Big 4 Banks And SVB: Canaries In The Economic Coal Mine? (SVB Racing To Prevent a Bank Run As Funds Advise Pulling Cash)

While waiting on the February jobs report from the US Bureau of Labor Statistics (BLS), I noticed that the big 4 banks (Bank of America, JPMorgan Chase, Citi and Wells Fargo) are drowning in net realized losses as The Federal Reserve combats 1) too many years of loose monetary policy under former Fed Chair Janet Yellen and 2) too much spending under Pelosi, Schumer and … McConnell.

At a micro level, we have Silicon Valley Bank (SVB) SVB Is racing to prevent a bank run as funds advise pulling cash.

Panic is spreading across the financial world as concerns about the financial stability of Silicon Valley Bank prompt prominent venture capitalists including Peter Thiel’s Founders Fund to advise startups to withdraw their money.

The turmoil followed a surprise announcement from Santa Clara, California-based SVB that it was issuing $2.25 billion of shares to bolster its capital position after a significant loss on its investment portfolio. The stock plunged 44% in premarket trading before exchanges opened in New York on Friday, set to extend its 60% decline on Thursday. Bonds had posted record declines, igniting a broad selloff in US bank shares that also spread to Asia and Europe.
In the US, the KBW Bank Index on Thursday had its worst day since June 2020, as its members shed more than $90 billion of value. In Europe, the biggest banks lost more than $40 billion from their market caps on Friday.

Management’s solution appears to have been to seek out yield through a lot of long-duration bonds. The bank started to lose deposits as VCs pulled cash/burnt through operating capital.

Are banks the canary in the economic coal mine?

US Mortgage Rate Rise To 7.13% As Inflation Remains And Fed Counterattacks

As Americans are painfully aware, inflation is still haunting us. Despite Administration proclamations that inflation is declining, it is rising again. And with rising inflation (and an overheated labor market), The Federal Reserve is in full counterattack mode, withdrawing stimulus and raising rates.

And with Fed tightening comes rising 30-year mortgage rates.

Out of boredom, I watched the Clive Barker film “Hellraiser” and noticed perpertual Democrat Presidential candidate Hillary Rodham Clinton in the cast as the female Cenobite.

The Walking Dead … Housing Edition! New York City Leads Nation In Zombie Foreclosures In Q1 (Followed By Miami, Chicago, Cleveland And Philadelphia)

According to Attom Data, New York City leads the nation in zombie forceclosures.

A zombie foreclosure refers to a situation where a homeowner vacates their property after receiving a notice of default, expecting they will lose the home in the pending foreclosure. The foreclosure may get canceled for any number of reasons and never completed.

New York City and its surrounding areas lead the nation in zombie foreclosures. Followed by Miami. Chicago and Cleveland. Then Philadelphia.

Mortgage Purchase Applications Increased 6.9% In Weekly Survey (But Purchase Apps Down 42% YoY, Refi Apps Down 76% YoY As Fed Tightens Monetary Noose)

Mortgage applications increased 6.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 3, 2023.

The Market Composite Index, a measure of mortgage loan application volume, increased 6.9 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 9 percent compared with the previous week. The Refinance Index increased 9 percent from the previous week and was 76 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 7 percent from one week earlier. The unadjusted Purchase Index increased 9 percent compared with the previous week and was 42 percent lower than the same week one year ago.

Today, we saw mortgage rates climb further to 7.11% as the US Treasury yield curve (10Y-2Y) descends into Mortgage Mordor as The Fed continues to tighten.

Slippin’ Into Darkness! US Treasury Yield Curve Descends To -108 BPS (169 Days Of Inversion) As US Mortgage Rate Hits 7.11% (Fed No Longer Low Riding Interest Rates)

Slippin’ into darkness! The US Treasury 10Y-2Y yield curve, that is.

At the same time that the 10Y-2Y yield curve inverts to -108 basis points, Bankrate’s 30-year mortgage rate has risen to 7.11%.

Now that The Federal Reserve is no longer low riding interest rates, I expect to see a cooling of the US economy.

Sink The Economy! S&P 500 Down -6% Since Fed Started Raising Rates On May 4, 2022, Equity REITs Down -16% (Pension Pain From Interest Rate Increases)

Interest rates are an important driver of the economy and financial markets. And what has happened to the S&P 500 index since The Federal Reserve started raising their target rate on May 4, 2023 to fight surging inflation?

Since that fatal day, the S&P 500 index has fallen -6% and equity REITs (commercial real estate) has fallen -16%.

What about returns on US Treasuries and Mortgage-backed Securities (MBS)? Same thing. PAIN!

Although The Fed has pledged to keep raising rates to fight inflation (and further decimate retirement accounts), investors are pointing to a peak (terminal) Fed rate of 5.44% at the September 2023 FOMC meeting. Then rate cuts following the September 2023 meeting.

Of course, much of the blame belongs to former Fed Chair Ben (QE) Bernanke and current Treasury Secretary Janet “Too Low For Too Long” Yellen who never met a Fed rate hike that she liked. But Yellen LOVES giving away US taxpayer dollars … to Ukraine.

US Mortgage Rates Rise To Over 7% As Fed Tightens Monetary Noose (Is Powell Chanelling Volcker?)

Yesterday’s inflation report (in the form on skyrocketing labor costs) helped lead Bankrate’s 30-year mortgage rate to over 7% … again.

Here is yesterday’s horrible unit labor costs YoY chart showing the fastest growth in labor costs since 1982 and Fed Chair Paul Volcker. Jerome Powell, the current Fed Chair is trying to reduce the Bernanke/Yellen/Powell monetary stimulypto (with an extra dose of “sugar” from the Covid outbreak).

The good news is that the 10-year Treasury yield is down -7.3 basis points this morning.

Here is The Fed’s Open Market Committee (FOMC) trying to summon Paul Volcker to help them figure out how they got inflation so wrong.

Inflation Alert! US Unit Labor Costs Soar in Q4 2022 To 3.2%, 2x Expectation Of 1.6%, UP 6.50% YoY (The Worst In 30 Years)

Despite Treasury Secretary Janet Yellen claiming that inflation was only transitory and likely to disappear, we are seeing continued inflation. Now we see that Unit Labor Costs are up 3.2% QoQ for Q4 2022.

Even worse, US unit labor costs rose 6.5% on a year-over-year (YoY) basis, the WORST since 1982.

And yes, Q4 2022 unit labor costs are up 2x the expectations.

In normal times, The Federal Reserve would raise rates to cool down the economy. The Taylor Rule suggests a Fed target rate of 10.59% versus the current Fed rate of 4.75%. A long way to go!!

Damn it, Janet!

Mortgage Purchase Demand Decreases, Lowest Level Since 1995 As Fed Removes Punch Bowl (Punch Bowl To Dust Bowl)

Today’s mortgage application (demand) numbers from the Mortgage Bankers Association was disappointing to say the least. Mortgage purchase demand just sank to it lowest level since 1995.

Typically, mortgage purchase applications peak in May or June of each year before beginning their annual lemmings drive downwards. But this year is seeing a early turn for the worse.

The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 44 percent lower than the same week one year ago. The Refinance Index decreased 6 percent from the previous week and was 74 percent lower than the same week one year ago.

The Fed is hell bent on removing the punch bowl to fight inflation. Looks like Biden’s economic plan is turning the punch bowl into a dust bowl.

Simply Unaffordable! US Housing (Un)affordability Hits An All-time Low As Fed Tightens (22 Straight Months Of NEGATIVE Real Wage Growth Isn’t Helping)

US housing is simply unaffordable.

Janet Yellen and The Federal Reserve held rates too low for too long and now we are paying for it. Now, after a massive run-up in home prices, The Fed is raising rates helping make US housing the most unaffordable in history (or at least since the early 1980s).

And negative real wage rate growth for 22 straight months isn’t helping!