Well, with Jerome Powell And The Fed tightening monetary policy (about half way there!), we have seen competitors to the US Dollar Bitcoin and Gold have soared since September 26, 2022. Bitcoin is up 61%, Gold is up 18% and the US Dollar is down -10%.
Mortgage rates hover around 7% as the US Treasury 10-2Y curve inverts to over -100 basis points with M2 Money growth crashed and burned.
I could have used 3 shades of Joe, but 50 shades of Joe sounds better!
But the fact remains that Americans are far more miserable under Biden than they were under Trump before the Chinese Wuhan Covid virus was unleashed. 9.03 today (Core CPI YoY + U-3 Unemployment) than it was in February 2020 under Trump (5.86). While not twice as bad, inflation is continues to cause serious problems for America’s middle class and low-wage workers.
Speaking of the middle class and low wage workers, let’s look at the Renter’s Misery index (CPI Owner’s equivalent rent YoY + Unemployment rate). It was 6.78% in February 2020 under Trump and before Covid struck and is now 11.75% under Inflation Joe.
Speaking of misery, how 25 straight months of negative REAL wage growth? Real weekly wage growth went negative in April 2021, just a few months after Biden was installed as President.
Now, there was winners under Biden. Green energy donors, the big banks, big pharma, big tech, but media … essentially any big donors from big entities got massive payoffs. The middle class and low-wage workers? As Jerry Reid once sang, “They got the coal mine and we got the shaft.”
The US is Living La Vida Biden (living the Biden life!) Which means you are making millions if you are a political elite, but suffering if you live on Main Street.
And regional banks (not the TBTF national banks) continue to suffer. The Bank Term Funding Program (1 of 2) is skyrocketing as The Fed cranks up rates to fight BidenFedflation (a combination of excessive monetary stimulus by The Fed and Biden’s lousy economic policies) and M2 Money growth crashes.
The regional banking index continues to fall as bank deposits shrink (like me when I used to jump in the Pacific Ocean in Santa Cruz).
Cryptos down this morning. But Bitcoin is above $30,000 … again.
Oil is down this morning but gold and silver are up slightly.
The 10Y-2Y US Treasury yield curve just dipped below -100 basis points (steep inversion) as M2 Money growth crashed and burned.
Like a bad good news, bad news joke, the good news is that US existing home sales ROSE 0.2% in May. The bad news? Existing home sales are DOWN -23.16% on a year-over-year basis.
And the median price of existing home sales fell -3.44% YoY as inventory for sales remains missing in action (like Biden debating Democrat challengers).
Expect a hawkish Fed Chairman Jerome Powell to double down on the Fed’s commitment to vanquish inflation at his semiannual testimony before Congress on June 21-22. While the immediate audience will be lawmakers, the message will be aimed at markets, which remain unconvinced the Fed will hike by another 50 basis points, as indicated in the dot plot from the June FOMC meeting. Powell may raise his hawkish tone to push back against such views.
Even as Powell is putting on a hawkish performance, confirmation hearings for World Bank Executive Director Adriana Kugler — as well as to extend Fed Governor Lisa Cook’s term — could reinforce the dovish faction on the Fed, somewhat diluting Powell’s message.
What we expect at the June 21-22 hearings:
The updated dot plot from the June FOMC meeting shows a majority of FOMC participants anticipate at least 50 bps more of rate hikes this year. Markets aren’t convinced – as of the time of writing, futures point to a 74% chance of rate hike in July and only a 10% chance of an additional rate hike in 2023.
Powell’s main task at the testimony will be to convince markets that officials stand behind the dot plot and anticipate multiple hikes.
Powell will likely be asked why the FOMC didn’t hike in June if inflation remains a threat. He’ll say that 500 bps of hikes to date allow the central bank to moderate its pace while gauging economic conditions, and will appeal to the Fed’s dual mandate as warranting a cautious approach. That will be music to the ears of Democrat lawmakers.
Powell said a decision on whether to hike at the July FOMC meeting will be “live.” We take that to mean the bar not to hike will be high, but it’s not a done deal. Powell will likely clarify that comment at his testimony.
The published semiannual monetary policy report offers a preview of how Powell will make the hawkish case:
While the labor market is still “very tight,” it has been softening gradually — and by some measures, labor-market tightness has eased “more substantially over the past year.”
Some outside studies are arguing that wages did not contribute to or lead inflation, but the monetary-policy report notes that “prospects for slowing inflation may depend in part on a further easing of tight labor-market conditions.” Thus, the Fed still stands by the conventional economic wisdom that the Phillips Curve is well and alive – and that a tradeoff exists between inflation and the unemployment rate.
Powell will probably reiterate that low inflation is a necessary condition for achieving the Fed’s mandate, as he has many times before: “Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run.”
Our view is that if inflation remains as high as the FOMC projects, it would be appropriate for the Fed to hike by at least 50 bps more. But the latest batch of indicators show some encouraging progress on goods and housing disinflation; as a result, our baseline is for inflation to fall short of the median FOMC participant’s forecast.
The Senate Banking Committee hearing on the nominations of Cook, Kugler and Vice Chair Philip Jefferson will likely be less eventful. During this period of high inflation, nominees will need to lean more hawkish in their public statements than they otherwise would.
Nevertheless, if the full slate of nominees is confirmed, it will add one more dove to the board of governors, heightening discord on the FOMC.
Jefferson’s nomination to the vice-chair post vacated by Lael Brainard won’t affect policy direction, as he’s already serving on the board. He previously was confirmed by a vote of 91-7, and we expect his confirmation as vice chair to be similarly easy.
Though we have yet to hear much from Kugler on her monetary-policy outlook, her research focus on labor markets creates a likely bias toward the maximum-employment element of the Fed’s dual mandate.
In addition to Jefferson and Kugler’s nominations, Cook — whose term is slated to end in January 2024 — would see her governorship extended for the full 14-year term. If confirmed, it would keep her dovish voice on the FOMC longer than before.
Cook, who is perceived as more dovish and more political than the other nominees — she’s a former adviser to the Biden transition team – saw her previous nomination barely confirmed 51-50, with Vice President Kamala Harris casting the tie-breaking vote. It’s unclear if she’ll have enough support this time to clear the confirmation hurdle.
Bottom line: The hearings present an opportunity for Powell to bring market pricing in line with what has been put forth in the FOMC’s Summary of Economic Projections. We are doubtful that he will succeed.
The most recent Fed dots plot suggests rate declines in future years.
Cryptos are up this morning.
Commodities are down this AM.
So, like in the film Blue Velvet, we have the choice between Michelob or Pabst Blue Ribbon. Powell is choosing …. PBR!!
Bloomberg Intelligence’s Michael Halen penned a new note titled “2H Restaurant Sales: Inflation Killing Appetites.” It outlines, “Consumer spending finally buckles under more than two years of inflation and price hikes,” and the likely result is a trade-down of casual-dining chains like Brinker and Cheesecake Factory for quick-service chains like McDonald’s and Wendy’s.
The trade-down, which could start as early as this summer, is expected to dent consumer spending in restaurants such as Cheesecake Factory, Texas Roadhouse, and at brands operated by Brinker and Darden, Halen said.
Casual-dining industry same-store sales rose just 0.9% in May, according to Black Box Intelligence, as traffic dropped 5.4%. We expect cash-strapped low- and middle-income diners to cut restaurant visits and checks through year-end due to more than two years of real income declines and ballooning credit-card balances.
Halen provides more details about quick-service restaurants to fare better than causal-dining ones as “consumer spending finally buckles.”
Quick-service restaurants’ same-store sales could moderate with consumer spending in 2H but should fare better than their full-service competitors. Results rose 2.9% in May, according to Black Box data, as a 5% average-check increase was partly offset by a 2% guest-count decline. Check- driven comp-store sales gains are unsustainable, and we think inflation and menu price hikes will motivate low- and middle-income diners to reduce restaurant visits and manage their spending in 2H. On Domino’s 1Q earnings call, management said lower-income consumers shifted delivery occasions to cooking at home. Still, a trade-down from full-service dining due to cheaper price points may cushion the blow.
McDonald’s, Burger King, Wendy’s, and Jack in the Box are among the quick-service chains in Black Box’s index.
The latest inflation data shows consumers have endured the 26th straight month of negative real wage growth. What this means is that inflation is outpacing wage gains. And bad news for household finances, hence why many have resorted to record credit card usage.
And the personal savings rate has collapsed to just 4.4%, its lowest level since Sept. 2008 (the dark days of Lehman). And why is this? To afford shelter, gas, and food, consumers are drawing from emergency funds due to the worst inflation storm in a generation.
As revolving consumer credit has exploded higher and the last two months have seen a near-record increase…
… even as the interest rate on credit cards has jumped to the highest on record.
With record credit card debt load and highest interest payments in years, plus depleted savings, oh yeah, and we forgot, the restart of student loan payments later this year, this all may signal a consumer spending slowdown at causal diners while many trade down for McDonald’s value menu. Even then, we’ve reported consumers have shown that menu items at the fast-food chain have become too expensive.
The good news? Mortgage purchase demand fell only -0.05% from last week. The bad news? Mortgage purchase demand is down -35% since Resident Biden was sworn in. And mortgage refinancing demand is down a whopping -90%. Reason? Mortgage rates are up 128% under Clueless Joe.
Mortgage applications increased 0.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 16, 2023.
The Market Composite Index, a measure of mortgage loan application volume, increased 0.5 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 1 percent compared with the previous week. The Refinance Index decreased 2 percent from the previous week and was 40 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index decreased 0.1 percent compared with the previous week and was 32 percent lower than the same week one year ago.
And as Paul Harvey used to say, here is the rest of the story.
And the renter’s misery index, CPI for owner’s equivalent rent YoY + U-3 unemployment rate, is now a staggering 11.75% verus 6.78% in February 2020, the last month before the Chinese Wuhan virus led to economic and school shutdowns. And we have Donald Trump as President instead of this corrupt clown.
What is the difference between baseball legend Shoeless Joe Jackson and Clueless Joe Biden? While both sold out their teams for personal wealth, at least Shoeless Joe was good at baseball. Clueless Joe is a corrupt bully. Shoeless Joe was allegedly stupid, but so is Clueless Joe.
Now we have more evidence of an impending recession with the Philly Fed General Business Conditions index falling to -16.6 in June as Green Man (M2 Money growth) stalls.
Federal Reserve Chair Jerome Powell (aka, Green Man) will have an opportunity this week to clarify what many found a confusing message on the path of interest rates, with the added task of assuring Democrats and Republicans the economy is on track.
The Fed chief will face questions from lawmakers on Wednesday and Thursday, his first testimony on Capitol Hill since early March, before banking-sector turmoil prompted sharp criticism of the Fed and forced officials to rethink their policy strategy. Since then, the most acute financial strains have eased, but questions remain about the extent to which tighter credit will weigh on the economy, and what that means for the Fed.
Powell will need to reassure Republicans the Fed is not backing down from its campaign to contain price pressures, while pointing Democrats to the resilience of the economy as officials prepare to raise rates further this year.
“The Democrats are nervous because they would rather declare victory and move on,” said Stephen Myrow, a managing partner at Beacon Policy Advisors and a former George W. Bush Treasury official. “I think they’re going to try to caution this time against further increases. But Republicans are just going to hammer away and act like inflation hasn’t come down.”
Powell will be fresh off the Fed’s June 13-14 meeting, where he and his colleagues left rates unchanged for the first time in 15 months but signaled they may deliver two more hikes this year. Fed watchers and investors struggled to digest the message from Powell’s post-meeting press conference, and lawmakers last week said they planned to press him for an explanation.
“Right now there’s a lot of confusion about the next step,” Thom Tillis, a Republican senator from North Carolina, said Thursday.
Well, Senator Mel Tillis, there is no confusion. The DC Elites and Big Banks don’t want to disrupt the flow of money to the political donor class (including China and Ukraine payments to Biden’s family, now up to $30 million). The Fed may raise rates one more time and claim victory again their “War on Inflation!” then start cutting again as the Presidential election approaches.
While I am miserable under Biden and Yellen’s “Reign of Error,” apparently much of the USA is miserable under Biden/Yellen as well compared to the pre-Covid days of Donald Trump. 9.03% misery index (unemployment rate+ core inflation) today compared to 5.86% at the end of 2019 under Trump (before we got Fauci’d and Weingarten’d (the National Teachers’ Union President who pushed public school shutdowns)).
(Bloomberg) If a recession is going to come in the next 12 months — and most economists surveyed by Bloomberg say it probably is — then President Joe Biden should hope it begins sooner rather than later.
The last three one-term presidents — Jimmy Carter, George H.W. Bush, and Donald Trump — have all had their reelection hopes felled by an economic downturn.
But the list of presidents who survived recessions on their watch is just as long. Richard Nixon, Ronald Reagan and George W. Bush all won reelection — in the first two cases by landslides.
The difference, for the most part, is timing.
Two-term presidents get recessions out of the way early. One-term presidents have bad economic news as voters are deciding.
That means a short recession that begins soon — offering the chance for a rebound by Election Day 2024 — might be the best-case scenario for Democrats.
“The historical record suggests that a recession in the second half of 2023 would probably be less damaging to the president’s reelection prospects than a recession in the first half of 2024,” said Larry Bartels, who studies the intersection of politics and economics at Vanderbilt University. But he also said there’s not much that Biden can do at this point to change the direction of the economy in the short term.
The economic projections accompanying the Federal Reserve’s decision to hold interest rates Wednesday suggest that policymakers see less likelihood of a downturn than before. Officials’ median forecast for gross domestic product growth rose from 0.4% to 1% in 2023, with the expansion expected to pick up slightly in 2024 and 2025.
Bond traders responded to the rate decision with a signal that they’re expecting an increased likelihood of a recession in the next year.
A 65% Chance
The typical modern recession lasts 10 months, so an early, short and shallow recession would give Biden time to regain his economic footing. A late, long and deep recession could put Biden among the list of one-term presidents whose time in the White House was cut short by an untimely slump.
The consensus of economists in a Bloomberg survey shows a 65% chance of a recession in the next 12 months, up from 31% a year ago.
The same survey shows an expectation for a return to modest growth in real gross domestic product next year, with growth approaching 2%. That’s tepid in historical terms, but could be a welcome trajectory for Democrats.
“It’s not the absolute level of the economy. It’s the direction of the economy six months out from the elections that really influences the vote,” said Celinda Lake, who served as Biden’s pollster in 2020.
While they’ve largely directed their fire on each other over social and cultural issues, 2024 Republican presidential candidates have criticized Biden’s stewardship of the economy, blaming him for an inflation rate that in mid-2022 reached 9.1%, its highest point in four decades. But that spike has now ebbed to 4% in data out Tuesday.
Former Vice President Mike Pence mentioned “a looming recession” in his campaign announcement video last week, and former President Donald Trump has asserted for nearly a year that the US is already in a recession.
Biden, for his part, isn’t conceding that a recession is inevitable. “They’ve been telling me since I got elected we’re going to be in a recession,” he said earlier this year.
In a campaign speech to union members in Philadelphia Saturday, Biden touted the progress the economy has made since the pandemic recession, and said legislation on infrastructure, clean energy and semiconductors will help build for the long term.
“The investments we’ve made these past three years have the power to transform this country for the next five decades,” he said. “And guess who’s going to be at the center of that transformation? You.”
White House spokesman Andrew Bates said recession predictions “keep turning out like pollsters’ calls before the midterms: wrong.”
But in a Wall Street Journal op-ed this month, Biden also acknowledged that the US “must look out for risks and guard against them.”
Lake said that’s the right tone. “There was a time in the economic conversation when his optimism seemed out of touch with what’s going on,” she said. “Now he says, ‘I get it. It’s good but it’s not good enough.’”
‘Misery index’
Yes, the Misery Index remains elevated under Biden’s “Reign of Error” compared to pre-Covid levels under Trump.
On the commodity side, Spot Silver is up 1.46%. Iron Ore is up 1.60%, but I don’t think my neighbors would appreciate me taking delivery on 10 tons of iron ore on my driveway! Heating oil is up 2.90%.
On the crypto side, bitcoin is up 20.84 (0.08%) with Ethereum up slightly more.
Bitcoin and silver doing well as the US Dollar loses ground since September 2022.
Confounded Interest - Anthony B. Sanders 
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