Fed Garbage? MBA Applications Rise As Households Panic About The Fed Raising Rates (Refi Applications Still 83% Lower YoY, Purchase Applications 30% Lower YoY)

As people are painfully aware, The Federal Reserve is on a mission … to hike interest rates to tame inflation back to 2%.

So, we saw a small surge in mortgage applications last week as the expectations of Fed rate hikes sinks in and households try to lock in mortgage rates.

Mortgage applications increased 3.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 16, 2022. Last week’s results include an adjustment for the Labor Day holiday.

The Refinance Index increased 10 percent from the previous week and was 83 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 11 percent compared with the previous week and was 30 percent lower than the same week one year ago.

At least the percentage of ARMs remained the same, 9.1%.

The Federal Reserve has a line on you! Or noose.

By the way, the theme song for the US version of the TV show “The Office” was written by Jay Ferguson, the primary singer for the ’60s band Spirit (that performed “I’ve Got A Line On You!”).

Here is Jay Ferguson singing the Spirit song “Fresh Garbage.” A fitting song for The Federal Reserve. Fed Garbage??

Today will be another Fed rate hike, expected to be a whopping 75 basis points. The S&P 500 tends to rally (green line) after the FOMC announcement. What will happen today?

Slipping Into Darkness! US Real GDP Forecast Barely Above 0% Growth (Atlanta Fed GDPNow At 0.3%) With Less Than Two Months Until Midterm Elections

Slipping into darkness … with less than two months until the US midterm elections.

Latest estimate: 0.3 percent — September 20, 2022

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2022 is 0.3 percent on September 20, down from 0.5 percent on September 15. After this morning’s housing starts report from the US Census Bureau, the nowcast of third-quarter residential investment growth decreased from -20.8 percent to -24.5 percent.

The culprit? US Housing starts!

We knew from this morning that housing starts declined -0.01% YoY as The Fed’s Stimulypto wears off.

Yikes! German PPI Soars To 45.8% YoY (The New Russian Front?)

The war in Ukraine is still going on and Russia is punishing Germany in terms of energy supply.

It is almost as if the Ukraine war is the NEW Russian front for Germany. The German Producer Price Index YoY surged to 45.8% YoY.

German buyers on Monday briefly reserved capacity to receive Russian gas via the Nord Stream 1 pipeline for the first time since the line was shut down three weeks ago, German data showed, but this was later revised and no gas has been flowing.

It was not immediately clear why buyers had submitted requests for capacity when Russia has given no indication since it shut the line that it would restart any time soon.

Russia, which had supplied about 40% of the European Union’s gas before the Ukraine conflict, has said it closed the pipeline because Western sanctions hindered operations. European politicians say that is a pretext and accuse Moscow of using energy as a weapon.

But German inflation, using CPI, is only 7.9%. Something has to give!

On the western front (US), the US Treasury 10yr yield is up +10.2 bps. And sovereign yields in Europe are all above 10 bps.

US Housing Starts Decline -0.1% YoY In August (But Apartment Starts UP 28.57% MoM!) As Fed Removes Monetary Stimulus

The US is short on housing stock and remains short in August. While housing starts in August seems fantastic (12.8% MoM), the YoY growth in housing supply is down -0.1% as mortgage rates soar and The Fed removes monetary stimulus.

On a month-over-month (MoM) basis, 1-unit (single family detached) were up only 3.43% in August. 5+ unit (multifamly) starts were up 28.57% in August.

Since the Biden Administration has allowed over 2 million illegal to flow across the southern border, apartment space is in high demand.

According to RentCafe, the hottest rental markets in the USA are Miami, Orlando, SW Florida and … Harrisburg PA (the temporary home of uber-leftist PA Lt Governor John Fetterman). Perhaps Fetterman is letting illegal immigrants stay in his Harrisburg mansion, unlike President Obama on Martha’s Vineyard.

Why isn’t Biden letting illegal immigrants stay in his massive summer mansion in Reboboth Beach, DL?

C’mon man!

The Core! US 30y Mortgage Rate Rises (US Futures Fall as Traders Eye Supersized Fed Hike)

Even Obama’s economic advisor, Larry Summers, is wondering why Biden won’t allow pipelines to be build to reduce energy prices and reduce inflation.

Having said that, US mortgage rates are now the highest since 2008 and continue to rise with the expectation of more Fed rate hikes this year. Even core inflation is on the rise motivating The Fed to do more tightening since they aren’t receiving any help from Biden on energy or Congress in terms of massive spending of our money.

Mortgage payments for a median existing home in the US is back to the mid-1980s.

Data from Fed Funds futures implies that The Fed will raise their target rate to 4.50% by March 2023, then slowly lower rates.

Futures are down with the prospect of a 75 basis point bump in rates tomorrow. The Dow Jone Mini is down -167 points.

Powell’s Famous Chili! National Association of Home Builders Market Index Falls More Than Expected To 46 As Fed Tightens Monetary Noose (Lowest Since 2012, Excluding Covid Crash)

The National Association of Home Builders market index fell more than expected in September to 46, the lowest reading since 2012 (if I exclude the Covid economic shutdown).

Note that the NAHB market index is declining along with at the increase in the 30yr mortgage rate.

Lifeforce? US Debt Load At 123% Of GDP As M2 Money Velocity Nears All-time Low (Will The Fed Sound The Alarm?)

The Federal Reserve’s Open Market Committee (FOMC) will announce their latest round of rate increases on Wednesday, September 21st, at 2pm EST. Will the members of the FOMC discuss the fact that the US debt load is now at a whopping 123% of GDP?? Or will the FOMC only discuss inflation in its deliberations?

The Fed is expected to raise the upper-bound of their target rate to 3.25%, a 75 basis point increase in a futile attempt to cool inflation. Yet the rampant spending by Biden, Pelosi and Schumer (3 of the 4 Horsemen of the Economic Apocalypse) has raised the Federal Debt to GDP ratio to 123%. Even more disturbing, M2 Money Velocity (GDP/M2 Money) is near the all-time low. Meaning that rampant Federal spending is doing little to increase GDP.

Now for the worse news! Federal debt held by the public is expected to rise to 185% of GDP in 2052.

I feel like I am watching the movie “Lifeforce” where The Fed tries to breath life into an economy without killing it.

Fed Tilts Toward Third 75 Basis-Point Hike on Stubborn Inflation (Fed’s Target Rate Expected To Hit 4.395% By March ’23 Then Fall, Mortgage Rates Rising)

Inflation is stubborn because “goin’ green!” by 1) restricting US fossil fuel production and exploration and 2) Biden/Congress endless spending splurge since Covid. So, The Federal Reserve has a tough problem: cooling inflation while US energy prices are up 54% under Biden. And those higher energy prices have percolated through the entire economy in terms of food prices and heating prices.

Where do we sit? The US Treasury 10yr-2yr yield curve remains inverted (a sign of impending recession). Mortgage rates are the highest in 14 years as The Fed tightens.

If we look at Fed Funds Futures data, we can see that traders expect The Fed’s target rate to rise to 4.395% by March 2023’s FOMC meeting. Then traders expect The Fed to take their enormous foot off the tightening pedal.

Yes, inflation is crushing the middle class and low-wage workers. Average hourly earnings YoY after we subtract inflation are negative.

Taylor Rule? Currently, the Taylor Rule based on Core inflation of 4.56% YoY suggests a Fed target rate of 9.14%. Since traders anticipate the target rate to peak at 4.395%, The Fed will almost be halfway towards cooling inflation.

The problem is … Fed Chair Powell and Treasury Secretary Yellen don’t like rules limiting their “power.” Powell and Yellen think the Taylor Rule is a New Jersey ham product.

Weekend Update! Goldman Cuts US Growth Forecast for 2023 After Rate Path Change, FedEx Drops -44 Pts, US Treasury Yield Curve Further Inverts To -42.3 BPS (As Biden Drains The Strategic Petroleum Reserve)

Its a beautiful morning here in Columbus Ohio! Unfortunately, things are not so beautiful for the US economy.

Let’s begin with the US Treasury 10yr-2yr yield curve slope. Historically, the yield curve inverts prior to a recession. As of this sunny morning, the US Treasury yield curve is inverted and sinking further into inversion. Notice that headline inflation (blue line) has increased declined slightly after hitting 40-year highs as The Federal Reserve begins SLOWLY trimming their balance sheet (orange line). The green line is the expectation of Fed rate hikes by the December 2022 FOMC meeting indicating further monetary tightening.

Goldman Sachs Group Inc. cut its US economic growth estimates for 2023 after recently boosting its predictions for Federal Reserve interest rate hikes.

US gross domestic product will increase 1.1% in 2023, economists including Jan Hatzius wrote in a note Friday, compared with a forecast of 1.5% previously. The projection for 2022 was left unchanged at 0%. 

Goldman raised its federal funds rate forecast by 75 basis points over the last two weeks for a terminal rate forecast of 4% to 4.25% by the end of 2022.

Then we have Federal Express which plunged -43.85 points on Friday. I use this an example on how inflation begat Fed tightening that begat an economic slowdown.

The Biden Administration is cheering the “Inflation Reduction Act” and the recent decline in the rate of inflation to a gut-wrenching 8.3% YoY. Bear in mind that since Biden was sworn-in as President, WTI Crude Oil is UP 75%, gasoline prices UP 54%, food prices are UP 48% and the Strategic Petroleum Reserve is DOWN -32%.

Then we have Gold and Bitcoin relative to the INVERSE of the US Dollar since Biden was installed as President.

But I still get to look out my window and see a beautiful day in the neighborhood.

Consumer Sentiment For Housing Remains In The Doldrums As Fed Tightens To Combat Bidenflation (Atlanta Fed GDPNow Tanks To Only 0.5%)

As inflation rages thanks to Biden’s energy policies and insane Federal spending, The Federal Reserve is trying to cool inflation (or Bidenflation).

As The Fed tightens, the 30-year mortgage rate has risen to 14 year highs. And home prices are still hot, hot, hot (though slowing). But consumer sentiment for housing remains in the doldrums (UMich Buying Conditions For Houses).

The good news? Atlanta Fed’s GDPNow real-time GDP tracker shows the US economy at positive growth of 0.521%. Ok, that is kind of lousy given the massive Fed stimulus and Federal spending since Covid.

M2 money velocity demonstrates the lousy return of Fed/Federal government “investment”.Near the lowest level in US history.

So, The Fed will have to destroy the US economy to save us from Bidenflation (bad energy policies and out-of-control Federal spending).

And more good news! The NASDAQ composite index is down only -1% today!