Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
The December new home sales report is good news and bad news.
The good news? US new home sales rose by 2.3% in December from November to 616k units sold SAAR. That is the good news.
The bad news? Since December of 2021, new home sales fell -23% year-over-year (YoY).
The median price of new home sales rose 7.8% YoY, but the trend as The Fed withdraws monetary stimulus (orange line) is not good.
Perhaps there is a communications breakdown between the Biden Administration and The Federal Reserve.
6 of the top 8 metro areas with the largest home price crash in 2022 were in California, according to Redfin.
Sadly, I lived in three of these metro areas (Austin TX, San Jose CA and Phoenix AZ), although I wouldn’t confuse correlation with causation.
The trend for home price growth (blue line) is definitely on the downturn as The Fed removes its ample stimulus (green line).
Here is California governor Gavin (Nancy Pelosi’s nephew) Newsome screaming about crashing California home prices.
The Federal Reserve is removing the massive punch bowl from the US economy and markets. And with the rising US mortgage rates, we got crashing buying conditions for housing.
The UMich consumer survey for buying conditions for house rose slightly in December to 36, well below 100 (the baseline).
Cry havor and let slip The Federal Reserve!
The US Treasury 10y-2y yield curve descended further into inversion at -82 basis point, the worst since 1981.
This is not a good sign, since the 10Y-2Y curve typically inverts just prior to a recession.
The current US Treasury curve is currently humped at 1 year, then declining rapidly. The swaps curve is peaking at 9 months, then declining rapidly.
The Fed Funds Futures market is pointing to a peak Fed Funds rate of 5% at the May 3rd FOMC meeting.
Yes, a recession is headed our way.
Yesterday, I told my family “The good news is that Rotolo’s Pizza tastes even better reheated in the morning. The bad news? I ate the only two piece left.”
Which brings me to the September jobs report. The good news is that 263k jobs were added to the US economy. That means 10,521k jobs have been added in the 21 months under Biden! (Bear in mind that 12,100k jobs were added in the 7 months under Trump following the Covid economic shutdown, yet no media outlet trumpeted that accomplishment).
The bad news? While nominal average hourly earnings grew by 5% YoY, when I subtract Bidenflation from that number I get -3.06% growth. Or should I say that REAL wages are shrinking under Biden.
Now for the “Biden Miracle” of jobs being added. Here is a chart of NFP jobs added (white line) against M2 Money and headline inflation. Both The Fed and the Federal government pumped trillions into the economy leading to the highest inflation rate in 40 years. Once governments stopped with their Covid shutdown nonsense, jobs would return regardless of who was President. BUT Federal spending and Fed money printing went off the rails in early 2020.
As Paul Harvey used to say, “Here is the rest of the story.” Labor force participation fell in September and the U-3 unemployment rate fell slightly to 3.5%.
But labor force dropouts increased leading U-3 unemployment to decline. The number of people NOT in the labor force grew to nearly 100 million. Nothing has been the same since Covid.
So what will The Fed do? According to Fed Funds Futures data (WIRP), The Fed will keep raising rates until March ’23 then slowly start lowering interest rates again.
And with that “positive” jobs report, The Dow is down almost -500 points and the NASDAQ is down over -3%.
And with Fed tightening, we are seeing a collapse in M2 money supply.
As I frequently told my investment and fixed-income securities students at Chicago, Ohio State and George Mason University, any 10 basis point change in the US Treasury 10-year yield is significant.
But how about today’s 20 basis point decline in the US Treasury 10-year yield?
The UK’s 10-year yield is down even more at -24.1 basis points. Germany is down -18 bps and France is down -10.3 bps.
Speaking of credit default swaps, Credit Suisse is back to financial crisis levels while UBS and Deutsche Bank are not … yet.
And gold jumped $28.5 dollars today as POP goes the yield.
With all the turbulence in markets thanks to the war in Ukraine and Biden’s green energy mandates and spending (not to mention Statists like Klaus Schwab screaming about a Great Reset), I was reminiscing about more simple times.
It is like the Lehman Brothers debacle in 2008 all over again.
(Bloomberg) — Credit Suisse Group AG was plunged into fresh market turmoil after Chief Executive Officer Ulrich Koerner’s attempts to reassure employees and investors backfired, adding to uncertainty surrounding the bank.
The stock, which had already more than halved this year before Monday’s sell-off, fell as much as 12% in Zurich trading to a record low that values the firm at less than $10 billion. That was accompanied by a spike in the cost to insure the bank’s debt against default, which jumped to its highest ever.
Koerner, for the second time in as many weeks, had sought to calm employees and the markets with a memo late Friday stressing the bank’s liquidity and capital strength. Instead, it focused attention on the dramatic recent moves in the firm’s stock price and credit spreads, and investors rushed for the exit when trading reopened after the weekend.
One notable difference between 2008 and today is that Credit Suisse’s equity was flying high in June 2007 then crashed a the global banking crisis went into full motion. We then saw Credit Suisse’s credit default swaps soar in early 2009. But today Credit Suisse’s equity is a pale imitation of its former self, but its credit default swap is now higher than it was at its peak in early 2009.
Credit Suisse is now trading lower than its European rival Deutsche Bank (aka, The Teutonic Titanic).
Yes, this brings back sickening memories of the 2008-2009 global financial crisis. Let’s see how The Federal Reserve, ECB and Bank of Switzerland handle this debacle, particularly with M2 Money growth so low.
It appears that we are in another Lehman debacle. Or should I say “Lemur Bros.”
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.
After breaking the 6% barrier back in June 2022, Bankrate’s 30-year mortgage rate has backed-off to 5.28% despite Federal Reserve rate hikes.
The reason for the decline in the US Treasury 10-year is, amongst other things, a global economic slowdown (partly due to the US and Europe “going green” and cutting the supply of fossil fuel-based energy). Instead of “The Great Reset,” I call it “The Great Economic Suicide.” The 10-year US Treasury yield and Bankrate’s 30-year mortgage rate are declining with declining global GDP.
We are apparently no longer allowed to say the word “recession,” so let’s call it a SLOWDOWN.
Mortgage applications declined for the third week in a row, reaching the lowest level since 2000.
Mortgage applications decreased 6.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 15, 2022.
The Refinance Index decreased 4 percent from the previous week and was 80 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 7 percent from one week earlier. The unadjusted Purchase Index increased 16 percent compared with the previous week and was 19 percent lower than the same week one year ago.
Heartache #1: Mortgage rates have risen 99% under Biden.
Heartache #2: Mortgage application have fallen -71% under Biden.
As The Federal Reserve continues to fight inflation caused by 1) excessive stimulus by The Federal Reserve and Federal government surrounding Covid and 2) Biden’s energy policies, we are seeing the mortgage market as collateral damage.
Confounded Interest - Anthony B. Sanders 
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