Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
My investments are wasting away in Bidenville! Looking for my lost 401k value.
The Dow Jones Industrial Average was DOWN -500 points on Friday as The Federal Reserve continues their fight against inflation (green line).
If fact, since January 4, 2022, the Dow is down -22%.
Negative wage growth, relentless inflation, collapsing 401ks, we are wasting away in Bidenville.
Hey Joe! Where is the US economy? With Jackie Walorski??
Sink The Bismarck! Or at least sink the German economy.
Between going green and the war in Ukraine, Germany is seeing economic distress (high inflation) and a -7.89% Real 10yr yield. At least the US is seeing “only” a -4.43% REAL 10yr Treasury yield.
Like the US, I wonder who in Germany studied game theory? That is, going green leaves nations vulnerable to foreign nations oil and natural gas supplies. Like Russian natural gas.
The Nash equilibrium is a decision-making theorem within game theory that states a player can achieve the desired outcome by not deviating from their initial strategy. In the Nash equilibrium, each player’s strategy is optimal when considering the decisions of other players.
Unfortunately, the US and Germany have deviated from the initial strategy are are paying dearly with skyrocketing energy prices. Particularly as we enter the winter season.
So, who blew up the Nordstream natural gas pipeline going from Russia to Germany?
I can take a guess.
We are living in an inverted (bond) world!
19 nations now have inverted 10yr-2yr yield curves.
And housing inventory for sale growth is soaring out West and in Tennessee?
At least Ohio is seeing a modest increase in housing inventory for sale.
On a parting note (before I watch the Ohio State Buckeyes annihilate the Rutgers Scarlet Knights tomorrow at 3pm EST, reverse repos parked overnight at The Fed just hit an all-time high. Apparently, banks don’t believe Janet Yellen’s inflation is transitory mumbo-jumbo.
Bidenflation and The Fed’s counter-attack has caused considerable damage to the housing and mortgage markets.
Today, the University of Michigan consumer sentiment indices were released for September. Of note, buying conditions for houses remained in the tank.
As The Fed tightens, the entire range of Agency MBS TBA (to be announced) are under $100.
For example, the FNCL 2.5% TBA is now 84-17. And falling like a paralyzed falcon.
Here is Brainard with Fed Chair Jerome “Foul Owl” Powell, the dynamic duo of crashing markets.
In addition to global equities taking a massive hit, cryptocurrencies Bitcoin and Ethereum have fallen -72% since November 2021 as The Fed (aka, The Sugar Shack) tightens interest rates.
$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%.
After yesterday’s dismal Q2 report of -0.6%, I fully anticipate a recession. Ain’t this a kick in the … head.
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.
Bond volatility is increasing.
The US Treasury 10-year yield was down -20 basis points yesterday and is up +10 basis points today. This is the Fed’s Rollercoaster effect.
The Dow is down another 400 points today as The Fed’s Sugar Rush is ending. Perhaps The Federal Reserve main building in Washington DC should be renamed “The Sugar Shack.”
In related news, apparently the Biden Administration is going to replace Treasury Secretary Janet Yellen with … anybody else??
Meanwhile I will have a bottle of wine to kill the pain of inflation and Fed tightening.
When temporary seems permanent?
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.
Without the “sugar rush,” pending home sales are dying.
Speaking of a sugar crash, risk parity ETF is down 32% from high.
The culprit? The Federal Reserve’s Panzer onslaught! With its leader, Heinz Wilhelm Guderian Jerome Powell.
The Dow is up 500 points today on the expectation that The Fed will stop tightening in the face of global chaos.
As UK 10yr yields fall -50 BPS!! And US T-10 yield drop -20.8 basis points.
Here is a photo of The Federal Reserve attacking American consumers to reduce inflation caused by Biden’s green energy policies and insane spending by Biden/Pelosi/Schumer.
Will Janet Yellen and Jerome Powell be awarded Panzer assault medals for 1) leaving monetary stimulus too large for too long then 2) suddenly tightening stimulus?
It is going to be a bad day in markets. As I often mentioned in my classes, any 10 basis point shift in Treasury yields is a big deal.
On the bond side, the US Treasury 10-yr yield fell -12.2 basis points as investors run for cover. The UK 10 yr yield fell -46.6 basis points.
On the commodity side, we see WTI crude up 1.12%, heating oil up 1.92% and … UK Natural Gas Futures up 16.37%.
The natural gas leak in the Baltic Sea might have something to do with global jitters.
Here is a map of the gas leak.
I will have to turn on “The View” to find out who sabotaged the natural gas pipeline. /sarc
No, I don’t think Biden yelling at gasoline companies to lower prices has anything to do with market turmoil today. Its just another day under Joe Biden.
Confounded Interest - Anthony B. Sanders 
You must be logged in to post a comment.