Morning Update: Bankrate’s 30Y Mortgage Rate Rises Slightly To 5.29% (Housing Rents UP 16.4% YoY, Gasoline UP 92% Under Biden, Food UP 60%)

US mortgage rates are up slightly this morning. Bankrate’s 30-year mortgage rate survey is up to 5.29%.

The Biden Scorecard is still a bleak one (for non-elitists). Regular gasoline is UP 92% under Biden, Diesel fuel is UP 110%, foodstuffs are up 60% under Biden, Zillow all-house rents are UP 16.4% YoY.

It hurts to be in the middle class under Biden.

Medusa Touch! Goldman’s Blankfein Warns Of Recession, Fed Reverse Repos Soar With Inflation, Stock Futures Down While S&P 500 Forward 12-Month P/E Ratio Falls To Pre-Covid (2016) Levels

Goldman Sachs Senior Chairman Lloyd Blankfein urged companies and consumers to gird for a US recession, saying it’s a “very, very high risk.”

I am not surprised. Take a look at The Fed’s Overnight Reverse Repo operations. As inflation surged in 2021 and 2022, banks are parking more funds at The Fed. Fear?

We are seeing the S&P 500 futures down today after a nice rally on Friday. The &P 500 forward 12-month P/E ratio is back to pre-Covid, pre Federal spending surge, pre Fed monetary Stimulypto of 2016.

Goldman Sachs see the 10-year Treasury yield rising to 3.3%. That bodes ill for 30-year mortgage rates, perhaps push mortgage rates up another 40 basis points to 5.80%.

And NASDAQ is having its worst year since 2008.

Its The Medusa Touch of Big Government.

Commodities Versus S&P 500 And The New World Order (Crashing Currencies And Flight To Commodities) The End Of US Dollar Hegemony?

Here is Dvorak’s New World Symphony, an appropriate piece the global turmoil that has taken place after Russia’s invasion of Ukraine.

Here is the ratio of the S&P 500 index against the Bloomberg Commodity Price Index. This ratio is plotted against The Federal Reserve’s balance sheet of assets. Notice the decline in the Commodity Ratio in 2022, even ahead of the Russian invasion of Ukraine.

Global currencies, on the other hand, have been really crushed since the Russian invasion of Ukraine. The Japanese Yen, China’s Renminbi and Europe’s Euro relative to the US Dollar are falling due to a variety of reasons. Covid lockdown in China, Japan’s insistence on monetary easing while other Central Banks are tightening and the Euro with Russia threatening nuclear war.

WTI Crude is back to $100 a barrel. Critical metals are down today related to a slowing global economy and wheat is up 2.75%.

Could it be that US Dollar hegemony is nearly over and commodity-backed currencies are the way of the future?

Panic In (Fed) Needle Park! Mortgage Purchase Applications INCREASE Despite Rapid Rise In Mortgage Rates (FEAR Of Further Fed Taking Away Punchbowl)

Today, the US Treasury 10-year yield exploded upwards by over 12 basis points. With it, the 30-year mortgage yield is above 5%. And MBA Mortgage Purchase Applications are actually increasing.

Today’s bond market summary shows the 10-year Treasury yield up 12.7 basis points. Its the same all over the western world. Asia? Not so much.

Fear of further Fed fireballs coming from removal of the monetary punchbowl.

Going Down! Mortgage Rates Keep Rising, UP 68.75% Under Biden While Mortgage Payments UP 27.25% As Mortgage Applications Decline 6.3% From One Week Earlier

Mortgage applications are going down as expectations of monetary tightening send mortgage rates soaring.

Mortgage applications decreased 6.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 1, 2022.

The Refinance Index decreased 10 percent from the previous week and was 62 percent lower than the same week one year ago.

The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 9 percent lower than the same week one year ago.

Bankrate’s 30-year mortgage rate rose only slightly today to 4.86%, but the 30-year mortgage rate has risen 68.75% and a fixed-rate mortgage payment has risen 27.25% under Biden.

The rest of the story? The adjustable rate mortgages (ARMs) remain at only 6.8% of loan origination volume despite being almost 150 basis points lower in rate (4.90 FRM versus 3.38% 5/1 ARM).

Meanwhile, US Treasury yields rose again with the 10-year yield rising almost 10 basis points … again.

And President Obama spoke at The White House defending his healthcare initiative, The Affordable Care Act. It seems that Nancy Pelosi, Amy Klobuchar, Jame Clyburn and the others were thrilled to see Obama back in The White House. So much so that Biden was abandoned on stage and left to wander aimlessly around.

Can You Spot The Fed’s Policy Errors? The Fed And Fannie/Freddie’s Demise After 3 Fed Policy Errors (We Are Now In PE5!)

The Federal Reserve is not mentioned in the movies “The Big Short” or “Margin Call”, but The Fed’s policy errors played a big role in the demise of Fannie Mae’s and Freddie Mac’s equity prices.

Here is a chart of The Fed’s many policies errors. Let’s start with The Fed lowering rates too fast around the 2001 recession. They pushed their target rate from 6.5% in December 2000 down to 1.75% after one year and then down to 1% (PE1). As home price growth accelerated, The Fed engaged in their second policy error — raising rates too fast resulting in a dramatic cooling of home price growth. Then came Policy Error 3: the dropping of The Fed Funds Target rate from 5.25% in September 2007 to an eventual 0.25% in December 2008.

With the election of President Obama, The Fed engaged in Policy Error 4: keeping The Fed Funds Target rate too low for too long, combined with their massive asset purchase programs (QE).

Finally, The Fed (under Yellen) finally raised The Fed’s target rate ONCE under Obama, but started raising rates once Trump was elected. The Fed also slowed their QE under Trump which as called “Fed policy NORMALIZATION.” Then COVID struck and The Fed engaged in Policy Error 5: keeping rates too low for too long … again while massively expanding their balance sheet.

Fannie Mae and Freddie Mac, the DC mortgage giants were done in by The Fed’s whipsaw Policy Error machine.

Now we are embarking on PE 5: Powell and The Fed Gang not raising rates but signalling that they will. Like the play “Waiting for Godot.”

Weekend Update: Oil, Commodities, Wheat, Soaring In Price, Mortgage Rates Down (Inflation Forecast To Worsen)

This has been a brutal week for consumers. With the Russia/Ukraine conflict raging and Congress seems determined to not allow for additional oil and gas production, and Biden’s anti-fossil fuel edicts still in place, we are seeing dramatic price increases in wheat (UP 89.5% since January 1, 2021), WTI Crude (UP 143% since January 1, 2021), and food stuffs (UP 55% since January 1, 2021).

Bankrate’s 30-year mortgage rate has actually been falling the last several days, which is good for prospective home buyers as the 10-year US Treasury Note yield has been declining.

The USD/Russian Ruble cross is skyrocketing and the USD/Euro is doing likewise. Russians visiting the US will find that their trip is suddenly unaffordable (as do many American citizens will its rampant inflation). As Bruce Willis said in “Die Hard,” “Welcome to the party, pal.”

On Friday, the US Treasury 10-year yield declined 11 bps.

And energy prices continue to soar, particularly UK Natural Gas Futures that rose 19.85% overnight.

The US inflation data will be released on March 10th and the consensus is that February CPI inflation will rise to 7.9% YoY.

But even the latest unemployment rate report (3.8%) is signalling that The Fed should be raising interest rates since it is lower than the Natural Rate of Unemployment or NAIRU (4.44%).

And we have the next Fed policy error on March 16th. The Fed dots plot looks like the glide slope for an aircraft, but the message is that rates will be going up at future meetings.

And just for amusement, I present to you the infamous Hindenburg Omen chart that forecast the 2008/2009 stock market correction. Since that correction, the Hindenburg Omen has been flashing “danger” but the only correction was the COVID-linked correction of early 2020. While the Hindenburg Omen is flashing red right now, The Federal Reserve’s balance sheet (green line) has protected against market corrections. Let’s see what happens if and when The Fed decides to remove the epic monetary stimulus.

Its anyone’s guess as to whether The Fed will actually tighten monetary policy.

Weekend Update: US Q1 GDP Falls To 0.6%, Treasury 10Y-2Y Curve Flattens and Commodity Prices UP 52% Under Biden (Ports Still Clogged)

Russia is still attacking Ukraine and I am still seeing stories about actor/comedian Bob Saget’s cause of death. So now for something completely different.

After last week’s Personal Consumption Expenditures, GDP and new home sales reports, the Atlanta Fed’s GDPNow real GDP estimate for Q1 shriveled to 0.6%.

The US Treasury yield curve? It is flattening rapidly as it typically does prior to a recession.

Commodities? Commodity prices are UP 52% under Biden. And that includes prices dropping slightly from 2/24 to 2/25.

And then there is average port delays in US ports. Hey, I thought Mayor Pete the port Czar was supposed to unclog the ports!

Hopefully this coming week will be better! Particularly for the Ukrainian people.

Russian Stock Market Drops Over 30% As Their 10-year Yield Rises To 15.23%, Ruble Crashes And UK Natural Gas Rises 51% (As Biden Throws The Booklet At Russia)

We now know that Russia has invaded Ukraine and President Biden really threw the booklet at Putin in a speech today. Rather than removing Russia from the SWIFT banking system which would have really hurt Russia’s trade with Europe, he gave a surprisingly cogent speech about the US and NATO agreeing to do … not much. He did warn us that energy prices would rise (which he helped do when he took office) and told energy companies not to gauge consumers.

The reaction in Russia? Their stock market tanked over 30% (not because of Biden’s speech, but because of negative costs of war).

Russia’s 10-year sovereign yield rose to 15.23%.

The Russian Ruble crashed and burned.

UK natural gas prices rose 51% today.

And while 17 Euro nations have negative 2 year sovereign yields, Russia has 2-year sovereign yield of 28.65% which is nothing compared to Ukraine’s 75% 2-year yield (in US Dollars).

The SWIFT system, or Society for Worldwide Interbank Financial Telecommunication, facilitates financial transactions and money transfers for banks located around the world. The system is overseen by the National Bank of Belgium and enables transactions between more than 11,000 financial institutions in more than 200 countries around the world. Removing Russia from the SWIFT system would really hurt Russian trade with Europe. I assume that Europe is scared of soaring energy costs, so probably doesn’t want Russia removed from SWIFT.

Queue Creedence Clearwater singing “Lookin’ Out My … Limo Window.”

My Kuroda! Japan’s Inflation “Miracle” (0.5% Inflation) Despite $5 Trillion BOJ Balance Sheet And -0.10 Policy Rate

My Kuroda!

Forbes has an interesting article on the Japanese “miracle” entitled “The $5 Trillion Inflation Time Bomb No One’s Talking About.”

It’s taken nine years and the Bank of Japan supersizing its balance sheet to the $5 trillion mark, but Asia’s second-biggest economy finally has some inflation.

Officials in Tokyo are realizing the hard way, though, that it’s best to be careful what you wish for as bond yields spike.

Granted, the gains in consumer prices Japan is reporting are negligible compared to those in the U.S. and China. And inflation is still a good distance from the BOJ’s 2% target. Still, the 0.5% rise in consumer prices in January year-on-year is already unnerving the bond market. It followed a 0.8% jump in December and marks the fifth straight month of increases.

The worry is that Japan’s inflation is the “bad” kind. Haruhiko Kuroda was hired as BOJ governor in March 2013 to end deflation. Kuroda unleashed tidal waves of liquidity. That drove the yen down 30%, generated record corporate profits and sent Nikkei 225 Average stocks to 31-year highs.

Despite a staggering balance sheet with a -0.10 bps policy rate, Japan has only 0.5% inflation.

And Japan’s yield curve is negative at 3 year tenor and less.

How is it that Japan has virtually no inflation with negative rates but the USA has 7.5% inflation with a 0.25% target rate? Could it be the USA undertook massive fiscal spending related to COVID and reduced energy sources in an effort to go “green” that led to 7.5% inflation??

My Kuroda!

Good governments don’t go on wild, wasteful spending sprees and shut off energy sources like the Biden Administration and Congress.