Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
In addition to global equities taking a massive hit, cryptocurrencies Bitcoin and Ethereum have fallen -72% since November 2021 as The Fed (aka, The Sugar Shack) tightens interest rates.
Welcome to DeSantisville! Miami and Tampa Florida are the only metro areas in the nation (at least of the top 20 metro areas) growing at >30% growth in home prices.
But at the national level, the Case-Shiller National home price index “cooled” to 15.77% growth YoY as The Fed continues to tighten.
My former home, Phoenix AZ, finally is no longer the fastest growing metro area in terms of home prices, relinquishing the crown to Miami and Tampa FL.
It almost seems that people are trying to escape the mess Gavin Newsome made in California and are escaping to Arizona, Nevada, Florida and Texas. But note that all 20 metro areas are positive in growth YoY, but 12 of the top 20 metro areas experienced NEGATIVE growth from June to July.
Any questions as to whether The Fed is killing the housing and mortgage markets??
On a different note, we see all hell breaking out in Great Britain. Like the US, Great Britain’s inflation is off the charts and the Bank of England is scared about the Pound getting pounded with BofE tightening.
Is FLA governor Ron DeSantis actually Snake Pliskin??
According to the BLS, US core inflation is 6.3% and headline inflation is 8.3% YoY. But everything I consume seems to be going up at a much faster rate?
Under Biden, regular gasoline price is UP 55%, CRB Foodstuffs UP 47%, rents UP 12.5% YoY and electricity is UP 957%.
And as The Fed continues to signal monetary tightening, the spread between 30Y FNCL Par Coupon and the 10-year Treasury yield keeps growing.
In case you watched the Buffalo Bills play the Miami Dolphins yesterday, you may remember this punt by the Dolphins. It almost perfectly represents what The Federal Reserve and Biden Administration are doing to the American middle class and low-wage workers.
Are we looking at The Great Recession, Part Deux?
First, let’s look at the S&P 500 index since August 24, 2020 (white line) and compare that to just before The Great Recession 04/15/06 – 05/17/08. They look pretty similar.
Second, let’s look at returns on long-term US Treasuries (10yr+, white line) and US mortgage-backed securities (gold line) since The Fed undertook “Operation Crush Inflation!” (green line).
I saw The President’s press secretary fielding questions about the declining stock returns and impending recession. She responded “But the labor market is strong!” Well, Ms. Karine Jean-Pierre, I am sure President’s Biden economic advisor Jared Bernstein told you unemployment was at a very low level just prior to 1) The Great Recession and 2) The Great Covid-shutdown Recession). So, claiming that the US employment market is strong economy ignores that unemployment will surge if the economy slows … which is what The Fed is trying to do.
There is a rush to hedge the downside with The Fed tightening the monetary noose.
Unfortunately, KJP’s feeble answers to the shriveling economy remind me of The Office episode when Dunder-Mifflin’s CEO said that “Dunder-Mifflin is still a strong economy.”
Here is a photo of Joe Biden with his press secretary explaining that the US economy is still strong.
Rampant inflation is really hurting American households (even Fed Chair Powell admitted as much yesterday), but because of inflation, The Fed’s counter-punch has resulted in 1) declining equity prices, declining bond prices and increase mortgage rates. In fact, over the past 12 months, the 2-year US Treasury yield is up over 15 times (0.262% to 4.226%), Bankrate’s 30-year mortgage survey rate up 116.2%.
The S&P 500 index has been generally falling as The Fed tightens their monetary policy.
Another day, another bad day on Wall Street. The NASDAQ is down 2%.
And here is a chart from Redfin. Luxury home sales sink most on record.
Even Obama’s economic advisor, Larry Summers, is wondering why Biden won’t allow pipelines to be build to reduce energy prices and reduce inflation.
Having said that, US mortgage rates are now the highest since 2008 and continue to rise with the expectation of more Fed rate hikes this year. Even core inflation is on the rise motivating The Fed to do more tightening since they aren’t receiving any help from Biden on energy or Congress in terms of massive spending of our money.
Mortgage payments for a median existing home in the US is back to the mid-1980s.
Data from Fed Funds futures implies that The Fed will raise their target rate to 4.50% by March 2023, then slowly lower rates.
Futures are down with the prospect of a 75 basis point bump in rates tomorrow. The Dow Jone Mini is down -167 points.
As inflation burns the US middle class and low wage workers, The Federal Reserve reaffirmed at Jackson Hole that they are the NEW Smoky The Bear (only The Fed can fight inflation fire!) But of course, Federal spending and energy policies can drive up prices too.
Having said that, the 2-year Treasury yield and 30yr mortgage rate are rising rapidly.
The Fed is trying to cool demand by raising rates after lax monetary policy since late 2008.
While the US 2-year Treasury yield is up only slightly today, the Eurozone is seeing their 2-year sovereign yields spiking by 11-15+%.
The Federal Reserve’s overnight repo facility where banks park their money is seemingly becoming permanent.
As inflation has soared near the highest in 40 years, banks are increasingly parking their money at The Federal Reserve.
To quote Joe Biden, “All is well in the garden.” But apparently, not is all well in the banking industry or with the mortgage industry.
Biden is the opposite of the miserly Scrooge McDuck. He gives billions to Ukraine and spends trillions on various Federal projects without batting an eye as to how and who is going to pay for all the spending. And Biden’s latest election pandering is no different.
Speaker Pelosi claims that Biden’s bold action on student loan forgiveness is a strong step in Democrats’ fight to … make college even MORE expensive and lead to colleges hiring even MORE administrators (aka, apparatchiks) making colleges even MORE bogged-down in red tape.
And Speaker Pelosi, the costs of Biden’s midterm election buy of votes is estimated to be $300 BILLION. And a report from the Brookings Institution observed that one-third of student debt is owed by the wealthiest 20% of households, while only 8% is owned by the bottom 20%.
So, Biden is letting AOC write-off $10k of her student loan obligation. Bear in mind that the $10k forgiveness is taxed by The Federal government as income.
It looks like The Fed will have to expand the M2 Money supply to pay for “Billions Biden’s” spending spree.
I wish Biden, Pelosi and Schumer were more like Dwight Schrute from Dunder-Mifflin.
Today’s US industrial production and capacity utilization numbers showed a nice “steady as she goes” slow decline from previous months, though still positive at 3.90% YoY.
And it is difficult to argue that the US is in a recession when capacity utilization is at 80.27%.
Notice that industrial production growth falls below 0% during a recession and capacity utilization slumps. We are NOT there … yet.
However, M2 Money growth is shrinking awfully fast.
While the US is technically in default (two consecutive quarters of negative GDP growth), it doesn’t FEEL like a recession with 3.90% YoY industrial production growth and capacity utilization above 80%. During the Covid recession in early 2020, industrial production growth YoY had declined to -17.65% and capacity utilization shrank to 64.53%.
Speaking of a recession SIGNAL, the 10Y-2Y Treasury yield curve is SCREAMING impending recession.
Confounded Interest - Anthony B. Sanders 
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