A “recession shock” begins for markets following the worst first-half for the S&P 500 in more than 50 years.
And investors are running to Treasuries for safety as US Treasury 10-year yields tank 14 basis points.
Biden’s approval rating has collapse with inflation and rising gasoline prices. Note that Biden’s approval rating dropped below 50 in mid-August 2021, long before the Russian invasion of Ukraine in late February 2022. Gasoline prices had risen 49% since Biden’s inauguration as President, but before the Russian invasion of Ukraine.
The ECB is planning on a Blitzkrieg Bop, monetary style.
When Lagarde talks about the first line of defense, all I can picture is The Maginot Line in France, a failed defensive line that was easily bypassed by the German Wehrmacht (army).
The European Central Bank will activate the bond-purchasing firepower it’s earmarked as a first line of defense against a possible debt-market crisis on Friday, according to President Christine Lagarde.
Applying “flexibility” to how reinvestments from the ECB’s 1.7 trillion-euro ($1.8 trillion) pandemic bond-buying portfolio are allocated is aimed at curbing unwarranted turmoil in government bonds as interest rates are lifted from record lows to curb unprecedented inflation.
Net buying under a separate asset-purchase program is also set to end on Friday.
In other words, Euro-area inflation has exploded in 2021, just like the USA.
But the US also has an inflation problem caused in part by Covid and the government’s reaction to Covid: economic shutdown and massive Federal monetary and fiscal stimulus. The stimulus is still in play.
The bond market is already anticipating an about-face by The Federal Reserve (implied overnight rate peaking at the March 2023 FOMC meeting, then receding.
Again, nothing has been the same since the Covid outbreak of 2020 and Fed monetary blitz. Here is the US Dollar Swaps curve before Covid (yellow line) and today’s Fed-enhanced curve (green).
Mortgage rates in the US have climbed to 6% then backed-off slightly. The good ole Back-off Boogaloo as The Fed attempts to unwind its monetary stimulypto.
The French Maginot Line, easily bypassed by German tanks. The Federal Reserve is the US’s Maginot Line. The Yellenot Line??
Mortgage rates have increased dramatically under “Middle Class Joe” as The Federal Reserve attempts to choke-off inflation caused by … The Fed coupled with Biden’s energy policies (hope you are enjoying those high gasoline and diesel prices!) and the Federal government’s staggering spending spree under Pelosi, Schumer and McConnell.
Thus far, The Federal Reserve has leveled-out out their Treasury Note and Bond purchases, increased their Agency Mortgage-backed Securities (AgMBS) holdings, but strangely have reduced their holding of Treasury Inflation-Protected Securities (TIPS) in the face of rising inflation.
And while The Fed Funds Target rate is a lowly 1%, it is projected to rise to 2.890% by the February 1, 2023 FOMC meeting. That should send mortgage rates up.
As if mortgage rates haven’t skyrocketed already, thanks to The Fed’s jawboning about having to raise rates and extinguish inflation.
With sizzling mortgage rates (cooling a bit as the global economy slows), home mortgage payments have risen +43.4% YoY.
Now we have President Biden trying to scare us about the Monkey Pox, yet leaves the southern border wide open. One would think that Biden would shut the borders (as if the surge in Fentanyl, sex trafficking and other diseases aren’t reason enough. But I do predict another massive spending bill from Biden/Congress to combat Monkey Pox and the resurgence of Covid variants.
Meanwhile The Fed jawbones fighting inflation with monetary tightening in the future, even if they jawboning causes mortgage rates to soar and mortgage payments to spiral.
US Existing Home Sales were 5.61M SAAR in April, down -2.4% from March’s -3.0% MoM reading. But median prices YoY for existing home sales printed at 14.85%, still hot, hot, hot.
With 3 consecutive declines in MoM existing home sales, how can prices still be raging at 14.85%? First, inventory for sale in April remains low compared to 2010 (yellow line). Second, The Federal Reserve’s Stimulypto (excessive monetary easing) is still out there in force despite Jerome “Slowhand” Powell signaling rate increases (green line). 30Y mortgage rates are still rising.
Where do we go from here? 30 year mortgage rates have been climbing as The Fed signals its intents to tighten monetary policy. But with global economic slowing, Treasury yields have been coming down (like today’s -5.2 BPS drop (Germany’s 10Y Bund Yield dropped -8 BPS on slowing global economic growth).
But remember, the Existing Home Sales numbers are for April.
Goldman Sachs Senior Chairman Lloyd Blankfein urged companies and consumers to gird for a US recession, saying it’s a “very, very high risk.”
I am not surprised. Take a look at The Fed’s Overnight Reverse Repo operations. As inflation surged in 2021 and 2022, banks are parking more funds at The Fed. Fear?
We are seeing the S&P 500 futures down today after a nice rally on Friday. The &P 500 forward 12-month P/E ratio is back to pre-Covid, pre Federal spending surge, pre Fed monetary Stimulypto of 2016.
Goldman Sachs see the 10-year Treasury yield rising to 3.3%. That bodes ill for 30-year mortgage rates, perhaps push mortgage rates up another 40 basis points to 5.80%.
Foodstuff are up 61.5% under Biden’s Reign of Error. Gasoline prices are up 85.8%, diesel prices are up 111%. Yet the government inflation index (aka, CPI) is up only 8.3% in April.
But while energy and food prices are soaring, the CRB Spot Metals Index has plummeted -15% since May 4 as Covid is ravaging the Chinese economy. Recession alter anyone?
And then we have soaring home prices and rents. But notice that Zillow’s Rent index is slowing down as mortgage rates soar.
We have a stalling Chinese market, down 28% since October. Is Biden President of China??
On the currency front, the Russian Ruble is soaring relative to the US Dollar while the Chinese Renminbi, the Japanese Yen and the Euro (or in this case, the Gyro) are sinking like a rock.
If I compare the Russian Ruble and Ukrainian Hryvnia, you can see Ukraine is losing the currency war with Russia.
Inflation Inferno thanks to Biden’s misguided energy executive orders and cancellation of Alaskan and Gulf of Mexico drilling leases.
Biden’s economic mismanagement team: American Gothics Treasury Secretary Janet Yellen and Fed Chair Jay Powell.
April’s inflation numbers are out and, at first glance, inflation seems to be cooling from 8.5% YoY in March to 8.3% YoY.
But the headline inflation numbers do not accurately reflect the pain and suffering of American households. Food is up 9.4% YoY and gasoline is up 43.6% YoY.
The strange way the BLS measure “shelter” shows that housing only grew at 5.1% YoY. That’s odd since home price growth is almost 20% YoY and rent growth is near 20%.
Runaway home prices and rents are especially painful given that inflation is destroying the purchasing power of the dollar for consumers. Real average weekly earnings YoY are at -3.4% YoY.
Hence, the purchasing power of the US Dollar keeps eroding.
Good luck out there with inflation still roaring, and food/housing/energy prices soaring.
Here is a photo of American children trying to create energy from flying a kite made from progressively devalued US currency.
President Biden (or whoever is pulling his strings) is inflicting a “Medusa Touch” on the US. That is, everything his administration touches turns to stone.
Let’s look at average hourly earnings. Thanks to “progressive” energy policies from Biden, REAL average hourly earnings growth has crashed and burned.
But here is the chart that the Biden Administration touts showing average hourly earnings growth at 5.6% YoY (although I doubt if Jen Psaki would leave out the massive distortion caused by The Federal Reserve’s “Let’s go crazy!” monetary policy.
Another Medusa Touch moment is the reverse repo market. When I wrote about reverse repos before, several people wrote me saying “You don’t understand. This is a temporary problem and will vanish shortly.” However, The Fed’s reverse repo facility has now climbed to an all-time high.
Then we have the disruptive effects of The Federal Reserve deciding for us that mortgage rates are too low and should be higher.
Now look at lithium prices, a key element for electric car batteries. Making the switch from Internal combustion engines to electric motors far more costly.
The list goes on and on.
Suffice it to say, everything the Biden Administration touches turns to stone.
But I wager that the Biden Administration wishes that Hunter Biden’s laptop would turn to stone.
Only an elitist DC bureaucrat like Joe Biden would laugh at inflation that is ruining the lives of millions of Americans.
I hope America’s foreign policy wizards (Biden, Harris and Blinken) weren’t relying on the Russian Ruble staying pulverized, because the Ruble (relative to King Dollar) has regained all its losses.
On the other hand, the Japanese Yen and Chinese Yuan have crashed harder than Biden’s popularity.
Actually, The Atlanta Fed’s flexible price inflation rate is 25%, up from 3.90% Pre-Joe.
Perhaps Biden, Harris and Blinken think Putin is a pasta sauce.
Confounded Interest - Anthony B. Sanders 
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