank Tagliano.
Bidenomics is also a Highway To Hell for commercial real estate. Let’s say real estate is thunderstruck under Bidenomics.
The rising supply of office space is due to a combination of surging remote and hybrid work that forces companies to reduce corporate footprints. Also, companies are exiting imploding progressive cities and high-taxed blue states for red ones while downsizing space. In the report, office tower vacancies rose to a record 19.8%, up from 19.6% in the fourth quarter of 2023.
Even with the increase, there is an eerily calm across the commercial real estate sector. This comes as the Federal Reserve’s interest rate hiking cycle is higher for longer, indicating that the pain train is nearing (perhaps after the presidential election).
“The office stress isn’t quite done yet,” Thomas LaSalvia, Moody’s head of commercial real estate economics and one of the authors of the report, told Bloomberg in an interview. He noted recent positive economic indicators stave off a “perfect storm in the office sector.”
“There are spots of light and there are spots of extreme darkness,” LaSalvia said, adding, “This is part of a longer-term evolution where we are seeing obsolete buildings in obsolete neighborhoods.”
The high office vacancy rate continues to be terrible news for landlords and developers eager to fill their buildings, and the Fed’s hiking cycle has made refinancing very challenging.
Last month, Goldman’s Vinay Viswanathan penned a note explaining how “office mortgages are living on borrowed time.”
Viswanathan said there have been no major fireworks in CRE tower debt because the debt is being “extended and modified rather than refinanced,” which “mitigates a default wave and a sharp pick-up in losses on CRE loan portfolios.”
Yes, both residential and commercial real estate are thunderstruck under Bidenomics.
Confounded Interest - Anthony B. Sanders 
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