Dow Tanks 700 Points As Covid-19 Picks Up Steam (No Where To Run For Treasuries)

The latest on the Covid-19 epidemic indicates that opening local economies will result in more Covid-19 cases. Which will lead to more governors and mayors shutting down economies.

On this bleak news, the Dow fell over 700 points.

As Martha and the Vandellas warbled, “No where to run, no where to hide” for Treasuries. Since the US Treasury yields at 3 years and less maturity are at only 21 basis points and lower.

There is no where to run to hide from local government shutdowns of the economy. But life finds a way .. unless government interferes.

US New Home Sales Surge 16.6% For May Thanks To Historic Low Interest Rates (Will The Fed Wave Into Negative Interest Rates?)

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?

U.S. May Existing-Home Sales Fell 9.7% to 3.91m Rate – Lowest Since 2010 (Inventory Low, Median Prices High)

The Covid-19 epidemic is taking its toll on existing home sales. US existing home sales declined 9.7% in May to the lowest level since October 2010.

Inventory of existing home sales remain low despite historic low interest rates while the median price of existing home sales continues to soar.

During the housing bubble, both inventories and home prices rose together. But the reverse has happened since 2012.

Even The Federal Reserve can’t fight a virus. Although The Fed can create asset bubbles.

There is no escaping The Federal Reserve and their bubble-making powers!

The US Dollar And Alternatives Cryptocurrencies, Gold, Silver (Dollar Has Lost 57% In Purchasing Power Since 1980)

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.

Of course, Bitcoin is hardly the only crypto game in town: Dash, Ethereum, Litecoin, Monero, etc. Even Singer Akon is launching his own Crypto along with Venezuelan strongman Nicolas Maduro who has launched his own crytpo!

The US Dollar is legally manipulated by The Federal Reserve, but gold, silver and cryptos can be easily manipulated by foreign agents. So be careful!

“Did someone say Lillyhammer?”

Why Residential Mortgage Rates Won’t Rise Over The Next Two Years (Ultra Bond Futures Trading At An Ultra Premium)

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.

Stimulypto! Fed’s Rosengren Outlines Dark Forecast With Warning Over Virus (MOAR Gov’t Stimulus Needed!)

Listening to Fed of Boston President Eric Rosengren speak, it is like watching the Bruce Willis flick “Armageddon.”

(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?

Corona’d! Atlanta Fed GDPNow At -45.5% For Q2, M2 Money At $18.15 Trillion (Velocity Crash)

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.

Fear The Walking Dead … Corporations! Zombie Firms Now 18.9% Of All Firms

Another example of the damage done by government shutdowns over the COVID-19 “epidemic.” The percentage of firms that are zombies is now at 18.9%.

“Zombies” are firms whose debt servicing costs are higher than their profits but are kept alive by relentless borrowing, according to Axios.

Also helping the rise of corporate zombies and debt is the endless liquidity and low rates from The Federal Reserve.

When nearly 1 in 5 firms are zombies, it is time to re-open the economy.

Fed Will Begin Buying Broad Portfolio of U.S. Corporate Bonds (Will Munis, Stocks and Residential Real Estate Be Next??)

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.

The central 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!

To Infinity … And Beyond! Fed Keeps Target Rate At 25 Basis Points And Commits To Infinite Monetary Stimulus (Powell As Buzz Lightyear)

(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!

In a separate Operating Policy note from the NY Fed, we read that:

  • the Desk plans to continue to increase SOMA holdings of Treasury securities at the current pace, which is the equivalent of approximately $80 billion per month

and:

  • the Desk plans to continue to increase SOMA holdings of agency MBS at the current pace, which is the equivalent of approximately $40 billion per month

Yes, Powell and The Fed are committed to printing money to infinity … and beyond!