Yikes! Bidenomics is a disaster! MBA mortgage purchase applications are down 54% from Pandemic Peak. I was going to play “The Wreck of the Edmund Fitzgerald” by Gordon Lightfoot and rename it “The Wreck of The US Economy.”
Mortgage demand fell to a new 30-year low in January 2024, down 54% from the pandemic peak. Mortgage demand is down 14% over the last year and 40% from pre-pandemic levels.
Mortgage applications decreased 7.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 26, 2024. Last week’s results included an adjustment to account for the MLK holiday.
The Market Composite Index, a measure of mortgage loan application volume, decreased 7.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 8 percent compared with the previous week. The Refinance Index increased 2 percent from the previous week and was 3 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 11 percent from one week earlier. The unadjusted Purchase Index increased 6 percent compared with the previous week and was 20 percent lower than the same week one year ago.
Constitution Avenue in Washington DC is actually becoming Tobacco Road. No, not the dysfunctional family of Georgia sharecroppers during the Great Depression, but the Treasury Borrowing Advisory Committee (TBAC).
… yields tumbled as this was viewed as an aggressively dovish outlook on the future of i) the US fiscal deficit and ii) the debt needed to fund said deficit. Here is another way of visualizing the US historical and projected marketable debt funding needs:
Commenting on this surprise drop in expected borrowing, on Monday we said that “the numbers also mean that the Reverse Repo facility will be fully drained by Q2, and we expect that on Wednesday we will learn that the bulk of the reduction in Q1 and Q2 estimates will be due to sharply lower Bill issuance for one simple reason: there is just no more Reverse Repo cash to buy it all.“
Boy, were we right: earlier today, in the Treasury’s presentation to the Treasury Borrowing Advisory Committee (TBAC) as part of the Quarterly Refunding, Janet Yellen revealed what the composition of this sharp drop in Q2 funding needs would be. As we expected, it was all bills!
In fact, as the chart below – which we have dubbed the scariest chart in the Treasury’s presentation to TBAC today (link here) – shows, with Bills expected to fund some $442 Billion of the $760BN funding deficit in the Jan-March quarter (the balance of $318BN funded by coupons), in Q2 the Treasury now anticipates a $245BN DECLINE in net Bills outstanding (i.e., not only no incremental Bill funding but a quarter trillion maturity in Bills outstanding). In other words, while we expected a “sharply lower” Bill issuance in Q2, the Treasury is actually expecting a $245BN drawdown in Bills.
But wait, there’s more: because while the market was expecting some pro rata decline in coupon issuance to go with the slide in net Bills (we were not) in Q2 to justify the sharp drop in long-end yields, it was not meant to be. In fact, just the opposite, because as highlighted in the chart above, net Coupon issuance in Q2 is actually expected to increase by $130BN to $447BN from $318BN in Q1. This is a huge shift in higher duration supply, and is hardly what all those who were buying 10Y bonds on Monday were expecting, and yes, that too was to be expected: with Bills now well above the “comfortable” ceiling of 20% as a percentage of total debt outstanding, the Treasury had no choice but to roll it back, especially since the Reverse Repo is already mostly drained. And sure enough, in its presentation, the Treasury no longer anticipates a flood of Bill issuance in the future.
That’s not all: while the Treasury said it does “not anticipate needing to make any further increases in nominal coupon or FRN auction sizes, beyond those being announced today, for at least the next several quarters”, the TBAC politely disagreed, stating that “it may be appropriate over time to consider incremental increases in coupon issuance depending on how the current uncertainty regarding borrowing needs evolves” (translation: as the need to bribe the population with more fiscal stimmies ahead of November rises, so will borrowing needs).
As for any naive expectations that any decline in issuance in structural instead of merely shifting away from Bills to Coupons, we have some more bad news: as the table below confirms, the Primary Dealer estimate of the US 2024 budget deficit dropped just $22BN in the past quarter, from $1.8 trillion to $1.778 trillion, a meaningless change (expect this number to rise sharply as the full brunt of fiscal stimulus in an election year become visible).
As for the bigger picture, well you can listen to either the Primary Dealers…
… or the CBO:
Both reach the same sad conclusion, the same one voiced by Nassim Taleb on Monday when he said that “we need something to come in from the outside, or maybe some kind of miracle…. This makes me kind of gloomy about the entire political system in the Western world.”
Sorry, Nassim, no miracles… just lots and lots of money printing coming.
And speaking of money printing, the fact that Bill issuance is about to grind to a halt in Q2 means that, just as we expected, reverse repo balances will tumble in the remaining two months of Q1…
… bringing it effectively to zero (which means the Treasury’s stock market liquidity pump is now almost drained), at which point the Fed will have to take over and taper QT as the alternative would be draining some $100BN in reserves every month at a time when total Fed reserves are already at the level which Waller hinted may be the infamous LoLCR floor which is a hard constraint at “10-11% of GDP.” The alternative is simple: a stock market crash just months before the November election, hardly the stuff Biden’s handlers or the anti-Trump Deep State would approve of.
Joe Biden can be called “Sloppy Joe” because of the economic havoc he has sprung on an unsuspecting middle class. The following seven charts are what keeps me up at night (unlike what keeps multimillionaire Michelle Obama up at nights).
First, US interest payment on Federal debt is rising faster than our bloated military budget. Thanks mostly to The Fed raising rates to fight inflation under Biden.
Second, contrainer shipping rates are soaring thanks to Iran’s interference in the Middle East and Biden’s failed diplomacy with Iran.
Third, food prices are over 20% more expensive under Biden while gasoline prices are over 28% more expensive under Biden. Housing is also more expensive under “Sloppy Joe” as in 33.5% more expensive.
Fourth, Bidenomics is about adding more non-productive government jobs.
Sixth, Grayscale Bitcoin Trust $GBTC traded close to half a billion on Monday. Which shows the lack of confidence in Biden’s handling of the economy.
Seventh, purchasing power of the US Dollar is down 15% under Sloppy Joe.
While some may view Biden’s policies are planned destruction of the US economy, it could simply be that Biden (who is one of the stupidest people in Washington DC) simply is grossly incompetent and … sloppy.
One of the biggest public pension plans in the US plans to borrow tens of billions of dollars to maintain liquidity instead of triggering a fire-sale of its assets.
Borrowing to lever up its real estate-laden portfolio when CRE returns are negative??
Calstrs board members will review the first draft of the policy next Thursday. If approved, the leverage would be used “on a temporary basis to fulfill cash flow needs in circumstances when it is disadvantageous to sell assets,” a CalSTRS policy document stated.
According to Calstrs consultant Meketa Investment Group, the public pension fund already deploys leverage upwards of 4% of its portfolio, adding the proposed increased leverage won’t be used for a new asset allocation policy but rather used to smooth cash flow and as an “intermittent tool” to manage the portfolio.
The need to increase leverage comes after a report from the Financial Times last April explained that CalSTRS was planning to write down the value of its $52 billion commercial real estate portfolio after high interest rates crushed the values of office towers.
At the time of the FT report, CalSTRS Chief Investment Officer Christopher Ailman told the media outlet that:
“Office real estate is probably down about 20 percent in value, just based on the rise of interest rates,” adding, “Our real estate consultants spoke to the board last month and said that they felt that real estate was going to have a negative year or two.”
For Calstrs, CRE was one of the best-performing asset classes until Covid and the Fed embarked on the most aggressive interest rate hiking cycle in a generation. Real estate had delivered double-digit returns over a 10-year period for its million-member plan, according to an update last March.
FT noted real estate makes up about 17% of Calstrs’ overall assets.
We’re sure Calstrs is one of many pension plans under pressure from the CRE downturn. Also, regional banks have high exposure to CRE and are still not out of the woods.
Biden is lucky in that many portray him as a senile, dumb US Senator who happens to be President. Perhaps Biden is actually insidious allowing for open borders in the hopes of crashing the US economy by overloading the welfare system and driving national debt through the roof?
Biden, like Clinton and Obama before him, has been a Cloward-Piven discipile. Who are Cloward and Piven you ask? Two sociologists at Columbia University. (Cloward pass away in 2001, while Piven is still living). Here are Cloward and Piven attending the Voter Registration (aka, Motor Voter Law) Act signing by President “Willie Slick” Clinton.
The Cloward-Piven strategy is to overload the welfare system to the point of chaos, take control and implement Marxism through government force. To that extent, Biden and his incoherent sidekick, Kamala Harris, have been wildly successful. Sociology and Political Science are two of the most worthless college degrees (with Management in the Business School being a close third). Taking advice from Sociologists or Political Science majors or faculty is insane.
Biden should be familiar to Latin American, African and Chinese immigrants who are used to Marxist dictators who try to have their political opponents taken of the ballots and prosecucted.
Yes, the US welfare rolls are overflowing with illegal immigrants and unfunded liabilities are out of control. Perhaps Biden and Harris should be replaced with Cloward and Piven (even though Cloward is dead). But Newsom, Hillary Clinton and Michelle Obama share the idiocy of the Columbia sociology faculty members. Hillary even teaches a course at Columbia!
What about compassion for immigrants? Great! Let’s close the borders and return to LEGAL immigration to halt human trafficking, Fentanyl imports, and cartels controlling the border. But Cloward-Piven’s strategy is best accomplished with open borders and weak-willed politicians.
… it was the dot plot, where the median 2024 dot plot now forecasts 3 rate cuts up from 2, that shocked traders: in a very rare admission by the Fed, the central bank confirmed that the pre-meeting market pricing of multiple cuts in 2024 were correct in interpreting the Fed’s intentions. It also confirmed – yet again – that the market was right and every single FOMC member was wrong. In retrospect, none of this should have been a shock.
Commenting on the dot plot, TS Lombard’s Steven Blitz said that “for a group that prizes the pricing of its policy intentions in the forward markets as being more important to shifting market conditions than the spot rate, they h d to know that moving the median forecast for Fed funds at the end of 2024 back to June levels would be a bullish signal.“
Or maybe concerns about the market’s reaction were of secondary importance to a Fed which had gotten the tap on the shoulder by the Biden admin and its Democratic cronies on the Hill, terrified about their re-election chances now that the snake of Identity Politics is finally eating its poisonous tail. Indeed, almost as if having seen the collapse in the recent approval polls, Biden’s handlers made some very persuasive phone calls to the Fed. After all, only something as ridiculous – and serious – as steady political pressure can explain the unprecedented U-Turn by the Fed chair, one which even shocked Powell’s own mouthpiece, Nikileaks, who commented on the “Powell pivot” saying “what a difference two weeks can make.”
But markets are behaving as if The Fed will begin cutting rates. Look at the US 2-year Treasury yield on Wednesday AFTER the Fed minutes were released.
Bear in mind that mortgage rates are up 149% under Biden. And mortgage payments up 88%. Yikes!
The Federal Home Loan Bank System (comprised of Federal Home Loan Banks or FLUBs) are a major source of American home loans and liquidity … at least until now.
According to a recently released report, the Federal Housing Finance Agency (FHFA) plans to propose rules that would curtail US banks’ borrowings from the Federal Home Loan Banks (FHLBs) to ensure they are not used as a “lender of last resort.” The announcement comes after the liquidity crunch in March spurred several banks to tap into the FHLB system, sending FHLB advances to a three-year high in the first quarter. During that quarter, when two large regional banks failed, FHLB advances totaled $804.39 billion, comprising 3.7% of banks’ total liabilities.
While totals have fallen since then, sitting at $602.62 billion, or 2.8% of total liabilities, in the third quarter, the FHFA is still seeking to impose limitations. Should the agency enact the new rules, banks’ liquidity options would be hindered. The FHFA wants Federal Reserve facilities to be used instead, but banks are reluctant to tap those because of the stigma attached to those sources, industry experts said.
“It is fair to argue that some banks have come to rely on FHLB funding as a crutch, and the ramp in lending to struggling banks during the mini-crisis in March is an area of continued debate,” Isaac Boltansky and Isabel Bandoroff of BTIG LLC wrote in a Nov. 11 note. “With that being said, there is still a clear stigma associated with tapping the Fed’s Discount Window and other facilities, which should be part of the conversation if the FHLB support will eventually be curtailed.”
Among the various rules the FHFA plans to propose is requiring that certain members have at least 10% of their assets in residential mortgage loans or equivalent mission assets, including assets that qualify as Community Financial Institution collateral, on an ongoing basis in order to stay eligible for FHLB financing.
The leading FLUB borrower? Columbus Ohio’s own JP Morgan Chase!
The problem is that bank credit growth has been contracting for several weeks now. 18th straight week of negative credit growth.
As FLUB advances decline with Fed balance sheet shrinkage.
On a amusing or sad note, Biden campaign communications director Michael Tyler’s message to Americans who are worse off economically under Biden: “That’s precisely why we need another four years to finish the job.” OMG! What does “finish the job” mean?? I am afraid to ask.
Where we currently sit is … bank credit growth is in the red (15th straight week of negative growth) and net savings as a percentage of gross national income has seen negative growth YoY for 2 consequtive quarters.
September marked the largest consumer credit drop since May 2020, signaling a significant recession warning.
And with Bidenflation (or Yellenflation) and The Fed’s counterattack, we are seeing bank stocks losing relative to the tech sector.
Proshares Bitcoin (BITO)’s assets have nearly doubled in the past 30 days.
Yes, the Three Stooges (Biden, Yellen, Powell) have put the US on a highway to hell!
Bidenomics is failing catestropically. Example? As interest rates rise to fight Biden’s Federal spending splurges, bank credit growth slowed to -0.41% YoY for the 10th straight week of negative credit growth.
While interest paid on short-term loans almost 10%!!
“Jimmy, watch me tank the economy even worse than you did!”
Confounded Interest - Anthony B. Sanders 
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