Inversion: Russia’s Sovereign Yield Curve Inverts As Technical Default Occurs (Russia’s Foreign Bond Sinks To 21.75) Biden Releases 1 1/2 Days Of Strategic Oil Reserves To Lower Prices

The US still has a steeply upward-sloping yield curve, but Russia has the exact opposite: a steeply downward-sloping or inverted yield curve.

Here is a comparison of the US Treasury Actives curve (steeply-upward sloping) compared to Russia’s sovereign curve (steeply-downward sloping).

Russia’s technical default on international bonds has led to its 5.25% coupon international bond (denominated in Euros) to plunge from 131.6 in September 2022 to only 21.75 this morning.

Commodity prices? Commodity prices saw the biggest one-day gain in 13 years on Tuesday.

Between Biden’s anti-fossil fuel executive orders and the Russian invasion of Ukraine, gasoline futures are up 126% since the start of January 2021.

Biden is tapping the US strategic oil reserves releasing 30 million barrels. Unfortunately, this amounts to only 1 1/2 days of US oil consumption. Instead of “Release the Kraken!”, Biden is releasing a Petit Basset Griffon Vendéen. Woof.

This reminds me of “Does your dog bite?”

Powell Backs A Quarter-point Rate Hike In March Meeting, 10Y Treasury Yield Rise By 11 BPS, UK Natural Gas UP 35% (Taylor Rule Suggests A Target Rate Of 13.40%)

Like the old E.F. Hutton ads, when Fed Chair Jerome Powell talks, people listen.

Stocks rose, while bonds fell after Jerome Powell said he was inclined to back a quarter-point U.S. rate hike in March to combat inflation that is “too high.”

In a broad-based equity rally, financial and industrial companies led gains in the S&P 500. The two-year Treasury yield — which is more sensitive to imminent Federal Reserve policy moves — was near 1.5%. The Fed chief also noted that the central bank is prepared to be more aggressive if inflation is more persistent than expected, while adding that he’s open to “series of rate increases” in 2022. Investors also assessed the latest geopolitical developments, with oil paring gains after earlier topping $110 a barrel.

WTI Crude futures are up to $107.05 a barrel.

Natural Gas (UK) rose 34.58% to 100.28. Wheat is 7.62% to $1,059.

The 10-year Treasury yield jumped 11 Basis Points on Powell’s comments. And Eurozone yield are up nearly the same amount.

Powell signalling a more moderate rate expansion led to the Dow rising over 500 points (up 1.65%).

Based on core PCE growth of 5.21%, the Mankiw specification of the Taylor Rule model infers that The Fed Funds Target rate should be … 13.40%. Since The Fed’s target rate is only 25 basis points, a 25 basis point increase is modest indeed.

Mortgage rates are down slightly today, but you can see the separation between The Fed’s target rate and the 30-year mortgage rate.

My State Of The Union Rebuttal: WTI Crude UP 126% Since Jan 1, Gasoline Prices UP 61% (GDP Near Zero, Inflation Still Rising)

President Biden is giving his first State of the Union address tonight with rebuttals from Iowa Governor Kim Reynolds and The Squad’s Rashida Talib (yes, a Republican is giving the rebuttal to Biden’s SOTU speech, and a Democrat is rebutting a Democrat President??)

Let’s look at a short list of Biden’s economic triumphs. I will ignore Biden’s catastrophic Afghanistan withdrawal and his weak response to the Russian invasion of Ukraine.

If you want higher oil and gasoline prices, Biden is a tremendous success.

If you like rampant government spending, then Biden is your man. Home price growth is up to 18.84%, making housing unaffordable for millions of American families.

Wages? They are up, but declining after 7.5% YoY inflation. And GDP is almost zero.

Biden can only point to rising average hourly wages, but not REAL average hourly wages.

Inflation? Highest in 40 years, due to excessive Federal spending, The Fed’s crazy printing and Biden’s energy mandates.

I am scratching my head to think of accomplishments for Biden to mention in the SOTU. But I am sure that he will say something positive. Otherwise, Biden’s SOTU speech should be the Billy Preston song “Nothing from Nothing.“

Oh Atlanta! Atlanta Fed GDPNow Q1 Forecast Drops To 0.631% With REAL Wage Growth At -2.38% (Coal Is SOARING!)

Oh Atlanta! Fed, that is.

The Atlanta Fed GDPNow Q1 real-time GDP index fell to 0.631%. And the Atlanta Fed REAL wage tracker fell to -2.38 growth.

Volatility reigns supreme on the energy front (look at NYM Dubai crude AVAT!) And coal is up 18.68% this morning.

Here is a map of gas and oil pipelines in Europe.

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.

Putinesca! European Markets Tank, Energy Prices Explode, US 10Y Treasury Yields Plunge 13.3 BPS After Russia Invades Ukraine (Russian 5Y CDS Soars To 917)

I admit, I follow market data to get a signal of what is happening to mortgage rates and I got one. With Putin and Russia invading Ukraine, markets are in turmoil

WTI Crude is up 8.14% this morning, Brent Crude is up 8.45% and NBP (UK) Natural gas is up 40%.

Europe is having a bad day equity market-wise. Eurostoxx 50 was down 4.92%. The US Dow is braced for a 2.5% opening.

Now to bonds. The 10-year Treasury yield is down 13.3 bps this morning. Sweden and UK are down 10 bps as well.

How about the new Russian front? Ukraine’s 10y yield rose 691.0 bps while Russia’s 10Y yield rose 435 bps.

Russian 5Y Credit Default Swaps (CDS) leaped to a Greek-like 917.

Well, it looks like the sanctions imposed by Winken (US VP Harris), Blinken (US Secretary of State) and Nod (US President Biden because he always looks half-asleep) apparently didn’t work as intended.

Putin finally made up his mind.

Fed Monetary Stimulytpo Now Almost 14 Years Old And Still Running Strong! Top 1% Share Of Net Worth Now Higher Than Bottom 50%, Income Inequality Getting Worse

It has been almost 14 years since The Federal Reserve under Ben Bernanke unleashed zero interest rate policies (ZIRP) and quantitative easing (QE) in late 2008. And Fed monetary stimulypto is still running strong after almost 14 year of monetary mismanagement and asset bubble stimulation.

The Federal Reserve under Bernanke and Yellen raised their target rate exactly once under President Obama before the election of Donald Trump. After Trump was elected, The Fed raised their target rate 8 times, lowered it 5 times. There have been no rate hikes under Biden.

There seemingly never-ending Fed monetary stimulus has resulted in the top 1% seeing their share of total net worth soar relative to the share of net worth of the bottom 50%. But note that starting in 2014 just as The Fed was engaged in QE 3. But the real divergence occurred after The Federal government heaped trillions in fiscal stimulus on top of the skyrocketing monetary stimulus.

In terms of income inequality (as measured by the GINI coefficient), it just keeps getting worse and worse.

Let’s see if The Fed actually delivers by reducing their monetary stimulypto.

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.

Mortgage Rate Increases Subside As US Economy Slows, Yield Curve Flattens While Russian/Ukraine Tensions Grow

As US/Russian tensions grow over Ukraine, The Federal Reserve may be forced to postpone or reduce planned rate increases and balance sheet trimming.

But in addition, we see US GDP slowing to near zero (1.285%) as the US Treasury 10Y-2Y yield curve has flattened to 41.684 BPS. The good news? Bankrate’s 30Y mortgage rate increases have slowed to 4.19%.

On a different note, I noticed the Chicago Bulls logo when turned upside-down looks like a space alien violating a crab.

Simply Unaffordable! How The Federal Reserve And Federal Government Are Making Housing Unaffordable For Millions (Rents Growing At 18%, Home Prices Growing At 19%, REAL Wages Growing At … -1.80%)

The Federal Reserve and Federal government are helping make housing simply unaffordable!

In January 2020, just prior to the COVID outbreak in the US, the Case-Shiller national home price index was growing at 4% YoY, the Zilliow rent index (all homes) was growing at 2.92% YoY and REAL average hourly earnings were growing at 0.52% YoY.

Then COVID struck and the Federal government dumped trillions of dollars of stimulus into the economy and The Federal Reserve massively expanded its balance sheet. Now the US has home prices growing at a 18.8% rate, rents (for those who can’t afford to purchase a home) growing at 14.91% and REAL hourly earnings growing at -1.80%.

The site Apartment List has an even bleaker view of rent growth, with rents in January 2022 having grown by 18% YoY.

Now that COVID is fading, we see New York City rents growing at 33.5% YoY followed by Florida and Arizona cities at 29.3% and higher rates. Irvine CA is seventh at 28%. The slowest growing city is Oakland, CA is growing at only 0.5%.

So, The Federal Reserve and Federal government have created their version of a horror film with even rents blowing out of control. And it’s getting weirder as inflation blows out of control.