United States Yield Curve 3M10Y Most Inverted In 30+ Years! (But Other Assets Signaling Cooling Odds Of Recession)

The first headline I saw when I turned on Bloomberg.com was “DOJ Officials Find More Classified Documents at President Biden’s Home.” This is an improvement! So far, the task has been handled by Biden’s private attorneys who don’t have proper security clearance; at least the Justice Department is finally getting involved!

But back to the US yield curve. It is now the most inverted in 30+ years as M2 Money growth stalls. Inverted yield curves have preceded recessions in the past.

But as China reopens and Europe is experiencing a warmer winter than expected (meaning that Europe has sufficient natural gas reserves) and US inflation cooling,

we are seeing market-implied odds of a recession falling in January.

I am still betting on a recession in the second half of 2023.

The Great Biden/Pelosi/Schumer Powell (4 Horsemen) Inflation Tax In One Chart (Personal Savings DOWN -64.8%, Consumer Credit UP, Real Weekly Earnings Growth NEGATIVE For 21 Straight Weeks)

I must admit, Joe Biden has a horribly misleading nickname “Middle Class Joe.” Between Biden’s horrible energy policies and Pelosi’s/Schumer’s spending binges, the US middle class and low wage workers have suffered mightely with the inflation tax. Throw in Jerome Powell and The Federal Reserve’s manic money printing and the American middle class has a problem.

US inflation peaked at 9.1% year-over-year (YoY), but has declined to a still painful 7.1% YoY as The Fed removes it aggressive monetary stimulus. But to cope with persistent US inflation, consumers have had to dip into savings and use more credit cards. As a consequence, personal savings plunged -64.8% YoY while consumer credit rose 7.9% YoY.

The other tax on the middle class and low-wage workers is the 21 straight months of negative REAL weekly earnings growth.

On the housing front, REAL home prices are growing at 1.5% YoY while REAL weekly wage growth is still NEGATIVE at -3.13% YoY.

Make no mistake, inflation caused by The Fed and Federal governments spending is a tax on the middle class and low wage workers.

Biden, Pelosi, Schumer and Powell are the 4 Horseman of the Inflation Apocalypse.

Sign Of The Times? Citi Economic Surprise Index Falls To -17.70 As US CDS (Default Insurance) And Fed Reverse Repos Remain Elevated

Its a sign of the times!

First, US default risk as measured by credit default swaps remains elevated (primarily because Biden and Democrats refused to cut wasteful spending or reign in non-retirees on Social Security). And NY Fed’s Reverse Repos remain elevated.

And then we have Citi’s economic surprise index for the US at -17 as The Fed slows money growth to 0%.

I wish I knew a place where inflation and insane Federal government spending and policies doesn’t exist.

The Thrill Is Gone! US Existing Home Sales Decline -34% Year-over-year For 17 Straight Months (Median Price Of EHS Falls -1.53% MoM)

The Thrill Is Gone from the US housing market as M2 Money growth fells to 0%.

US Existing Home Sales fell -1.5% from November to December (MoM) to 4.02 SAAR units sold. That translates to a depressing -34% decline since December 2021 (YoY).

On the positive side, these numbers are better than expected (-3.4% MoM expected). Still, these numbers are pretty dismal.

Existing home sales MEDIAN PRICE fell to $366.9k as M2 Money growth vanishes. And inventory of existing homes for sale remains lower than pre-Covid levels.

Let’s see what Powell and the Gang (aka, The Federal Reserve Board of Governors) does with interest rates going forward.

Today, the 10-year Treasury yield is up 7.1 basis points, but the real action is in Europe where sovereign yields are up 11.5 bps in France, 9.8 bps in Germany and 18.6 bps in Italy.

Taking The Credit For The Post-Covid Recovery In Unemployment (Trump, Biden, Pelosi Or Powell?)

I watched Biden’s Press Secretary Karine Jean Pierre giving Biden credit for the lowest unemployment rate in US history thanks to his economic policies. And Biden mentioned that he inherited a terrible economy from Trump.

Hmmm.

Let’s let the data talk.

Covid was horrific (I almost died from it), but it was the government response to Covid there was disastorous. Government shutdowns (and the masking of the populace) killed off numerous small businesses and sent jobless claims soaring in 2020 (white line) and U-3 unemployment rate rose to the highest level since The Great Depression.

The response from The Federal Reserve was a massive printing of money (green line). And after governments stopped their economic shutdowns (coupled with massive money printing), we saw jobless claims and unemployment shrink rapidly BEFORE Biden took office as President.

The 1981 recession begat an epic borrowing of money by The Federal government (under House Speaker Tio O’Neill D-MA) and we saw another explosion in Federal debt under House Speaker Nancy Pelosi D-CA TWICE, once in 2009 following the financial meltdown and again in 2020 following the Covid economic lockdowns.

So does Trump get any thanks for the rapidly improving labor market before his ouster by Biden? Of course not. But who gets the blame for the staggering growth in Federal debt? House Speaker Nancy Pelosi.

The US did get positive wage growth under Biden, but due to inflation, American workers have experienced 21 straight months of NEGATIVE wage growth.

While Trump tried deregulation to free-up the US economy, Biden has consistently used regulation as a weapon of obidience. His slavish obidience to activist groups on the environment, which is a shame since temperatures have actually been coming down since 2016.

When you look at the data, Trump actually set in motion the jobs recovery, not Biden. Other than helping to create inflation, I can’t think of one positive thing Biden has done for the economy.

On an unrelated note, why is US FBI Director Chris Wray at the World Economic Forum in Davos Switzerland when there is a top secret document fiasco going on in DC and Delaware?

‘Soft Landing’ Narrative Nuked As US Industrial Production Plunges In December And New York Biz Leaders Survey Crashes To -21.4 (US Treasury 10Y Yield Drops -14.1 Basis Points)

Soft landing for the US economy? It is looking less and less likely. The bond market (10-year Treasury yield) just shed -14.1 basis points. As I always told my investments students, any 10 basis point shift in the 10-year Treasury yield is significant.

Let’s start wit the US business leaders survey of current conditions. It just crashed to -21.4

Then we have US industrial production, down -0.7% in December. And is up only 1.65% year-over-year as M2 Money growth stalls.

Capacity Utilization plunged more than expected to 78.7% (79.5% exp).

Biden claiming the US economy is strong is pure Fantasy Island.

Today, Jean Pierre annouced that Biden’s economic plans are working.

The Empire Strikes Out! NY State Manufacturing Index Collapses To -32.9 In January (Wells Fargo Pulling Out Of Mortgage Market)

The Empire Strikes Out! No, not Klaus Schwab and the World Economic Forum, but the New York State Manufacturing index. For January, the index fell to -32.9.

Then we have Wells Fargo and their crashing mortgage originiations.

Everytime I see Klaus Schwab’s face, I think of Emperor Palpatine from Star Wars.

Trouble In Potomac City! US Treasury 10Y-2Y Yield Curve Now Inverted For 135 Straight Days, Real Wage Growth Now Negative For 21 Straight Months

We got trouble in Potomac City! No, I’m not talking about the numerous Top Secret documents that Biden carelessly left in his garage in Delaware and the UPenn Biden Center. And they found more over the weekend. I’m talking about the US Treasury 10Y-2Y yield curve being inverted for 135 straight days. And thanks to inflation, REAL wage growth has been negative for 21 straight months.

All this is happening while M2 Money growth (green line) stalls to 0% YoY.

Swaps 5Y are rising as The Fed withdraws monetary stimulus.

US Default? Since 2008, Net Interest Costs UP 192%, Social Security And Health Entitlements UP 140%, Nondefense Discretionary Spending UP 76% Based On 2032 Federal Budget

Newly-minted US House Speaker Kevin McCarthy faces a daunting task: trying to avoid a US debt default. As I have discussed many times before, nothing has been the same since the US housing bubble and near-collapse of the banking system that produced an expensive bailout of seemingly all financial institutions. After 2008, Federal spending has gone out of control. The budgetary hawks (or pigeons) in the US House of Representatives (with Pelosi, Boehner, Ryan then Pelosi again) went on Federal spending sprees of epic proportions.

The Manhattan Institute has a nice chart showing the explosion in the Federal budget since 2008. Of particular note, interest payments on the Federal debt has increased by a staggering 192%. On the non-interest spending front, Social Security and Health Entitlements have increased by 140% while Nondefense Discretionary Spending has increased 76%.

The massive increase in Federal debt interest is due to both increased Federal spending and rising interest rates thanks to The Federal Reserve raising rates to fight inflation.

But what will McCarthy and House Republicans recommend cuts in? Tighter restrictions on who qualifies for Social Security and particularly Social Security Disability payments?

The odd factoid is that Defense and Wars budget is up less than 1% from 2008 to 2032. So, Ukraine military aid is coming from somewhere, but not from the Defense budget. Is Ukraine another entitlement program?

Rest assured that after debate, the House will pass a budget and, provided that virtually nothing was cut, the Senate will gleefully agree to more spending and “Top Secret Documents” Biden will sign it.

After he parks his gorgeous Corvette Sting Ray, that is.

The Great Dislocation! M2 Money Growth Crashes To 0% As M2 Velocity Near Lowest In History (21 Straight Months Of Negative Weekly Earnings Growth)

The 2020 Covid outbreak and the resulting government shutdowns and school closures begat a Washington DC spending spree and Federal Reserve monetary stimulus barrage unlike anything other time in history. Congress and Administrations love to spend other people’s money, but as Rahm Emanuel once said “You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before” And wow, did they ever binge spend and expand the M2 Money supply. I call it “The Great Dislocation” of the economy and we never recovered from it.

Or as Ray Wylie Hubbard sang, “Drinking with my low life companions, dancin’ with a woman who is not my wife.” This should be the theme song for Washington DC and their manic spending.

But after the massive spending splurges and Fed monetary stimultypto, The Fed finally started withdrawing “the punch bowl” to combat inflation. M2 Money growth year-over-year (YoY) is now 0%. And with inflation, US average weekly earnings growth YoY turned negativc and has been negative for 21 straight months.

After the spending explosion under Pelosi/Schumer and Powell’s monetary, M2 Money velocity (GDP/M2 Money) crashed to it lowest level in history. So now we have depressed money velocity and no M2 money growth. And the US still has 21 straight months of negative weekly earnings growth.

But former Fed Chair and current Secretary of Treasury Janet Yellen is pleased that inflation is FINALLY slowing which Yellen attributes to relaxing supply chains. Or is it declining M2 Money growth, Janet?

Now that the Federal government’s spending spree and The Fed’s monetary stimulypto dislocated the US economy, we are headed for a recession with no ammunition left in The Fed’s arsenal.

After all. The Federal Reserve has been destroying consumer purchasing power since 1913. And we may be at the end of The Fed’s monetary rope.

Even worse, we have Joe Biden as President, who curiously has been found to have classified documents in his possession from when he was Vice President, at least, at two locations (his Wilmington DL home that his son Hunter had access to and the now infamous Penn Biden Center in Washington DC). Even worse, Biden seems to be talking to dead world leaders like Germany’s Schmidt and France’s Mitterand.

Knowing Biden’s penchant for blatant lying and carelessness, I wouldn’t be surprised if this is a stack of classified documents on the table during his meeting with Treasury Secretary Janet Yellen.

Let’s hope Biden isn’t saying that he is talking to late Robert Kennedy, the former US Attorney General.