Back in red? As US fiscal policy deteriorates further thanks to endless Federal spending (not to mention seemingly endless wars under Biden and Nobel Peace Prize winner Obama), we are seeing pain in the bank lending business.
Commercial and industrial (C&I) loan lending standards is tightening (blue line) to levels typically seen in recessions. Even though Barclays HY-10Y spreads remains low.
Bank credit growth remains negative for the twelve straight week.
Billions Biden’s spending spree has led to the budget gap has doubled in the last year.
CDS is now at 55.24, highest after the Covid shock.
Under Biden/Yellen’s economic model, the appropriate themesong is “Hell’s Bells.”
I had a wonderful time speaking at the Passive Investors Conference last night. One question I was asked was “Why doesn’t Powell (the current Fed Chair) pull “a Volcker” to cool inflation. She was referring to former Fed Chair Paul Volcker’s sudden raising of The Fed’s target rate which resulted in a cooling of inflation, but also an increase in the 30-year fixed mortgage rate to 16.63% in 1981.
Notice the trend in the Fed’s target rate and 30-year mortgage rate after Volcker’s rate shock. The trend in both has been downward as inflation was cooled.
But, each Fed Chair ranged from hyperactive to hypoactive (meaning doing little). Volcker and Greenspan saw wild swings in The Fed’s target rate. Bernanke pretty much only lowered rates AND expanded the Quantitative Easing (QE) or asset purchases by The Fed. And nothing has been the same since.
Yellen, now Treasury Secretary, continued Bernanke’s practice of zero interest rate policies (ZIRP) and QE (asset purchases) … until Donald Trump was elected President. In fact, Yellen raise rates only once prior to Trump’s election as President. Then raises rates 8 consecutive times. This is why I call Yellen “TLTL Janet”. Too low for too long Janet.
The she was replaced with DC insider Jerome Powell. Trump’s economy was strong (one explanation for Yellen trying to cool the economy with 8 consecutive rate hikes). But the Covid struck and Powell/Fed Open Market Committee overreacted, lowered the target rate back to 25 basis points and massively expanded the balance sheet. Powell also oversaw a rapid increase in the target rate, very Volckerish! But Powell stopped short of the rate suggested by The Taylor Rule of around 6.5% to 8.17%. The current target rate is 5.50%. So, Powell stopped far short of rates need to cool inflation.
But with Bidenomis came Bidenflation and a reversal of misfortunes for The Fed. They started rapidly raising rates … again.
Mortgage rates continue to climb as The Fed stubbornly won’t reduce its balance sheet.
Biden/Congress have a broken fiscal model where spending is out of control. And The Fed can’t buy all the debt Biden/Yellen want to issue.
US deficits are the third highest on record.
We might as well have Taylor Swift as Fed Chair. And Travis Kelce as Treasury Secretary replacing TLTL Janet.
Well, the San Francisco 49ers are playing the Cleveland Browns today with the Browns missing injured RB Nick Chubb and QB Deshaun Watson, replacing them with QB Dorian Thompson-Robinson (aka, Do Not Resuscitate or DNR) and RB Jerome “Exploding Pinto” Ford. ESPN gives the Browns a 26% chance of winning. I am amazed it is that high!
But back to economic news!
Gold is soaring due to the instability in the Middle East (Iran/Hamas/Hezbollah attacks on Israel). Let’s see if Israel continues it assault on Gaza or not.
Janet Yellen, Biden’s Treasury apparatchik, was at the IMF/World Bank meetings in Marrakesh (yes, former students are expecting me to like Crosby, Stills and Nash “Marrakesh Express” but I detest CS&N). Instead, here is Them with Here Comes The Night which is more fitting about risks in the global economy.
The heavy debt burdens of advanced economies — from the United States to China and Italy — was a recurrent theme in the meetings, which came after financial markets in recent weeks pushed U.S. bond yields higher. Italian central bank governor Ignazio Visco said there was an impression markets were “reevaluating the term premium” as investors become more nervous about holding longer-term debt.
JPMorgan chair of global research Joyce Chang put it another way. “The bond vigilantes are back, and the Great Moderation is over,” she told a panel of the two-decade era of relative economic calm before the 2008/09 financial crisis.
The Federal Reserve still hasn’t shrunk their massive balance sheet and removed the Covid stimulus. Call it lack of Fed retreat.
And mortgage rates continue to rise, up 174% under Stumblin’ Joe Biden despite The Fed not really shrinking their balance sheet.
I may be the only person in the US cheering for House Republicans being at an impasse over House Speaker. Why? Congress can’t approve massive spending bills with out a Speaker! Less spending, less inflation! There fixed inflation without The Fed.
Like President Biden enjoying a barbeque at The White House with a live band (probably NOT Justin Moore singing “Small Town USA”) while Hamas declared war on Israel and Americans are being held hostage with the promise of public executions of hostages livestreamed. Nothing that “Empathy Joe” does ever surprises me anymore, but I am surprise that various Federal Reserve Presidents will speak today while Hamas terrorizes Israeli and US citizens.
It could be that investors think that Talking Heads at The Fed will claim that Fed rate increases are over. Then again, the Iran/Hamas terror campaign against Israel is spookking markets, driving up oil and gold prices and driving up “flight to safety” in US Treasuries.
President Biden called on Americans in Israel to book a commercial flight home, even though Israel has cancelled all flights. Does Old Joe even read the news??
As Biden sleeps through the Hamas invasion of Israel, that is nothing new. Biden is sleeping through a disastrous downturn in the economy and pretending that Bidenomics is working. It isn’t Joe!
The IBD/TIPP U.S. Economic Optimism Index sank to a 12-year low in October as confidence in the near-term economic outlook crashed to the lowest level in the poll’s history. The survey casts doubt on the Federal Reserve’s justification for turning more hawkish last month: robust consumer spending.
The overall IBD/TIPP U.S. Economic Optimism Index dived 6.9 points to 36.3, the lowest since August 2011. Readings below the neutral 50 level reflect pessimism. The 6-month economic outlook index cratered 9.6 points to 28.7, a record low since the IBD/TIPP Poll began in early 2001.
That means the outlook suddenly appears worse than it was at the depths of the dot-com crash, the great financial crisis and the coronavirus pandemic.
And on the personal savings front, net savings as a percentage of gross national income was negative for the second straight quarter.
Sleepy Joe, wake up! The US economy is slowing down REALLY fast!
The Market Composite Index, a measure of mortgage loan application volume, decreased 6.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 6 percent compared with the previous week. The Refinance Index decreased 7 percent from the previous week and was 11 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier. The unadjusted Purchase Index decreased 6 percent compared with the previous week and was 22 percent lower than the same week one year ago.
The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market. ARM loan applications picked up over the week and the ARM share increased to 8 percent, as some borrowers searched for ways to lower their payments.
The US 30-Year Mortgage Rate Tops 7.5% for First Time Since 2000.
On the energy front, where we are represented by former Michigan governnor Jennifer Granholm and former South Bend Indiana mayor Pete Buttigieg, we see that the Strategic Petroleum Reserve is down to only 17 days left.
Fear the talking Fed! Various Fed Presidents are talking this week and when they do. WATCH OUT!
The latest fear mongering will be … inflation is persistent and they might have to keeep raising rates.
The two-year Treasury remains above 5% and the 10Y-2Y T-Curve remains inverted.
Treasury 30-year yield rose to 4.856%, HIGHEST SINCE 2007.
The likelhood of another Fed rate hike is growing.
While inflation is cooling (but still elevated), The Fed could choose to rate hikes again.
Treaury yields have decoupled from US manufacturing data.
Best picture of Lael Brainard, Director of the National Economic Council of the United States and former Federal Reserve member and talking head. Or screaming head.
Wasting away again with Bidenomics, code for massive Federal subsidies to green energy donors. And incentives to buy impractical EVs. Imagine in an emergency and your car only goes 200 miles (and then you have to wait for an available charger to come open). Well, the top 1% are doing fine. But the bottom 80% of households by income are seeing rapid deplection of savings to cope with the rising costs of Bidenomics.
And then we have shrinking home affordability, now at a record low.
We know that the horribly-flawed Bidenomics doesn’t work, unless you are a large corporate donor in green energy. For the rest, particulary small companies, Bidenomics is a total bust.
Under Bidenomics (the Soviet-style command economy), small companies are paying reconrd interest expense WITHOUT a major boost from interest income. Well, ain’t that a kick in the head … to most companies.
Pension funds that invested in “safe” MBS are finding that MBS isn’t so safe under inflation.
Look at the 10Y-2Y yield curve since Covid. I had a slight surge by March 2021, then has flattened then inverted as The Fed’s balance sheet still remains above $8 trillion.
Face it. The Biden Administration and Congress are owned by BIG corporate interests. BIG defense, BIG tech. BIG Pharma, BIG banking, BIG auto, BIG Union, BIG anything.
No wonder the Obamas were seen snorkeling in The Med with Tom Hanks and Steven Spielberg. BIG Hollywood!
The most recent report on US exisiting home sales showed that sales decreased in 17 of the last 19 months as The Fed tightens monetary policy to combat inflation caused by … 1) The Fed and 2) Bidenomics spending on green energy.
The US housing market will be “back in black” once Biden and Congress stop their reckless spending and borrowing. Biden has added $5,352,202 to the national debt since being selected (not by me!). That is a 19% increase in The Federal debt in just 33 months!
Not to mention the ludicrous $194 TRILLION in unfunded liabilities that the geezers in the Biden Administration (Biden is 80 and slipping into dementia) and the Geriatric wing of Congress (the US Senate) is home to fossils like Mitch McConnell (not looking well) and Diane Feinstein (90 and looking poorly). I didn’t forget about Nancy Pelosi (Communist-California) who is 83 and running for re-election. Younger doesn’t necessarily mean better since Pelosi’s nephew California governor Gavin Newsom is 55 years old and helped destroy California’s economy. Of course, the DNC will probably selected Newsom to replace scandal-ridden Biden as the Democrat in order to finish the job Obama started.
Existing-home sales slipped again in August as rising mortgage rates make housing prices the least affordable ever. Despite denials in many corners, a crash is underway.
Existing-home sales retreated 0.7% in August to a seasonally adjusted annual rate of 4.04 million.
Sales dropped 15.3% from one year ago.
The median existing-home sales price climbed 3.9% from one year ago to $407,100, an increase of 3.9% from August 2022 ($391,700). It’s the third consecutive month the median sales price surpassed $400,000.
The inventory of unsold existing homes dipped 0.9% from the prior month to 1.1 million at the end of August, or the equivalent of 3.3 months’ supply at the current monthly sales pace.
First-time buyers were responsible for 29% of sales in August, down from 30% in July and identical to August 2022.
All-cash sales accounted for 27% of transactions in August, up from 26% in July and 24% in August 2022.
And mortgage rates are now up to 23 year highs!
If Biden bows out and Newsom runs for President … and loses, Newsom always has a career in Hollywood in vampire movies. “I will suck your (economic) blood!” – Count Newsom.
Confounded Interest - Anthony B. Sanders 
You must be logged in to post a comment.