Strange Days! US Mortgage Rate Falls To 6.97% As Banking Crisis Persists (Yellen, Bank Consolidations, Bailouts And The Return Of QE)

Strange days, indeed.

Despite endless promises from Washington DC that there would never be another bank bailout, the Biden Administration bailed out Silicon Valley Bank (SVB) by removing the $250,000 cap on deposit insurance. Then Treasury Secretary Janet Yellen added that in the future, only banks that posed SYSTEMIC RISK to the economy will be bailed out. Translation: only the big four Too Big To Fail (TBTF) banks will be bailed out. Meaning that the Biden Administration prefers big banks to community banks. “Middle-class Joe” loves BIG Pharma, BIG defense, BIG tech, BIG media and now BIG banks. He should rename himself “Big Joe” Biden for the 2024 Presidential election.

Of course, we are aware of The Fed’s about face on shrinking their balance sheet (green line). While Bankrate’s 30-year mortgage rate has now declined below 7% to 6.97%, it has only fallen -15 basis points since the recent peak of 7.12% on 3/2/2023 when the 10-year Treasury yield was 4.056%. So, the 10-year Treasury yield has fallen -62.7 basis points since 3/2/2023 while the 30-year mortgage rate dropped only -15 basis points.

On the European banking front, Credit Suisse is kaput and both Swiss Bank and Deutsche Bank are considering buying the assets of Credit Suisse. In other words, MORE bank consolidation.

Here is a chart of US bank consideration as of 2009 with 37 banks in 1990 shriveling to 4 mega, TBTF banks in 2009 that remain today. But will the now unprotected community and local banks be absorbed into the 4 superbanks? Time will tell, but if history is repeated, the answer is yes.

The KBW bank index continued to fall despite the bailouts of SVB and Signature Banks. But at least total returns on Treasuries and MBS that banks hold increased with the return of QE!

Yellen and Biden compete for the Knucklehead Of The Century Award. While not as sloppy as the sudden Afghanistan withdrawal, bailing out the Silicon Valley elites will not end well.

US Leading Economic Indictors Plunge -6.5% YoY In February, Consumer Sentiment Falls (S&P 500 Down -1%)

Apparently, the only thing that is strong in the US economy is low-paying jobs. The economy as a whole is sucking wind as we can see with the Conference Board’s Leading Indictors plunging -6.5% Year-over-year (YoY) in February.

US consumer sentiment fell again … and has not been near 100 (baseline) since Covid struck.

And on the fears that the banking system is not well, the S&P 500 index is down -1.1% this morning.

Fed Dead Redemption! Flight To Safety As US Treasury 10-Year Yield Drops -16 Basis Points And Fed Discount Window Soars (Wrong Way Yellen Strikes Again!)

Its crisis time again.

First, The Fed’s discount window soared to its highest level since … you guessed it … the previous financial crisis of 2008/2009.

Second, the 10-year Treasury yield declined -16 basis points this morning as investors flee to safety.

Bankrate’s 3-year mortgage rate rose to 7%, but with today’s decline in the 10-year Treasury yield we should see mortgage rates declining.

Yes, much of the blame belongs to The Fed’s leadership (Bernanke, Yellen, Powell) for leaving rates too low for too long, then suddenly try to lower inflation by raising rates. Now we have The Fed’s balance sheet INCREASING again as the use of The Fed’s discount window soars to highest level since Lehman Bros fiasco.

Argentina Raises Benchmark Leliq Rate By 300 Basis Points To 78% To Fight Inflation Of 102.5% (While Fed INCREASES Balance Sheet To Fight Banking Crisis)

Cry for Argentina! Their central bank boosted its benchmark Leliq rate by 300 basis points to 78%. The monetary authority’s board considered the increase in response to accelerating inflation and after leaving the key rate unchanged for several months.

Of course, the US Federal Reserve is going in the opposite direction to combat the US banking crisis created by inflation and Yellen’s “Too low for too long” Fed policies.

I am beginning to wonder in Treasury Secretary Janet Yellen and Chicago Mayor Lori Lightfoot are the same person. Both complete Statist screw-ups.

The NEW Banking Crisis In One Chart (Hint: Inflation = Fed Rate Hikes = Treasury/MBS Duration Increases = Bond Losses = Bank Runs) Bond Volatility Highest Since 2008

So, the Biden Administration made a horrible error by guaranteeing deposits at Silicon Valley Bank for deposits over $250,000. Essentially, Biden bailed out big tech that kept their deposits at SVB.

But what triggered the run on SVB and other banks? Simple. Biden and Congress spent like drunken sailors with Covid and The Federal Reserve went nuts printing money. Viola! We got inflation. But with inflation came The Fed’s attempt to get inflation back to its 2% target (difficult since Biden/Congress refuse to return spending to pre-Covid levels). But as interest rates rise, duration (weighted average life of MBS) rose dramatically meaning that risk increased. But banks like SVP ignored the risk, or didn’t hedge, or were spending time worrying about non-bank related issues.

So, what happened? Banks are holding Treasuries and MBS (orange line) that are getting clobbered with rate hikes (yellow line).

Talk about volatility. Today, the 2-year Treasury yield is up over 20 basis points as bond volatility hits levels last seen in 2008, just prior to the subprime credit crisis.

So, Biden’s bailout of SVP depositors stopped the deposit run for the moment. But if The Fed keeps hiking rates, banks are going to be hurting worse and worse. They could rebalance their portfolios and/or hedge. But with Uncle Spam (Biden) at the helm, bailouts are always on the table.

Not Always Sunny! Philadelphia Business Outlook Declines To -23 After Yesterday’s Dismal Empire State Print (Biden’s Magic Trick!)

It’s not always sunny in Philadelphia.

The Philadelphia Business outlook remains grim at -23. This comes after yesterday’s terrible Empire State print.

Between Biden’s energy policies and massive spending by Biden/Congress, we are seeing the raging effects of inflation on the economy.

Here is Biden’s Press Secretary trying to explain how marvelous the US economy is.

Snookered! US Housing Starts Rise 9.77% In Feburary, Mostly Multifamily At 24%, 1-Unit Starts Only 1.1% (23 Months Of Negative Wage Growth And Still High Home Prices Killing 1-Unit Starts)

Now that The Fed-induced-banking crisis has cooled … for the moment … I can focus on that mysterious positive homebuilder sentiment release from yesterday.

The sentiment was driven by 5+ unit (multifamily) starts which were up 24% in February, which 1-unit (single-family detached) starts were up only 1.10%. 23 consecutive months of NEGATIVE real wage growth and still ultra-high home prices begat lots of multifamily housing starts.

The problem for Americans is the real weekly wage growth has been negative for 23 consecutive weeks while home prices remain high, particularly after the Covid bailout by The Fed.

Here is the rest of the story.

So, 1-unit detached housing is snookered.

Don’t Cry For Argentina! Inflation Hits 102.5% As M2 Printing Hits 80% YoY (Suicide By Printing Press)

Don’t cry for Argentina! Their leaders did this to them.

Argetina’s inflation rate just hit 102.5% as their M2 Money printing hit 80%

Argentina’s central bank is considering raising its benchmark rate on Thursday for the first time since September after inflation data showed prices increased by more than 100% annually last month, according to two people with direct knowledge.

The monetary authority’s board will consider an increase after leaving the key Leliq rate unchanged at 75% for several months, the people said, asking not to be named discussing internal decisions. The board has not yet decided on the size of the hike in case they opt for such move, they said.

A cautionary tale for Washington DC spendacrats and Fed officials.

Brought to the same country that gave us Statist Juan Peron and his wife Eva.

Reversal Of Fortune! Fed Expected To Hike Once By 25 BPS, Then Cut Rates By 125 BPS By End Of 2023

Market now expects FED to hike max. one more time by 25bps followed by 125bps cuts in total by end of 2023.

And bond volatility is up the most since … the last financial crisis.

No, not the Klaus von Bulow “Reversal of Fortune.” Just a Fed/Biden murder of the US economy.

Credit Suisse Hits New Low as Top Holder (Saudi National Bank) Rules Out Bigger Stake (US Treasury 2Y Yield Falls -40.4 Basis Points, 10Y Treasury Falls -24.8 Basis Points)

Apparently, the NEO financial crisis (not the subprime, but The Fed’s “too low for too long” crisis) is still with us.

Credit Suisse Group AG’s top shareholder, whose stake has lost more than one-third of its value in three months, ruled out investing any more in the troubled Swiss bank as a bigger holding would bring additional regulatory hurdles.

“The answer is absolutely not, for many reasons outside the simplest reason, which is regulatory and statutory,” Saudi National Bank Chairman Ammar Al Khudairy said in an interview with Bloomberg TV on Wednesday. That was in response to a question on whether the bank was open to further injections if there was another call for additional liquidity.

Credit Suisse says it has identified material weaknesses in its internal control over financial reporting as of December 31, 2022 and 2021, according to the annual report.

The material weaknesses relate to the failure to design and maintain an effective risk assessment to identify and analyze the risk of material misstatements in its financial statements and the failure to design and maintain effective monitoring activities relating to:
– Providing sufficient management oversight over the internal control evaluation process to support the Group’s internal control objectives
– Involving appropriate and sufficient management resources to support the risk assessment and monitoring objectives
Assessing and communicating the severity of deficiencies in a timely manner to those parties responsible for taking corrective action

And it could simply be that Credit Suisse was caught in the Central Bank “Bear Trap” where banks get clobbered as interest rates rise.

Credit Suisse’s CDS (credit default swap) is soaring!

And on the “it ain’t over till its over” news from Credit Suisse, the US Treasury 2-year yield plunged -40.4 basis points.

And the US Treasury 10-year yield plunged -24.8 basis points.

The official logo of the Federal Reserve should be Munch’s The Scream.

Let’s get ready to stumble!