TBAC-O Road? Treasury Announces Big Cut In Borrowing (Despite Skyrocketing Deficits) But Shifting Towards More Expensive, Higher Duration Coupon Bonds

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).

On Monday, after we got the first part of the Treasury’s Quarterly Refunding Announcement (QRA), in which the Treasury unexpectedly announced a big drop in its borrowing estimates for Q1 (from $816BN to $760BN) coupled with a shockingly low calendar Q2 borrowing estimate of just $202BN (as a reminder we got the second part of the QRA this morning which came in very much as expected)…

… 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.

Sloppy Joe! Seven Charts Showing The Serious Problems With Bidenomics (Rising Interest Costs, 15% Lower Purchasing Power, Surging Shipping Costs, Etc)

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.

Fifth, Department of Homeland Insecurity Secretary Alejandro “Cuba Pete” Mayorkas just admitted that 85% of illegal border crossers are released into the general public. I was stunned by this revelation. I just assumed that Mayorkas waived EVERYONE through. Frankly, I think Mayorkas meant he stopped 85 migrants out of the millions who has crossed the border under Sloppy Joe.

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.

Pension Fund Inferno? Calstrs Seeks $30 Billion In Leverage Amid CRE Turmoil (RE Makes Up 17% Of Calstrs Portfolio)

California is experiencing a pension inferno!

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.

Bloomberg reports the roughly $318 billion California State Teachers’ Retirement System (CalSTRS) plans to borrow $30 billion, or about 10% of its portfolio, instead of raising funds through an asset sale that might trigger fire sales.

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.

Remember these “best minds in real estate.”

What If Biden’s Open Border Fiasco Is The Final Act Of Left’s Infamous Cloward-Piven Strategy? (59% Of Non-Citizen-Households On Welfare As US Debt Hits $34 TRILLION And Unfunded Liabilites Hit $212.6 TRILLION)

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?

To the extent that this was Biden’s mission, destruction of the US economy, he has been wildly successful. According to the Center For Immigration Studies, 59% of non-citizen-headed households receive welfare.

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 funneled nearly 1.4 million illegal aliens into the U.S. — in FY 2023 alone.

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!

Speaking of immbeciles in government, AOC claims abortion is a religious sacrament. Yes, under Biden, the US is officially a third world country!

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.

The Powell Pivot! Powell/Yellen Think Everything Is Beautiful While Market Thinks The Fed Will Cut Rates From 5.50% To 4% By December 2024 (150 Basis Point Cut In One Year!)

In this corner, we have Fed Chair Powell, Treasury Secretary Yellen, President Biden and Cheerleader Brainard all cheering and singing “Everything Is Beautiful!”. In the other corner, we have … investors who are are betting that The Fed will be cutting the target rate from 5.50% to 4% by December 2024, a cut of almost 150 basis points in one year.

Why? First, the US economy is softening. Second, The Fed will want Biden (or whoever Democrats prop up in his place) re-elected as President.

While Wednesday’s FOMC statement had barely any changes in it, with the notable addition of the word “any” in the context of policy firming meant to acknowledge that the Fed is at or near the peak rate…

… 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!

Everything is NOT beautiful, according to investors.

Welcome to the REAL Snake Hole Lounge: The Federal Reserve. And their famous “Snake Juice!” Now forecast to be under 4% by 2025!!

Oil Drops In Price Along With Citi Economic Surprise Index, SOFR Rate Hits All-time High, Fed REPOs Soar!

Biden is hoping for one more term as President. And declining oil prices might help him get re-elected.

But we have a battle brewing! The United Nations and World Economic Forum (and their proxies John Kerry, Greta Thunberg and Green Joe Biden) against …. everyone else. Despite Biden’s lame attempts (through climate envoy John Kerry) at getting China to go to green energy and rid themselves of fossil fuels, China claims a new discovery of roughly 1.78 billion barrels of oil. Kristalina Georgieva, a Bulgarian economist who serves as the managing director of the International Monetary Fund, said Monday that the IMF wants to see countries implement punishing new carbon taxes to “fight climate change.” Kristalnacht won’t like China’s oil discovery either.

Then we have oil production surging (think of WEF’s Klaus Schwab’s scowling face) and crude oil prices sinking to 6 month lows.

Oil prices are dropping along with the Citi Economic Surprise Index.

In financial markets, we have the Secured Overnight Financing Rate (SOFR) jumped to a record high.

And Treasuries purchased by The Federal Reserve (repos) skyrocketed this week.

On the gold side, we see a Golden Cross (not William Jennings Bryan’s Cross of Silver).

WEF’s Klaus Schwab won’t like China finding so much cheap energy.

Son Of FLUBBER! Banks’ Liquidity Sources Threatened By Plans To Limit Home Loan Borrowing (18 Straight Weeks Of Negative Growth In Bank Credit, 5 Rate Cuts Priced In For 2024)

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.

US banks will need to find other ways to access liquidity if the Federal Housing Finance Agency follows through with its goal to limit depository institutions from borrowing from Federal Home Loan Banks.

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.

Everything is beautful? Not really. 5 Fed rate hikes priced in for 2024.

Yes, its beginning to look a lot like rate cuts.

So we are seeing Son of FLUBBER. Except this Flubber is crashing and burning.

Back In Red? Bank Credit Growth Negative For 15th Straight Week, Savings Growth (As % Of Gross National Income) Negative For Last Two Quarters As Bitcoin Soars (Biden Wants 4 More Years To “Finish The Job”!)

To paraphrase AC/DC, the US consumer is “back in red.”

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!

Here is a video of Biden, Yellen and Powell trying to spend trillions and NOT cause sustainable inflation.

Well, hell’s bells. The US is starting to resemble Venezuela and Argentina.

Biden’s Incredible Shrinking Economy! Bank Credit Growth Negative For 10th Straight Week As Interest Rate On Short-term Loans Almost 10%!! (Ouch!)

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!”

Bidenomics, BRICS And US Weakness

The US has a bad case of failed leadership and misguided economic policies.

Joe Biden is an incredibly weak President. I am not talking about his age or his deteriorating mental faculties. I am talking about ordering his attorney general to indict his chief political opponent, Donald Trump. How does the world interpret this weakness? BADLY.

The US has gone off the rails in terms of printing money, particularly since COVID struck and money printing went wild.

Under Biden’s Reign of Error and the US reckless money printing, more countries are abandoning King Dollar (based of fiat currency) and joining BRICS. Brazil, Russia, India, China, South Africa and a host of countries joining like Argentina, Saudi Arabia, Iran, Egypt, UAE, etc.

Now, the rest of the world is still stuck on the US Dollar as reserve currency … for now. But as Biden gets weaker and weaker, watch more countries join BRICs.

According to Reuters, there are over 40 countries that have expressed interest in joining BRICS. A smaller group of 16 countries have actually applied for membership, though, and this list includes Algeria, Cuba, Indonesia, Palestine, and Vietnam. Pretty soon, under Biden’s crazy leadership, we may be the last man standing in using the US Dollar as reserve currency.

Then we have the other shoe dropping with Bidenomics.

Joe Biden, along with most of the media and other Democrats believe in bigger government, higher taxes, and massive regulations.

As soon as Biden took office, he set out to destroy industries that produce reasonably priced energy. He focused tremendous effort on deficit spending and borrowing to hand out “government goodies” to buy votes; recipients of this government largesse, in large part, included debt-saddled students, the green mafia, and leftist activists.

When Biden took office, inflation was under 2%, despite COVID and supply chain disruptions; shortly after, it skyrocketed to over 9%. Now inflation increases are “down” but prices remain exceptionally high compared to pre-Biden.

For example, crude oil prices, which affect almost everything and are used in over 6,000 products, are roughly double what they were when Biden took over.

President Trump focused on reduced regulations and energy independence, and implemented lower tax rates, all moves that greatly helped the American people. In contrast, Biden focuses on ensuring bureaucrats rapidly increase regulations which raises costs for everyday Americans; he’s waging economic war against us. Very few of Biden’s regulations go through Congress. From the White House archives:

Between FY 2017 and FY 2019, the Trump Administration has cut nearly eight regulations for every new, significant regulation….

The Council of Economic Advisers (CEA) estimates that this pro-growth approach to Federal regulation will raise real incomes by upwards of $3,100 per household per year.

Here are some recent reports of how well Biden policies are working:

Leading economic indicators have fallen for sixteen straight months. Maybe that is why people think the economy is moving in the wrong direction?

The current cost-of-living crisis is a manufactured one. As inflation rose, the Federal Reserve was forced to raise interest rates, which saw fewer people move. The cycle is very understandable, as simply explained in this one headline, “Housing Crunch: Home Sales Fall To Six Month Low…But Prices Rise Anyway”.

Parcel volumes are dropping by so much, freight pilots are “worried” about job security.

People are running up credit card debt and defaulting on car loans because of high inflation, and because their real wages haven’t been able to sustain them. Now, even more are falling behind on their payments. From CNN:

More Americans are failing to make payments on their credit cards and auto loans, another sign of rising financial pressure on consumers.

New credit card and auto loan delinquencies have now surpassed pre-Covid levels, according to a Wednesday report issued by Moody’s Investors Service.

After years of promoting and subsidizing electric cars, they represent around 6% of total sales, and demand is clearly slowing. It wasn’t that long ago that well-to-do people were buying these electric toys so quickly that they were placed on waiting lists; now, inventories are building because they are too impractical and expensive:

Auto News understands that there is currently a 103-day supply of unsold EVs in the United States. While it did not specify how many units are sitting on dealership lots, it says there is a higher supply of unsold EVs than any other automotive segment, except those in the ultra-luxury and high-end luxury segments with supplies also reaching over 100 days.

So what is Biden’s solution? Force people to buy them.

Here are some simple economics questions for the media and other Democrats:

Does flooding the U.S with illegals help or hurt housing availability and affordability?

Will the intentional destruction of oil and coal companies help or hurt the middle class and the poor?

Yet, the media and other Democrats brag that Biden’s economic policies are great, and when the public gives Biden poor marks, they say that we just don’t understand, and we’re not willing to get behind a candidate if they fail to make us feel “warm and fuzzy.”

Are journalists really that unaware?

Of course, they always sought to destroy Trump as his policies, even as poverty sank to record lows amongst minorities, because they don’t really care about anything but big government. According to Census data:

In 2019, the poverty rate for the United States was 10.5%, the lowest since estimates were first released for 1959.

Poverty rates declined between 2018 and 2019 for all major race and Hispanic origin groups.

Two of these groups, Blacks and Hispanics, reached historic lows in their poverty rates in 2019.

Results and facts haven’t mattered to the complicit leftist media for a long time.

And perhaps the worst mistake Biden made (amongst his laundry list of horrible mistakes, [Afghanistan retreat, not showing up to E Palestine Ohio, Bidenomics that is a payoff to green donors and BIG corporate interests, an embarrasing visit to Maui two weeks after the fire, indicting his leading political opponent, ….) is the appointment of the WORST Federal Reserve Chair (Janet Yellen) as Treasury Secretary.