New home sales rose 16.6% MoM in May, a pleasant surprise for the US economy. This is nearly the exact opposite of yesterday’s existing home sales plunge of nearly 10% MoM in May.
(Bloomberg) – Prashant Gopal – New home sales in the U.S. rose more than expected in May, with record-low mortgage rates pulling buyers back into a housing market that froze up during the pandemic.
Purchases of single-family houses climbed 16.6% to a 676,000 annualized pace, government data showed Tuesday. The median forecast based on a Bloomberg Survey of economists was for 640,000.
Homebuilders are welcoming buyers back after social-distancing rules across much of the U.S. kept them on the sidelines in March and April. A growing share of buyers are opting for new homes because existing home listings are in short supply. Record-low interest rates have made the properties affordable to a larger share of buyers.
With the Taylor Rule at -11%, will The Fed venture into negative nominal rates?
It has been a wild ride for the US Dollar since the 1980s.
Since 1980, the US Dollar has declined 57% in terms of purchasing power (going from 0.404 in 1980 to 0.130 for today).
The decline in purchasing power of the US Dollar looks like the ski jump at Lillehammer Norway.
There is little doubt that the purchasing power of the US Dollar will continue to deteriorate. But there are alternatives for value preservation. Such as Bitcoin, Gold and Silver.
Note that gold and silver moved together until the Great Bitcoin Bubble of late 2017/early 2018. Since the burst of the Bitcoin bubble, gold has skyrocket and silver has risen a little. Bitcoin also has risen, but nowhere near its bubble highs.
Mortgage lenders should rejoice at the continuing low level of 30-year mortgage rates and the 10-year Treasury yield.
The Covid-crisis can be seen in the following chart, starting in January 2020. It has been all downhill since January 1st in terms of rates and yields. With the exception of the blip in the Freddie Mac US Mortgage Market Survey 30 Year Homeowner Commitment rate around March 19, 30-year mortgage rates are barely above 3%.
The US Ultra Bonds futures price continues to trade at an ultra-premium.
The ultra premiums in ultra bond futures indicates that the Covid shutdowns are likely to return. Or continue to ravage the economy. And endless interference in markets by The Federal Reserve.
(Bloomberg) — Federal Reserve Bank of Boston President Eric Rosengren expects a weak economic rebound from coronavirus-related shutdowns and said more than 200 lenders had begun registration for the Main Street Lending Program.
“More support is likely to be needed from both monetary and fiscal policy,” Rosengren said in the text of a speech he’s scheduled to deliver online Friday to the Greater Providence Chamber of Commerce. He sees unemployment remaining above 10% through the end of this year, with inflation persisting “well below” the Fed’s 2% target.
“Unemployment remains very high, and because of the continued community spread of the disease and the acceleration of new cases in many states, I expect the economic rebound in the second half of the year to be less than was hoped for at the outset of the pandemic,” he said
No Eric, its is the government shutdown of state and local economies that caused high unemployment and fear mongering from NIH’s Anthony Soprano Fauci.
He said more than 200 financial institutions of various size from across the country had begun registering to participate, and that interest from businesses was “tremendous.”
The program, in which banks will make loans of $250,000 to $300 million and then sell a 95% stake in each loan to the Fed, has been slow to start since its March announcement and has been modified several times. The Fed received thousands of comment letters in response to the initial announcement of the program, and some critics argue the terms and complexity of the program may still not be favorable to borrowers or lenders.
Yes, it is a trade-off between viral infections and the economy. The question is how many jobs will come back when local economies return from the seemingly never-ending corona virus epidemic? And how much stimulus will be required?
The US economy has gotten pummeled by the economic shutdown. The Atlanta Fed’s GDPNow measure of Q2 GDP is now at -45.5% with two weeks to go until the end of Q2. Note that The Federal Reserve has been expanding the M2 Money supply with a vengeance since the end of February.
M2 Velocity (Nominal GDP / M2 Money Supply) was at an all-time low at the end of Q1. The economic destruction caused by the Covid-19 related economic shutdown is epic.
On the positive side, the Philadelphia Fed is showing a V-shaped recovery.
On the down side, the trillions of monetary stimulus generated by The Fed has helped the S&P 500 index detach from corporate earnings. Or out of sync.
I could also say “Fauci’d”, thanks to our own Grim Reaper of the economy.
Well, it was only a matter of time with foreign central banks buying corporate bonds … and stocks.
(Bloomberg) — The Federal Reserve said Monday that it will begin buying individual corporate bonds under its Secondary Market Corporate Credit Facility, an emergency lending program that to date has purchased only exchange-traded funds.
Thecentral bank also added a twist to its buying strategy, saying it would follow a diversified market index of U.S. corporate bonds created expressly for the facility.
“This index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility’s minimum rating, maximum maturity and other criteria,” the Fed said in a statement. “This indexing approach will complement the facility’s current purchases of exchange-traded funds.”
The SMCCF is one of nine emergency lending programs announced by the Fed since mid-March aimed at limiting the damage to the U.S. economy by the coronavirus pandemic. With a capacity of $250 billion it has so far invested about $5.5 billion in ETFs that purchase corporate bonds.
The Federal Reserve announced Monday it will begin purchases of individual corporate bonds.
The move comes nearly three months after first unveiling the Secondary Market Corporate Credit facility and one month after it began buying corporate-credit ETFs through the program.
The central bank will “create a corporate bond portfolio that is based on a broad, diversified market index of US corporate bonds,” according to a press release. (Like Fed Chair Jerome Powell’s portfolio?)
The Fed’s late-March announcement of its move into corporate bond purchases set a floor for risk assets and helped valuations rebound from their pandemic-induced lows.
Speaking of setting floors on risk assets, does that apply to ETF or residential housing too? How about municipal bonds debt like Chicago’s??
Fed Chair Jerome Powell channeling Thurston The Great Magician!
(Bloomberg) — The Federal Reserve pledged to maintain at least the current pace of asset purchases and projected interest rates will remain near zero through 2022, as Chairman Jerome Powell committed the central bank to using all its tools to help the economy recover from the coronavirus.
“We’re not even thinking about thinking about raising rates,” he told a video press conference Wednesday. “We are strongly committed to using our tools to do whatever we can for as long as it takes.”
Yes, The Fed kept their target rate at 0.25 basis points but are not allowing negative rates.
The Fed Dots Project suggests higher rates in the future but not until 2022 .. and beyond!