Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
Another day under Biden/Yellen.
Last night, “Republicans” joined Democrats to allow unlimited Federal spending and debt for the next two years. Way to go “Benedict McCarthy”!
But today, we saw that ISM Manufacturing printed at 46.9 for May, the 7th consecutive month of contraction.
Meanwhile, the Biden family twists the night away while Americans are ravished by inflation caused by bad energy policies and runaway Federal spending.
The new flag of the National Republican Party!
Worsening conditions in the US mortgage-backed securities market are doing little to ease fears over financial contagion as a recession looms.
MBS current-coupon yield spreads over Treasuries are near the highest level since 2008 subprime crisis, as economic and political concerns weigh on performance, Erica Adelberg, a Bloomberg Intelligence strategist, wrote in a BI Chart Book. Mortgage-related exchange traded funds are seeing outflows, even as bond funds as a whole enjoy inflows. Applications for loans are near 25-year lows as the housing market languishes.
Use the GP tool for charting and run BI to search for research, data and chart books.
The top panel shows nominal current-coupon yield spreads are back near decade highs, surpassing those seen in the fourth quarter and reaching peak levels from the pandemic panic in March 2020. The bottom panel shows option-adjusted spreads are also wide, trading near two standard deviations of the average level, though slightly more in line than nominals, Adelberg wrote.
Primary mortgage rates are approaching historic highs versus Treasuries too.
Both the secondary mortgage spread to Treasuries (white) and the primary mortgage spread to secondaries (blue) have blown wider. That has increased the total spread between 30-year-fixed consumer mortgage rates and 10-year Treasuries (pink) to near financial-crisis levels.
Elevated spreads could make it harder for borrowers to find rate relief, even if Treasuries rally and secondary mortgage spreads tighten, Adelberg wrote.
Mortgage ETFs saw marginal outflows while bond funds as a whole continued to see inflows. To monitor ETF flows:
Flows into US aggregate bond ETFs are mostly positive this year, as investor demand has improved on higher yields. Agency MBS-specific ETF flows, however, are more muted, Adelberg wrote.
Loan applications remain near all-time lows, showing no signs of life yet.
Loan applications for refinancings and purchases are near 25-year lows as housing-market activity is still depressed, and most refinancings are uneconomical at current rates, Adelberg wrote. The 30-year fixed mortgage contract rate hovers around 6.7%.
Activity in the existing-home market continues to wane.
Single-family existing-home sales in April fell 3.5% month-over-month and are down more than 20% from a year ago. Existing-home median prices continued to decline as well, seeing their largest year-over-year drop since early 2012, though this may partly reflect the mix of homes purchased. Low existing homes for sale, with many homeowners locked into low-rate mortgages, are depressing resale activity.
MBS spreads may remain under pressure until the economic and inflation outlooks become more optimistic, Adelberg wrote on May 31.
Well, Biden and McCarthy have agreed in principle to a budget revision, raise the debt ceiling and avoid a US debt default. The Uniparty strikes again! No restraint of reckless Federal spending t speak of . The big donor class wins and middle class Americans lose.
Mike Shedlock (aka, Mish) makes a good point: the US is already in recession if we look at GDI (gross domestic income) rather than GDP (gross domestic product). The US has already declined two consecutive quarters in terms of negative GDI growth.
The Uniparty heads.
US Treasury Secretary Janet Yellen changed the drop dead date on a US default from June 1 to June 5, daring Speaker McCarthy to step over the line. The debt ceiting is so urgent that Biden went on vacation to Delware for Memorial Day weekend. In fact, Biden and Yellen expect McCarthy to dance.
White House and Republican negotiators tentatively narrowed differences but were still clashing Friday on key issues as the Treasury Department signaled extra time was available before a potential US default.
Treasury Secretary Janet Yellen announced the department expects to be able to make payments on US debts up until June 5 if lawmakers fail to act on the US debt ceiling. That set a more pointed date for a potential default but is also four days later than her previous comments eyeing trouble as soon as June 1.
The new so-called X-date buys negotiators for House Speaker Kevin McCarthy and President Joe Biden more time to strike a deal. The negotiating teams haven’t met in person since Wednesday but spoke late into the night Thursday and were in regular communication throughout the day Friday.
Yes, there isn’t really a crisis folks. Treasury collects tax dollars continuously so Treasury can prioritze debt payments and other disbursements. The only crisis is in the minds of the media.
Deputy Treasury Secretary Wally Adeyemo warned Friday that payments to Social Security beneficiaries, veterans and others would be delayed if there’s a default. But he said he’s gaining some confidence an agreement will be reached.
We’re making progress and our goal is to make sure that we get a deal because default is unacceptable,” Adeyemo said in an interview on CNN. “The president has committed to making sure that we have good-faith negotiations with the Republicans to reach a deal because the alternative is catastrophic for all Americans.”
The accord would also include a measure to upgrade the nation’s electric grid to accommodate sham renewable energy, a key climate goal, while speeding permits for pipelines and other fossil fuel projects that the GOP favors, people familiar with the deal said.
The deal would cut $10 billion from an $80 billion budget increase for the Internal Revenue Service that Biden won as part of his Inflation Reduction Act (big whoop). Republicans have warned of a wave of agents and audits while Democrats said the increase would pay for itself through less tax cheating.
What is taking shape would be far more limited than the opening offer from Republicans, who called for raising the debt ceiling through next March in exchange for 10 years of spending caps. House conservatives were already balking Thursday at the notion of a small deal, with the House Freedom Caucus sending a letter to McCarthy demanding he hold firm.
Treasury’s cash balance is at a low point and The Administration threatens Social Security recipients and veterans of delayed payments … while Biden goes on vacation for Memorial Day weekend to honor veterans??
Of course, Yellen know that all The Fed has to do to increase M2 Money growth again.
Meanwhile, bankrupties among large companies are highest since 2010.
In the mortgage market, current coupon nominal spreads 9Agency MBS 30Y coupon over Treasuries) are soaring.
Meanwhile, to honor US veterans, Biden goes on Memorial Day weekend and threaten veterans with delays in veteran benefits. Sigh.
Is Joe Biden REALLY Reverend Kane from Poltergeist II??
So much for Treasury Secretary Janet Yellen’s proclamtion that inflation is transitory and would subside to under 2%. April’s core inflation (PCE Deflator) rose to 4.7% YoY. Despite M2 Money growth crashing to -4.6% YoY.
Today’s Fed Funds Futures data is pointing to another rate hike or two.
With Core PCE at 4.7%, the Taylor Rule suggested Fed Funds Target rate is now 10.57%. So, The Fed is only about half way there.
Damn it, Janet, people are suffering from the ravages of inflation and you laugh.
Peggy Lee sang it best about the US economy under Biden: Is that all there is?
According to the Bureau of Economic Analysis (BEA), US GDP QoQ rose slightly to an anemic 1.3%. Actually, this is a terrible print given the trillions in Federal spending after Covid.
Even worse, Core Inflation (PCE core prices) rose to 5%. So, unlike what Treasury Secretary Janet “Transitory” Yellen said, core inflation remains high despite M2 Money growth crashing.
Here is the rest of the story.
Before conservatives have a meltdown over the comments that will be forthcoming from Biden’s Press Secretary Karine Jean=Pierre, bear in mind that she was senior advisor and national spokesman for hard-left progressive advocacy group MoveOn.org.
She will feel obligated to howl and scream about the debt ceiling and budget with idiocy like “the economy will crash and burn if you cut Biden’s proposed budget.” Gee, for the trillions that Biden has spent, we only got 1.3% GDP growth. So her logic will be “President Biden spent trillions and we got only 1.3% GDP growth! Imagine if we spend less????”
What happened to Biden? He used to be a “reasonable” Senator (reasonable for a racist Democrat, that is), willing to negotiate with the opposition on budgetary issues and the debt ceiling. Now we have “Progressive Joe” who is acting like crazy Progressive Congresswoman Pramila Jayapal from Seattle. {Aka, Seattle’s Worst!} But his newly found Progressive identiy is leading down a terrible path. Rating agencies are putting the US of credit watch because of Biden’s newly found Progressive back bone. (Progressive means progressing towards full blown Communism).
The tension around the US debt-limit negotiations ratcheted up after Fitch Ratings warned the nation’s AAA rating was under threat from a political standoff that’s preventing a deal.
Fitch may downgrade its assessment to reflect the increased partisanship that is hindering a resolution despite the fast-approaching so-called X date, it said, referring to the point at which Washington runs out of cash. It moved the US to “rating watch negative” under its classification. Meantime, DBRS Morningstar placed the US ratings of AAA under review “with negative implications.”
Markets have been showing increasing nervousness over the standoff, with Treasury-bill yields slated to mature early next month surging past 7%, while the S&P 500 Index has declined for two days. Economists project a US default could trigger a recession, with widespread job losses and a surge in borrowing costs.
Fitch’s warning “underscores the need for swift bipartisan action by Congress to raise or suspend the debt limit and avoid a manufactured crisis for our economy,” said Lily Adams, a spokesperson from Treasury.
Biden’s childish refusal to reduce his insanely huge budget (crammed with pork for large donors and Progressives) is causing ripples to be felt overseas. Look look at the Japanese Yen.
Pramila Jayapal, Joe Biden’s intellectual soulmate.
I have gotten a flood of emails and text messages asking about what happens if Biden defaults on the US debt. In short, Biden has made a career out of spending money, as has Speaker McCarthy. They both have an incentive to raise the debt ceiling, but whether it is cuts to Biden’s insane budget (higher than Covid-era spending) and wants to raise taxes on the middle class to pay for it. McCarthy wants a trimmed budget (aka, back to pre-Covid spending levels) and NOT raises taxes. They will eventually agree somewhere in the middle (US Congress member Pramila Jayapal will be outraged, but then again, she is ALWAYS outraged like Senator Elizabeth Warren) and AOC.
The Federal Reserve has taken a brief respite from fighting inflation that they helped cause. But with $188 TRILLION in unfunded entitlements promised by politicians, The Fed will undoubtedly start buying assets again (aka, QEInfinity) and the debt ceiling will keep being raised. In essence, the DC merry-go-round is broken and politicians will keep pushing it around until it collapses.
For the moment, The Federal Reserve is reducing M2 Money (green line). With it, the US Dollar (blue line) has declined. Gold (white line fever) is on the rise along with The Fed’s effective funds rate.
WTI crude is up over 1% this AM. And gold is up 2.29%. Heating oil is up 3.56%.
Face it, I have no confidence in Treasury Secretary Janet Yellen, one of the biggest propronents of MMT (modern monetary theory or borrow and spend without consequences). Yellen is NOT making lose my blues.
Cryptos are down this morning across the board.
The US middle class is wasting away in Bidenville. While Climate Envoy John Kerry threatens to seize farms in the name of … climate change? The moral hazard problems associated with farm seizures boggle the mind.
So, everyone keeps talking about the debt ceiling and the fact that America is about to run out of money. How did we just find $375 million dollars AGAIN to ship on over to Zelenskyy?
Biden and McCarthy met on the debt ceiling and nothing has been resolved. They both represent the BIG donor class and big Pharma, big defense, big tech, big media, big tech, anything that is big runs Congress and the Administration. So of course they will finally agree to raise the debt ceiling and continue their insane spending on the donor class.
As of right now, there is no deal to raise the debt limit. Biden wants to raise the already insane and irresponsible Federal budget. McCarthy wants no new taxes. Who will cave in this game of chicken? My guess is that McCarthy will cave. Biden may whip out the 14th Amendment to bypass McCarthy and Congress, but this makes Biden a dictator (which would suit him fine, but would be a horrible precedent).
Core Inflation Rate UP 244% under Biden, Food UP 46%, Gasoline Prices UP 60%, Rental Growth UP 268%. What a disaster under Biden’s Reign of Error.
But at least the Biden family are getting wealthy beyond comprehension. Isn’t that Ashley Biden in the blue?
Like the famous novel “All Quiet on the Western Front,” its “All Quiet on the Default Front” as China Joe and Speaker McCarthy are set to meet again. In short, Biden wants to raise taxs on middle class and McCarthy wants to return Federal spending to pre-Covid levels. Sure, Biden throws around the Bernie Sanders’s tax on millionaires and billionaires line, but they know that M&Bs have professional accounts and lawyers to protect them while the middle class has Turbo Tax and H&R Block.
In any case, markets are calm (the calm before the storm?) although I think Biden WANTS to default and blame Republicans ahead of Biden’s reelection. The media will mindlessly repeat DNC talking points. So Biden is covered. After all, he says it isn’t his fault (although it is 100% Biden’s fault if America defaults because of his reckless budget and insane ramblings).
Let’s look at regional banks and the US Treasury SHORT curve: 2Y-3M. Notice that regional bank stocks have gotten demolished as The Fed tightens.
US Treasury cash balance remains dangerously low as Biden and Yellen dither the night away.
Bankrupt Biden. The US, not the Biden pay-to-play family.
I wish we could seize all the Biden family assets if Old Joe defaults. Or at least make Hunter Biden take care of his child Navy and let the poor child get rich off the Biden name.
Confounded Interest - Anthony B. Sanders 
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