GameStop: Rage Against The (Financial) Machine? Or Bidenflation? (Meme Stocks, Gold And Cryptos)

2021 has been a very weird year. Inflation has boomed (highest in 40 years) after the election of Joe Biden as President of the USA (call it Bidenflation). Then we have The Federal Reserve barely acting on the booming inflation (keeping rates at 25 basis points while withdrawing the COVID-related monetary stimulus).

Then we have the rise of cryptocurrency Ethereum and the surge meme stocks such game store GameStop, a favorite of the internet site Reddit.

Given the volatility of GameStop (Reddit-inspired), you can see the strange shape of GameStop’s volatility surface.

By contrast, gold is now where it was was at the beginning of 2021 and the surge of Bidenflation.

Here is volatility surface for gold.

So, there are a number of meme stocks (GameStop is just one example), gold, silver, cryptos such as Bitcoin and Ethereum. But gold seems to be placid with respect to inflation, but the meme stocks and cryptos seem to be motoring. Or is it rage against the financial machine? Or rage against Bidenflation??

The US stock and bond markets are closed today and tomorrow, Christmas day.

Have a Merry Christmas! And celebrate the “Santa Pause” as Powell refuses to raise rates to combat inflation until 2022.

US New Home Sales Decline 14% YoY In November While Median Prices Rise By 18.8% YoY

Inflation keeps clubbing Americans to death. This time in the form of New Home Sales prices.

November’s New Home Sales figures are out. New Home Sales declined 14% YoY while the median price of New Home Sales is up 18.8% YoY.

The West saw a MoM increase in new home sales of 53%! While the Midwest saw a decline of -25.35%.

I can this the Baker Mayfield effect. The Los Angeles Chargers drafted superb QB Justin Herbert, the Cleveland Browns drafted QB Baker Mayfield. The West wins, the Midwest loses.

As a long-time Browns fan, I dread the upcoming Browns-Packers game.

U.S. Inflation-Adjusted Spending Stagnates To 0% Growth As Prices Surge (Core PCE Deflator Rises To 4.7% YoY, Highest Since 1989 Implying A Taylor Rule Rate Of 11.84%)

The core Personal Consumption Expenditures (PCE) deflator numbers for November were released this morning and the print was a whopping 4.7% YoY, the highest rate since 1989.

Meanwhile, U.S. consumer spending, adjusted for inflation (aka, REAL personal spending), stagnated in November as the fastest price gains in nearly four decades eroded purchasing power. Stagnated to 0.

Purchases of goods and services, after adjusting for higher prices, were little changed following a 0.7% gain in October, Commerce Department figures showed Thursday.

And as Paul Harvey would say, here is the rest of the story.

Core PCE growth YoY of 4.68% implies a Fed Funds target rate of 11.84%. Powell and the gang have the target rate at 0.25%. But the Taylor Rule doesn’t take into account the latest FEAR raging in Washington DC … the Omicron variant. Just another excuse for The Fed to do nothing and let asset bubbles blow out of control.

Tiny bubbles? How about HUGE bubbles!

Gold Rises, Dollar Declines, Cryptos Quiet On Third Day Before Christmas (10Y-2Y Treasury Curve Back To Pre-Biden Slope)

With just three days until Christmas, we are seeing gold (gold line) rise, the US Dollar (green line) fall and the major Crytos Bitcoin and Ethereum remain quiet.

And the US Treasury 10Y-2Y slope is back to where is started when Biden was elected.

The University of Michigan consumer survey numbers are out tomorrow. Let’s see how they look. Or will they simply be anticipating Michigan playing Georgia in the Orange Bowl??

US Existing Home Sales Rise In November While Median Price Rises 13.9% YoY Amidst Declining Inventory

While the Bureau of Labor Statistics uses a lame measure of house price inflation, US existing home sales MEDIAN PRICE YoY is growing at 13.9%.

US existing home sales rose by 6.46 million units SAAR, less than the expected 6.53 million units SAAR.

Where is the inventory increases that various talking heads were predicting would emerge? Maybe they meant SUBMERGE?

Here is a video of me looking for the increasing inventory.

Stimulypto! US Q3 Price Index Grows 3X Personal Consumption (Real GDP +2.3% QoQ)

The good news is that US Real GDP grew at 2.3% QoQ in Q3 thanks to massive Federal government and Federal Reserve stimulus. The bad news? Prices are growing at rate of 6% QoQ, three times higher than the growth of real personal consumption.

Runaway inflation, cooling personal consumption. This is the definition of “stimulyltpo”: the excessive spending by Washington DC in conjunction with excessive monetary stimulus from The Federal Reserve.

Let’s see if Christmas season is jolly with Sewage Joe trying to scare everyone about Omicron.

Fed Reverse Repo Usage Rises to Record for Fourth Straight Day As Turkish Lira Volatility Hits All-time High And US Current Account Balances Rise To 2006 Levels

(Bloomberg) — The amount of money that investors are parking at a major central bank facility climbed to yet another all-time high as supply-demand imbalances continue to dog U.S. dollar funding markets.

Eighty-one participants on Monday placed a total of $1.758 trillion at the Federal Reserve’s overnight reverse repurchase agreement facility, in which counterparties like money-market funds can place cash with the central bank. That surpassed the previous record volume of $1.705 trillion from Dec. 17, New York Fed data show.

Demand for the so-called RRP has climbed further as principal and interest payments from government-sponsored enterprises has entered short-end funding markets. However, that cash is expected to exit the overnight space by the end of the week as the Treasury ramps up its issuance of Treasury bills now that Congress has increased the debt limit.

Overall volume has been rising this year as a flood of cash continues to overwhelm the U.S. dollar funding markets due to central-bank asset purchases and the drawdown of the Treasury’s cash account, which is pushing reserves into the system. The larger takeup looks set to persist even as the Fed tapers its asset-purchase program — something it began this month — because the supply-demand imbalances in short-end securities are likely to persist.

Then we have the Turkish Lira volatility hitting an all-time high.

And finally we have the US Current Account Balance rising to levels last seen in 2006 just after the peak of the US housing bubble.

Mele Kalikimaka!

Inflation And Fed Crushing Savers (REAL 3M CD Rate At -6.74%)

The Federal Reserve’s zero-interest rate policies (ZIRP) has The Fed Funds Target Rate at a measly 25 basis points or 0.25%. While this is great for some, it is disastrous for savers. Once we subtract off the inflation rate (CPI YoY), we find that the REAL 90-day Certificate of Deposit (CD) rate is a horrifying -6.74%.

I don’t think that Congress or the Biden Administration really think about how their spending may contribute to inflation and crush savers. Or the American worker who is seeing NEGATIVE real average hourly earnings growth (yes, Biden said that Americans have more money this holiday season … but not if we account for reduced spending power, also known as inflation.

Here is US Treasury Secretary Janet Yellen singing “Goodbye Savers.”

Goodbye Savers
Will we ever meet again
Feel sorrow, feel shame
Come tomorrow, feel lots of pain

China Contagion (Not Wuhan Virus, But Real Estate), Kaisa Down 13%, Evergrande Down 4.32%, Shimao Down 6.40%, Chinese Estates Down 30.42%

While the Chinese Wuhan virus (aka, the Fauci Flu) has plagued the world, another Chinese “export” is also suffering what is known as contagion: China’s real estate sector.

Real estate companies Evergrande, Kaisa, Shimao and Chinese Estates are falling like a rock today.

But it has been a steady decline since Q1 2021 except for Chinese Estates. But they have resumed their death dive.

On the debt side, Evergrande is down to 18.856 while Kaisa has lost less (but still quite a bit) and Shimao’s bond look almost like a good investment, relative to Kaisa and Evergrande. But they are all sucking wind. Maybe they all have the Fauci Flu?

Let’s see if this latest Chinese “export” washes ashore in the USA.

Transitory? Temporary? What Happens When The COVID Stimulus Is Removed? GameStop, Bitcoin, Ethereum, Gold And M2 Money

I love how The Federal Reserve talking heads, the media, economists like Paul Krugman, all refer to inflation as “transitory” and excessive liquidity as “temporary.”

Let’s look at a variety of alternative investments to the S&P 500, GameStop, Bitcoin, Ethereum and Gold after The Federal Reserve’s and Federal government massive (over)reaction to COVID in early 2020. Gold is the first asset to surge after M2 Money surged, but has declined since. Game Stop had a big surge (likely due to positive vibes on Reddit), but has been volatile and generally falling since “The Surge.” Bitcoin had a delayed surge as did Ethereum. Despite fear about government regulation, Ethereum in particular remains elevated.

The “temporary” stimulus has resulted in the lowest M2 Money velocity in history. And we will have to see if the “temporary” excess liquidity in the financial system is truly temporary.

Here is a chart to show the “Stimulytpo” effect on commercial and industrial loans which surged (including PPP loans) but have simmered down to pre-COVID levels.

The earnings for GameStop were terrible (down 39.7% YoY). But at least Christmas season is upon us and maybe GameStop will surge with a good retail spending season.

But what happens to markets if the Federal government “stimulypto” is removed? If it ever is.