Economic Rollerball! US Regional/Small Bank Shares Drop After Moody’s Cuts Ratings, Warns on Risks (Bidenomics Favors Large Firms, Not Small Firms)

Rating company downgrades 10 lenders, citing dimmer outlook
U.S. Bancorp, BNY Mellon among six firms facing potential cuts

Not surprising given that Bidenomics is nothing more than giving big bucks to big corporations, including banks. Regional/small banks? Not so much.

US bank stocks declined after Moody’s Investors Service lowered its ratings for 10 small and midsize lenders and said it may downgrade major firms including U.S. Bancorp, Bank of New York Mellon Corp., State Street Corp., and Truist Financial Corp.

Higher funding costs, potential regulatory capital weaknesses and rising risks tied to commercial real estate are among strains prompting the review, Moody’s said late Monday.

“Collectively, these three developments have lowered the credit profile of a number of US banks, though not all banks equally,” the rating company said.

Moody’s Sees Problems Ahead for US Banks

Rating company issues raft of downgrades, outlook

Source: Moody’s

Shares declined for firms that had their ratings cut, including M&T Bank Corp., down 3.2%, and Webster Financial Corp., which lost 1.3%. Moody’s also adopted a “negative” outlook for 11 lenders, including PNC Financial Services Group, Capital One Financial Corp. and Citizens Financial Group Inc. Among those, PNC was down 2.2% and Capital One lost 2.4%.

Investors, rattled by the collapse of regional banks in California and New York this year, have been watching closely for signs of stress in the industry as rising interest rates force firms to pay more for deposits and bump up the cost of funding from alternative sources. At the same time, those higher rates are eroding the value of banks’ assets and making it harder for commercial real estate borrowers to refinance their debts, potentially weakening lenders’ balance sheets.

“Rising funding costs and declining income metrics will erode profitability, the first buffer against losses,” Moody’s wrote in a separate note explaining the moves. “Asset risk is rising, in particular for small and midsize banks with large CRE exposures.”

Some banks have curbed loan growth, which preserves capital but also slows the shift in their loan mix toward higher-yielding assets, Moody’s said.

Banks that depend on more concentrated or higher levels of uninsured deposits are more exposed to these pressures, especially banks with high levels of fixed-rate securities and loans.

Deposits are declining as The Fed hikes rates.

So, Bidenomics reminds me of the film “Rollerball” where big corporations run the government and run a game akin to Rome’s gladiator fights.

“Pain Trade” Points To A Steeper US Yield Curve As Fed Remittances To US Treasury Soar (The Cost Of Bidenomics’s BIG Policies)

Yes, Bidenomics is an FDR-type massive expansion of government into the private sectors requiring massive Federal spending … and inflation. Except that it beenfits anything BIG and powerful to the detriment of the small and weak.

(Bloomberg) Friday’s jobs data sparked a relief rally in bonds and a flatter yield curve, but the pain trade is still for higher yields and a steeper curve – the lesser-spotted bear steepener – with this week’s CPI a potential catalyst.

Last week was a turbulent one for bonds, but the continued softening in payrolls data served to remind the market that supply and fiscal-profligacy fears have to be counter-balanced with an economy that’s in its late-cycle stages.

After the data, 10-year yields took the elevator back down to sub-4.05% after briefly going above 4.20%. They have since clambered back to 4.12%, but their next cue is likely to come from Thursday’s CPI report. Headline is expected to nudge back up to 3.3% (from 3% last month), mainly due to base effects, and core is expected to hold steady at 4.8%.

Still, stronger-than-expected data probably means higher yields in a market more acutely alert to inflation (and therefore supply) risks. As with last week, term premium would likely drive the move, meaning a curve steepening. After relentlessly flattening for the last two years, the pain trade is for a steeper curve. Implicit positioning of speculators from the COT report shows there is a heavy skew to a flatter curve.

The negative carry for most flatteners remains punitive (for 2s10s USTs it’s ~83bps over a year), but the large upside potential from supply/inflation worries and the covering of positions begins to make that look less insurmountable.

Finally, the Bundesbank’s decision to stop paying interest on domestic government deposits – which initially pushed short-term German bonds higher this morning – highlights the broader issue of central banks paying interest on reserves when they are superabundant.

In the days of QE and 0% interest rates, the ECB and Fed at al. remitted money to their treasuries from the income on their bond portfolios.

But now that is reversed as bond income is dwarfed by the cost of paying interest on trillions of bank reserves. Take the Fed, whose debt to the Treasury is now accruing at over $2 billion each week.

This is something that will become more politically contentious, especially as economies continue to slow and cost-of-living pressures bite further.

Bidenomics. The takeover of the US economy by BIG corporations, BIG labor unions, BIG tech, BIG pharma, BIG defense, BIG healthcare, BIG media, BIG banks, BIG tech, BIG … Well, anyting that is BIG and powerful that can buy influence in Congress and the Administration. Except BIG energy which lost out to BIG Progressive DC thinktanks.

Leading to BIG inflation!

But I feel good! Even though inflation expectations are soaring again as gasoline soars again.

Bidenomics! M2 Money Velocity Rises … To Almost Pre-Covid Levels, Fed Balance Sheet Remains Above $8 TRILLION (Biden Energy Secretary Secretly Consulted Top Chinese Energy Official Before SPR Release, Sales To Hunter Biden-Linked Chinese Energy Giant)

I wonder which season the US economy is in, according to President “Chance the Gardener” Biden.

If you believe the recovery talk (from the reckless Covid economic and school shutdowns of 2020), all is well in the (economic) garden. For example, M2 Money Velocity (GDP/M2), is almost back to where it was just prior to the 2020 Covid outbreak and resulting government-caused recession. M2 Velocity was 1.425 in Q4 2019 and was 1.289 for Q2 2023. But ever since The Federal Reserve became hyper intervention in the economy (let’s just start with Bernanke’s massive intervention in late 2008 (red line) and the Fed balance sheet expansion), and it was increased dramatically during the Covid shutdown. And is STILL above $8 trillion!

Before Bernanke and the financial crisis of 2008-2009, M2 Money Velocity was above 2.0. But it has been below 2.0 ever since The Fed’s intervention in 2008.

On the energy front, US Energy Secretary Jennifer Granholm, whose catastrophic handling of US energy policy will be one of the most memorable and dire consequences of the Biden era, engaged in multiple conversations with the Chinese government’s top energy official just days before the Biden administration announced it would tap the Strategic Petroleum Reserve (SPR) to combat high gas prices in 2021, the same China whose Hunter Biden-linked energy giant Unipec, which we previously learned had bought millions of barrels from the SPR release.

Granholm called China National Energy Administration Chairman Zhang Jianhua, a longstanding senior member of the Chinese Communist Party, for a half-hour one-on-one conversation on Nov. 21, 2021. Granholm’s calendar also shows an earlier phone call had been scheduled with Jianhua for Nov. 19 but a rep for the former Michigan governor said the first call never took place. Then, on Nov. 23, 2021, the White House announced a release of 50 million barrels of oil from the SPR, the largest release of its kind in U.S. history at the time.

According to Fox News, Granholm’s previously-undisclosed talks with China National Energy Administration Chairman Zhang Jianhua — revealed in internal Energy Department calendars obtained by Americans for Public Trust (APT) and shared with Fox News Digital — reveal that the Biden administration likely discussed its plans to release oil from the SPR with China before its public announcement in the US: yes, China’s Communist Party learned what Biden would be doing before the US did.

While Biden/Granholm are merrily draining the Strategic Petroleum Reserve, we see that West Texas Intermediate Crude Oil (Cushing) prices are up 54% under Biden and regular gasoline prices are up 58%.

All is sort of well in the garden because The Federal Reserve still has its massive interventionist foot on the gas pedal. Yet, America is on an economic suicide course with its green energy hype.

Frankly, Biden talks like Chance The Gardener from the film “Being There.” Except that Chance the Gardener is a nice person and Biden is reputed to have been the nastiest member of the US Senate. Not to mention the stupidest member of the US Senate. Although I don’t think Chance the Gardener would have taken millions in bribes from foreign countries like China and Ukraine.

Biden The Gardener should be Biden’s re-election slogan! Of course, Chance the Gardener could walk much better than Biden with his dementia shuffle. And Chance was a great gardener, all Biden knows how to do is sell the “Biden Brand” of political influece peddling to foreign countries.

Bidenomics Falsehood: Biden “Created” 400k Jobs Per Month While Trump Lost Jobs (Actually Trump Averaged 1.56 Million Jobs Added Post-Covid While Biden Averaged 400k)

“One of the most cowardly things ordinarily people do, Is to shut their eyes to facts.” – C.S. Lewis

Okay, we know Biden lies constantly and misrepresents facts (hey, he is a politician like Adam Schiff (D-CA). But this graphic praising Bidenomics with Biden having created the most jobs (average per month) since Carter (notice they left out Democrat darling Jimmy Carter!!!). In this absurd graphic, Biden wins by “creating” over 400k jobs per month while Trump lost jobs per month. Riveting … except that it is completely misleading.

Actually, the US economy added 12.53 million jobs after April 2020 (Trump) while Bidenomics created took 2 1/2 years to add 12.56 million jobs. So, Biden took over twice as long to create jobs after Covid than it did under Trump. Simply opening the economy and schools produced that magical claim by Biden. And the National Teacher’s Union and Randi Weingarten worked with Fauci to orchestrate shutting down schools. Blaming Trump for local governments shutting down the economy is pure bunk.

12.53 millions jobs added / 8 months = 1.56 million jobs average per month. Biden? 12.56 million jobs added / 30 months = .43 million jobs average per month. So, Trump averaged more than 3x the job growth post-Covid than Biden.

Here is the “glories of Bidenomics” from the White House. As Biden likes to say, pure malarkey!

I wonder if the Democrat Party is a rebirth of New York City’s Tammany Hall corrupt political movement of the 1800s? Is Biden Boss Tweed? Or is Obama Boss Tweed with Biden as his nasty, dimwitted henchman?

In 1871, Thomas Nast denounces Tammany as a ferocious tiger killing democracy. The image of a tiger was often used to represent the Tammany Hall political movement. Sounds an awful lot like today’s Democrat Party.

Perhaps a fez for Democrats?

US Gasoline Prices Surge Again 6.5% Since 7/23/2023 (Gas Prices UP 60% Under Bidenomics As Strategic Petroleum Reserve DOWN -46% Under Corrupt Joe)

Josef Stalin of the old Soviet Union used to be called County Joe. But Biden has so many possible nicknames: Corrupt Joe, Pay-for-play Joe, Sleazy Joe, Bully Joe, etc. How about Green Joe?

Green Joe (or the Nasty Green Giant?) along with his energy goon Jennifer Granholm, have drained the strategic petroleum reserve by 46% while gasoline prices have soared 60% under Bidenomics.

Gasoline prices have rise over 6.5% just since 7/23/2023.

Trump wants to drain the swamp, Biden/Granholm want to drain the strategic petroleum reserve so we can’t go back to fossil fuels. Biden and Granholm as Fossil Fools

Energy Secretary Jennifer “The Evil Pixie’ Granholm demostrating how she will refill the strategic petroleum reserve. Which she never will, of course.

July Jobs Report Disappoints! Only 187k Jobs Added, Wage Growth Of 4.4% Still Lower Than Core Inflation Rate Of 4.8%, Rent CPI (June) Is Still Roaring At 7.8% YoY (May and June Figures Revised Sharply Lower)

The Federal Reserve is watching July’s jobs report carefully. According to the Bureau of Labor Statistics (BLS), the US economy added 187k jobs in July, less than the expected 200k.

US average hourly earnings continued at 4.4% year-over-year (YoY). However, the last core inflation reading was 4.8% YoY, so real wages continue to decline.

Rent CPI for June was 7.8% YoY.

Here is the rest of the story.

In keeping in with Biden admin’s penchant of constantly fabricating data, both May and June numbers were revised sharply lower of course:

May revised down by 25,000, from +306,000 to +281,000
June was revised down by 24,000, from +209,000 to +185,000.

To show just how ridiculous the data manipulation is, consider this chart – every monthly payrolls report in 2023 has been revised lower.

And on the disappointing jobs report and massive revisions of past data (the REAL inflation plaguing the nation is The Federal goverment lying about data), the US Treasury 2 year yield dropped like Biden on a flight of stairs.

Here are the faces of Washington DC. Lies, corruption, government for sale to highest bidder, cynacism, oppression, fear mongering, etc. This is Biden’s legacy.

Bidenomics! Ford Will Lose $4.5 Billion On EVs This Year, Up From $2.1 Billion Last Year (Ford DOWN -48% Since January 2022, GM DOWN -40% As Fed Withdraws Stimulus)

Bidenomics, the term for “Government Gone Wild! in terms of spending and EPA regulations, is a disaster for the US middle class and low wage workers. Even the 1% are now hurting if bought into Biden’s green lunacy. Ford is now down -48% since January 14, 2022 as The Fed started raising rates to fight inflation. GM is down “only” -40%.

Ford is slated to lose $4.5 billion from its EV segment this year, a $1.5 billion larger loss than the company had expected.

So far this year, the division has lost $1.8 billion and this year’s $4.5 billion loss figure blows away last year’s $2.1 billion loss. Ford also announced that its electric F-150 pickup trucks will undergo a price cut, according to Fox.

Ford beat earnings on Thursday and reported adjusted EPS of $0.72, beating expectations of $0.54. It posted revenue of $45 billion and adjusted EBITDA of $3.8 billion, above estimates of $3.15 billion.

The company also raised its guidance, forecasting adjusted EBIT of $11 billion to $12 billion from $9 billion to $11 billion. The company is now guiding for free cash flow of $6.5 billion to $7 billion, from $6 billion.

But reality has sunk in about the company’s comments regarding its EV production schedule and spending plans. Price cuts in the industry, led by Elon Musk and Tesla, have thrown Ford’s production targets into a tailspin and Morgan Stanley noted on Friday morning that “major changes to the EV strategy” could be necessary, according to a wrap up by Bloomberg.

Ford now says it is “throttling back” on plans to ramp up EV production, the wrap up said. It blamed the price war for EVs as part of the cause and told shareholders it would need another year to meet its target of 600,000 EVs produced annually.

Ford CEO Jim Farley said late last week: “The shift to powerful digital experiences and breakthrough EVs is underway and going to be volatile, so being able to guide customers through and adapt to the pace of adoption are big advantages for us. Ford+ is making us more resilient, efficient and profitable, which you can see in Ford Pro’s breakout second-quarter revenue improvement (22%) and EBIT margin (15%).”

CFO John Lawler said yesterday that the company “has ample resources to simultaneously fund disciplined investment in growth and return capital to shareholders – for the latter, targeting 40% to 50% of adjusted free cash flow,” Bloomberg added. He now says Ford is “not providing a date” for producing 2 million EVs per year, which was previously the company’s target for 2026.

Ford’s inability to compete with Tesla was noted earlier this year in a piece titled Tesla ‘Weaponizes’ Price-Cuts To Crush EV Competition.

Is the company pulling an Intel and “kitchen sinking” its guide for the year, or has Elon Musk’s price cuts over at Tesla really put the legacy automaker on the ropes? Ford reports again on October 26, where we’ll get our next glimpse into its continuing operations this year.

Tesla is down -26% since January 14, 2022. And showing a nice turnaround!

Today, the 10-year Treasury yield is up 11 basis points.

Government Gone Wild!

Bidenomics? US Treasury Rates Rise As US Fiscal Deficit Back To Financial Crisis Levels As Tax Revenues Collapse

US Treasury yields are up today along with 30-year mortgage rates. There is a lot happening in bond markets.

It’s been a tumultuous week for yields, with the Bank of Japan’s policy tweak, and the Treasury increasing its funding needs. But Fitch was the weatherman with its US downgrade, telling us about the downpour we can see for ourselves just by taking a glance at the fiscal data. In short, the US faces a perfect storm of a vertiginous fiscal deficit, a near-historically swollen debt load, ballooning interest-rate costs and collapsing tax revenues.

First, the deficit. It’s close to historical wides, bigger than it’s ever been outside of a recession, and almost as wide as it was in the depths of the GFC. It’s the largest in the world in GDP terms, and it is currently heading in the wrong direction. This heaps more pressure on the government debt-to-GDP level, already uncomfortably high at 112%.

Second, tax revenues. These have seen almost their largest annual fall ever, in an economy that’s supposed to be growing at 2.4%.

And then there’s rising interest-rate costs. The total interest expense as a percentage of tax revenue is expected to rise sharply in the next year or two, and make new highs by the end of the decade. However, these CBO forecasts should be taken with a grain of salt as they are based on a 10-year yield of only 3.8% (the ten-year average has been higher than that in every decade bar the 2010s and 2020s).

My former student at University of Chicago’s MBA program, Kevin Smith of Crescat Capital, has this charming chart of state and local income tax receipts collapsing.

There is a view the Treasury is already implementing YCC, based on the fact it has been skewing its issuance towards bills and away from coupons. But issuing more bills is simply the easiest and fastest way for the Treasury to replenish its account at the Fed (the TGA). It was run down to almost zero in the lead-up to the debt-ceiling limit, and has now risen to over $500 billion.

This level of bill issuance is not unusual. The Treasury has an implicit target of about 20% for the amount of bills outstanding as a percentage of total debt. As we can see from the chart below, bills have often been more than 20% of debt outstanding over the last 30 years. Moreover, the Treasury announced this week it was raising its coupon-issuance amounts.

According to the stealth YCC thesis, less longer-dated Treasury issuance implicitly caps longer-term yields, but this has not historically been the case. As the chart above shows, the yield curve typically steepens – not flattens – when there is greater bill issuance – the opposite of what is desired by YCC.

We see the same relationship if we look the duration of US government debt outstanding. When the average duration falls – as it would if issuance is skewed toward bills – the yield curve tends to steepen. The current average duration held by the public is consistent with a steeper, not a flatter, yield curve.

This sounds counter-intuitive. If issuance drives yields, then more issuance at the front-end of the curve versus the longer end – equating to a fall in duration – implies the yield curve should flatten.

But the fact the relationship is the other way implies it’s likely that demand is the more dominant driver of yields in the medium term. There is ready-made demand for bills, from MMFs, etc, so when supply increases, demand rises to meet it, suppressing the yield-curve impact.

It’s thus hard to argue the Treasury is engaging in yield curve control. But that does not detract from the rising possibility it will need to be implemented in some shape or form eventually.

Banks and the Fed are reducing their Treasury holdings, while foreigners now collectively own about $5 trillion less USTs – about 10% – than they did in 2021. At the same time the “Treasury put” means large fiscal deficits are likely to become a feature, not a bug. That means inflation is likely to become embedded.

Fiscal profligacy and elevated price growth are a combustible mix and a road to prohibitively high yields via rising term premium. Yield capping thus starts to look like the endgame.

How it’s done is another matter, whether it’s the Fed co-opted to cap yields as it was in WWII, Treasury buybacks, or financial repression, whereby domestic institutions are forced to hold more government debt. Whatever way, at some point yield curve control in the US is becoming increasingly likely – by stealth or otherwise.

But never fear! Janet “Too Low For Too Long Creating Asset Bubbles” Yellen is still US Treasury Secretary.

Bidenomics! Biden Blames USA Downgrade On Trump (But Economy Added 12.53 Million Jobs After Covid Shutdowns Ended Under Trump While It Took 2 1/2 Years For Bidenomics To Add 12.56 Million Jobs)

Bidenomics is where the Attorney General Garland gives Hunter Biden blanket amnesty and arrests Biden’s Presidential opponent. Welcome to the United Venezuelan States of America!e

The new regime talking points are out – namely that Fitch downgraded the US credit rating from AAA to AA+ on Tuesday because of MAGA Republicans and all things Trump.

But while Fitch cited “the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers” as reasons for the downgrade, the Biden administration is of course blaming Donald Trump and his supporters due to one portion of Fitch’s explanation: “a steady deterioration in standards of governance over the last 20 years,” and that “repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.”

Then on Wednesday, Fitch’s Richard Francis told Reuters that the downgrade was ‘due to fiscal concerns and a deterioration in U.S governance as well as polarization which was reflected in part by the Jan. 6 insurrection.’

“It was something that we highlighted because it just is a reflection of the deterioration in governance, it’s one of many,” he said, adding “You have the debt ceiling, you have Jan. 6. Clearly, if you look at polarization with both parties … the Democrats have gone further left and Republicans further right, so the middle is kind of falling apart basically.”

And so of course, the Biden administration is blaming Trump.

“This Trump downgrade is a direct result of an extreme MAGA Republican agenda defined by chaos, callousness, and recklessness that Americans continue to reject,” said Biden re-election campaign spokesman Kevin Munoz. “Donald Trump oversaw the loss of millions of American jobs, and ballooned the deficit with the disastrous tax cuts for the wealthy and big corporations.”

Ah, so now it’s the Trump downgrade™

Meanwhile, White House spox Karine Jean-Pierre also blamed Trump on Tuesday, saying that the White House “strongly” disagrees with the decision, adding “it’s clear that extremism by Republican officials — from cheerleading default, to undermining governance and democracy, to seeking to extend deficit-busting tax giveaways for the wealthy and corporations — is a continued threat to our economy.”

Former Clinton Treasury Secretary Larry Summers called the decision “bizarre and inept,” while former Obama economic advisor Jason Furman called the move “completely absurd.”

On Wednesday, CNBC wheeled out Jared Bernstein, chair of Biden’s Council of Economic Advisers and former Obama official, who similarly blamed Trump.

“I think again the timing issue is is Jermaine here. The deficit went up every year under President Trump. The debt to GDP ratio rocketed under President trump. It has stabilized admittedly at a higher level under this president but we’re doing all we can to try to ameliorate those tensions,” he said.

Bernstein reflected on the “cognitive dissonance” he felt at the downgrade amid the success of ‘Bidenomics’ commenting that “creditworthiness deteriorated significantly under President Trump for good reasons… and under President Biden, it started to track back up…”

Except that’s the exact opposite of what happened. According to the 100% non-partisan “market”, the creditworthiness of US Treasury debt improved almost constantly under President Trump and worsened dramatically almost immediately upon President Biden’s inauguration:

Treasury Secretary Janet Yellen said that the downgrade was “arbitrary and based on outdated data,” adding “Today, the unemployment rate is near historic lows, inflation has come down significantly since last summer, and last week’s GDP report shows that the U.S. economy continues to grow.”

CNN also blamed Trump, penning the headline: Fitch downgrades US debt on debt ceiling drama and Jan. 6 insurrection.”

The stupidity on CNN and Jared Bernstein are appalling. True, the media and Biden Administration are terrified of losing the 2024 Presidential election, but outright lies and misrepresenation are wrong no matter what.

But the claims that the US was downgraded because Trump’s economy lost miilions of jobs is ridiculous.

Bidenomics and massive Federal spending is the cause for the downgrade. Not Trump.

Bidenomics! Mortgage Demand Decreases 3.0% From One Week Earlier, But Purchase Demand Down 26% From Last Year, Down -45% Under Biden While Mortgage Rates Are UP 134% (US Interest Expenses Surged By 50% In Past Year To Nearly $1 Trillion On Annualized Basis)

Inflation under Biden has been very painful for the US middle class and low wage workers. That inflation has resulted to surging mortgage rates thanks to The Fed’s counterattack.

The result? Mortgage rates are up 134% under Bidenomics, while mortgage purchase demand is down -45% since Biden was selected. And mortgage refinancing demand is down a staggering -90%!

Mortgage applications decreased 3.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 28, 2023.

The Market Composite Index, a measure of mortgage loan application volume, decreased 3.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 3 percent compared with the previous week. The Refinance Index decreased 3 percent from the previous week and was 32 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 26 percent lower than the same week one year ago.

US interest expenses have surged by about 50% in the past year, to nearly $1 trillion on an annualized basis.

Look at the share of net worth by the top 1% as Treasury borrows more money.

Oddly, Biden is not talking about about putting US government policies up for sale to the highest bidders. But don’t worry. Biden is the King of Corruption in the District of Corruption (Washington DC).