$32 TRILLION of global stock value has been wiped out since December 2021.
Today’s core PCE deflator reading of 4.9% YoY shows that the inflation surge is not over. With a core PCE deflator of 4.9%, the Taylor Rule suggests that The Fed Funds Target Rate should be at 9.65%, far below its current level of 3.25%. So, IFF The Fed is following any sort of rule, rates should continue to soar.
And if we use headline inflation of 8.30% YoY, the Taylor Rule suggests hiking the target rate to 14.75%.
Fire! European stock valuations have dropped to lowest since 2012.
The US Dollar index is soaring (not helping Europe) as The Federal Reserve tightens monetary policy to combat the inflation fire.
Meanwhile, the Atlanta Fed’s GDPNow real-time forecast for Q3 is at least above zero (barely) at 0.271%.
Fed officials continued to hammer home the central bank’s hawkish outlook, with Atlanta President Raphael Bostic saying he backs raising rates by a further 1.25 percentage points by the end of this year. Meanwhile, the People’s Bank of China said it will accelerate usage of targeted loans.
Banks get to park money at The Federal Reserve overnight in the form of repurchase agreements (or repos). But as inflation is raging in the US, banks have parked a record $2.366 TRILLION at The Federal Reserve.
The MOVE bond volatility index keeps rising as inflation roars and The Fed fights back,
The US bond volatility index is now almost as high as during the Covid Crisis and approaching financial crisis levels.
The scalding inflation rate crippling middle class Americans and low-wage workers is causing The Federal Reserve to take action by finally tightening their monetary policy.
As such we are seeing a rapid decline in the US housing market in terms of sales. For August, pending home sales declined -22.5% YoY as expectations of further Fed rate hikes (blue line) soars. Note that impact of The Fed’s and Federal government “sugar rush” after the Covid outbreak in early 2020 and its impact on pending home sales.
Mortgage applications have fallen to the lowest level in 25 years, in part due to The Federal Reserve’s tightening of monetary policy in an attempt to combat inflation.
Mortgage Net Daily is showing that 30-year fixed mortgage rates are 7.08%.
Mortgage applications decreased 3.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 23, 2022.
The Refinance Index decreased 11 percent from the previous week and was 84 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 0.4 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was29 percent lower than the same week one year ago.
My former home, Phoenix AZ, finally is no longer the fastest growing metro area in terms of home prices, relinquishing the crown to Miami and Tampa FL.
It almost seems that people are trying to escape the mess Gavin Newsome made in California and are escaping to Arizona, Nevada, Florida and Texas. But note that all 20 metro areas are positive in growth YoY, but 12 of the top 20 metro areas experienced NEGATIVE growth from June to July.
Any questions as to whether The Fed is killing the housing and mortgage markets??
On a different note, we see all hell breaking out in Great Britain. Like the US, Great Britain’s inflation is off the charts and the Bank of England is scared about the Pound getting pounded with BofE tightening.
Is FLA governor Ron DeSantis actually Snake Pliskin??
According to the BLS, US core inflation is 6.3% and headline inflation is 8.3% YoY. But everything I consume seems to be going up at a much faster rate?
Under Biden, regular gasoline price is UP 55%, CRB Foodstuffs UP 47%, rents UP 12.5% YoY and electricity is UP 957%.
And as The Fed continues to signal monetary tightening, the spread between 30Y FNCL Par Coupon and the 10-year Treasury yield keeps growing.
In case you watched the Buffalo Bills play the Miami Dolphins yesterday, you may remember this punt by the Dolphins. It almost perfectly represents what The Federal Reserve and Biden Administration are doing to the American middle class and low-wage workers.
And I thought the Washington Commanders QB Carson Wentz getting sacked nine times in a game against his former team was bad!
We start the week with another chapter of “The Worst Bond Bubble Burst Since 1949.” This time its the US Treasury 10yr-2yr yield curve inverted to its lowest level since 2000.
Then across the pond, the UK sovereign yield curve is also inverted. But this curve is only inverted to 2008 levels of The Great Recession. The UK 2-year sovereign yield is up over 50 basis points this morning.
Then we have the US Dollar Swaps curve (green line), steeply UPWARD sloping until 6 months, then declining. The same goes for the US Treasury Actives curve (blue line), except that is it steeply upward sloping out to 1 year then begins declining.
And then we have the Bankrate 30-year mortgage rate rising to 6.59%, up 129% since Biden was sworn-in as President.
Also declining since Powell unleashed his monetary Panzers on the economy and financial markets are 1) agency MBS and 2) S&P 500 index.
The stock market’s value is down $7.6 trillion since Biden took office.
When I saw Carson Wentz of the Washington Commanders getting sacked 9 times, I thought maybe Prince Harry was playing instead. Or maybe Meghan Markle.
Price Harry is on the left, Commanders QB Carson Wentz is on the right.
Pension funds hold large positions in US Treasuries and Agency Mortgage-backed Securities (MBS). As does America’s central bank, The Federal Reserve. All are suffering losses as The Fed fights inflation.
(Bloomberg) — Week by week, the bond-market crash just keeps getting worse and there’s no clear end in sight.
With central banks worldwide aggressively ratcheting up interest rates in the face of stubbornly high inflation, prices (created by The Fed, Biden’s Green Energy Follicies and reckless Federal spending) are tumbling as traders race to catch up. And with that has come a grim parade of superlatives on how bad it has become.
On Friday, the UK’s five-year bonds tumbled by the most since at least 1992 after the government rolled out a massive tax-cut plan that may only strengthen the Bank of England’s hand. Two-year US Treasuries are in the middle of the the longest losing streak since at least 1976, dropping for 12 straight days. Worldwide, Bank of America Corp. strategists said government bond markets are on course for the worst year since 1949, when Europe was rebuilding from the ruins of World War Two.
The escalating losses reflect how far the Federal Reserve and other central banks have shifted away from the monetary policies of the pandemic, when they held rates near zero to keep their economies going. The reversal has exerted a major drag on everything from stock prices to oil as investors brace for an economic slowdown.
And as The Fed tries to combat stubborn inflation (caused by The Fed, Biden’s Green Energy folly and reckless Federal spending), you can see the US government security liquidity is worsening.
At least inflation has produced one “positive.” REAL mortgage rates are NEGATIVE since Freddie Mac’s 30-year mortgage rate less headline inflation is currently -2.975%.
Then we have Agency MBS (example, FNCL 3% MBS) plunging like a paralyzed falcon as duration risk increases with Fed rate tightening.
Fed Funds Futures data points to tightening until May ’23, then a reversal of rate hikes.
First, let’s look at the S&P 500 index since August 24, 2020 (white line) and compare that to just before The Great Recession 04/15/06 – 05/17/08. They look pretty similar.
Second, let’s look at returns on long-term US Treasuries (10yr+, white line) and US mortgage-backed securities (gold line) since The Fed undertook “Operation Crush Inflation!” (green line).
I saw The President’s press secretary fielding questions about the declining stock returns and impending recession. She responded “But the labor market is strong!” Well, Ms. Karine Jean-Pierre, I am sure President’s Biden economic advisor Jared Bernstein told you unemployment was at a very low level just prior to 1) The Great Recession and 2) The Great Covid-shutdown Recession). So, claiming that the US employment market is strong economy ignores that unemployment will surge if the economy slows … which is what The Fed is trying to do.
There is a rush to hedge the downside with The Fed tightening the monetary noose.