Fed Carrying $330B In Unrealized Losses On Its Assets As of Q1 (Purchasing Power Of US Dollar And M2 Money Velocity Collapsing Like Dying Star)

Yikes! One of the unmentioned costs of Fed monetary tightening is the one to US taxpayers.

Fed carrying $330B in unrealized losses on its assets according to Q1 financial statement. Which US tax payers are on the hook.

Adjusting for the appreciation in its assets the Fed had seen through the end of last year, the unrealized losses were an even larger $458 billion.

This makes the Ukrainian relief bill of $30 billion look like chump change. Although it is about the same amount as Biden’s student loan forgiveness plan which would about to $321 billion.

Nobody spends other peoples’ money like politicians and now The Federal Reserve. Who are also DC-based politicians.

And yes, the purchasing power of the US Dollar and M2 Money Velocity (GDP/M2) appear to be collapsing like a dying star.

The Fed Is Pitting Wall Street Against Main Street, Investor Share Of Home Purchases Soars (How Far Will The Fed Go With “Tightening”?)

The Federal Reserve has been signaling a tightening of its loose monetary policy (essentially loose since the housing bubble burst of 2008 and the ensuing financial crisis). It is still loose as The Fed hasn’t really trimmed its massive balance sheet yet and has just raised it target rate to 1%.

So, potential home owners have to pay 5.10% for a 30-year fixed-rate mortgage while the effective Fed Funds rate, the rate at which banks lend to each other, is a measly 0.83%. This puts consumers at a relative disadvantage to large Wall Street firms that are gobbling up houses at an accelerated rate.

RealtyTrac has a Attom-sourced table of investor purchases of housing from Q3 2021, before The Fed started helping to crank-up mortgage rates for consumers.

With the US housing market slowing (thanks to The Fed’s signaling of monetary tightening), the question now is how far will The Fed go in its “War on Inflation!”?

You can see a major cause of inflation in the US since 2000: Federal spending and Federal (public) debt. During The Great Recession of 2008-2009, we saw inflation (CPI YoY) collapse into negative territory as Federal spending and debt soared. But the mini-recession of 2020 caused by the Covid governments shutdowns led to TWO surges in Federal spending and debt: Covid relief followed by the infrastructure spending bill. Combined with Biden’s anti-fossil fuel executive orders and massive splash of Federal spending in to the economy, we have inflation soaring.

If surges in Federal spending (requiring surges in Federal debt) have gone away (except for $40 billion in Ukrainian relief and Biden’s possible student loan cancellation of $10,000 that will cost an estimated $321 billion … and help drive up college tuitions even further), we may be over the “twin gorgings” of the Covid spending spree. This alone may result is a decline in the inflation rate.

Where do we sit today with the REAL neutral rate? The REAL Fed Funds Target Rate (upper bound) is -4.41%. It was in positive territory during the Trump years. But then Covid struck.

So, we sit here today with Fed Monetary policy “loose as a goose.” And Wall Street investors “drunk as a skunk” on Fed Stimulus.

No wonder Wall Streeters like to go “Down To The Nightclub!” The Fed still has not taken the monetary stimulypto away, but have taken it away for consumers buying housing.

The Biden Bowl! US Personal Savings Declines -65% YoY In April As Inflation Rages (Credit Card Debt Soars As Personal Savings Collapses)

Americans’ Savings Rate Drops to Lowest Since 2008 as Inflation Bites.

Yes, inflation really bites. In fact, as US inflation is near the 40-year high, US personal savings declined -65% YoY as consumers try to cope with rising prices.

Its not only that personal savings is crashing in the face of inflation, revolving debt has soared as consumers try to cope with rising prices. I call this chart “The Biden Bowl.” Soaring consumer credit card debt with crashing personal savings.

Consumer Sentiment For Home Buying Falls To Lowest Point In History, Even Lower Than Housing Bubble Burst And Financial Crisis Of 2008 (Housing Too Expensive, Mortgage Rates Soaring, Inflation Roaring)

The numbers keep getting worse.

The University of Michigan Consumer Survey showed a decline in May to 58.4 (100 is baseline). Soaring inflation is a likely culprit.

But the truly horrible survey result is the UMich Buying Conditions for Houses, plunging to 45. The reason? Crazy, expensive house prices courtesy of The Federal Reserve and rising mortgages (also, courtesy of The Federal Reserve).

The buying conditions for houses is now the lowest in the history of the University of Michigan consumer survey. In fact, consumer sentiment for housing is far lower than during the awful housing bubble burst of 2008 and the subsequent financial crisis.

And the US economic surprise index has turned negative.

Here is Fed Chair Jerome Powell wielding his monetary bat called “Lucille.”

Morning Update: Bankrate’s 30Y Mortgage Rate Rises Slightly To 5.29% (Housing Rents UP 16.4% YoY, Gasoline UP 92% Under Biden, Food UP 60%)

US mortgage rates are up slightly this morning. Bankrate’s 30-year mortgage rate survey is up to 5.29%.

The Biden Scorecard is still a bleak one (for non-elitists). Regular gasoline is UP 92% under Biden, Diesel fuel is UP 110%, foodstuffs are up 60% under Biden, Zillow all-house rents are UP 16.4% YoY.

It hurts to be in the middle class under Biden.

US Q1 Real GDP Worse Than Expected -1.5% QoQ, Price Inflation Worse Than Expected 8.1% QoQ (At Least Personal Consumption Was Up 3.1%)

Today’s US Real GDP was worse than economists expected.

US Real GDP Annualized QoQ printed at -1.5%. And GDP prices QoQ printed at 8.1%, also higher than expected.

At least Personal Consumption printed higher than expected at 3.1%.

Import prices (goods) led the way at 20.9%. Part of Biden’s brilliant strategy of reducing domestic oil production and import expensive energy from overseas?

Consumers are spending more, but the personal savings rate is down to the lowest level since 2013 at 6.2% as consumers try to cope with inflation.

Simply Unaffordable! Why The US Mortgage Foreclosure Scare Was Just … A Scare (Fed Policies Drove Home Prices Into Outer Space Making Default Less Likely, But Crushing Affordability)

I remember this headline from CNBC from THU, OCT 14 2021: Foreclosures are surging now that Covid mortgage bailouts are ending, but they’re still at low levels.

But the foreclosure surge never materialized.

If we look at 90+ days late for mortgages (yellow line), we see that the surge in unemployment with the Covid outbreak and subsequent government shutdowns (red line) did not lead to a surge in mortgage foreclosures.

This situation is quite unlike 2008 when collapsing home prices and the subsequent surge in the unemployment rate led to a 90+ days late surge on mortgages (yellow line).

Difference between today and 2008? The Federal Reserve’s asset purchase (green line) surge happened twice AFTER the 2008 housing crash. Once in late 2008 through 2014, then a second, bigger surge in March 2020 after the Covid outbreak. One big difference is the surge in home prices, home price growth was 3.69% YoY in December 2019 and skyrocketed to 19.80% as of February 2022. This translates to a massive increase in homeowner equity, leading to a lower probability of default.

So, there you go. Powell and The Federal Reserve made housing unaffordable for millions of Americans, but The Fed did help thwart another mortgage default crisis. BUT we will see what happens with future rate hikes from The Fed.

Here is Attom’s US Foreclosure Starts chart. Yes, that is hardly a surge, although foreclosure starts did rise in Q1 2022.

So, The Fed has helped make housing simply unaffordable. Look at the growth of REAL home prices relative to REAL average hourly earnings.

The kids at The Fed aren’t too sharp when it comes to making housing affordable.

US Q1 GDP Forecast -1.3%, Atlanta Fed’s GDPNow Q2 Tracker Only +1.8% (M2 Money Velocity Remains Near All-time Low)

The US Q1 GDP report is due out tomorrow morning. The forecast is for -1.3% decline in GDP.

The Atlanta Fed GDPNow real-time GDP tracker is for 1.806% for Q2. If this holds, then recession fears will diminish.

Even though the US may avoid consecutive negative GDP quarters, M2 Money Velocity (GDP/M2 Money) got crushed by The Fed’s reaction to Covid back in 2020.

Talk about a bad return on “the people’s money”.

AEI’s April Home Price Index UP 17.3% YoY As The Fed And “Slowhand” Powell Keep Monetary Stimulus In Place (Bostic Talking About A Pause?)

All I can say is “Wow.” Tobias Peter and Ed Pinto of the American Enterprise Institute (AEI) released their April housing report and it was a doozy. The AEI’s home price appreciation index came in at a blood curdling 17.3% YoY.

The reason why home prices are still raging at 17.3% YoY? The Fed’s monetary stimulypto is STILL in place! The Fed’s balance sheet (green line) is still staggering, and The Fed Funds target rate (white line) is a measly 1%.

Atlanta Fed President Raphael Bostic is talking about a pause in Fed tightening. Which they haven’t paused yet.

Fed Chair Jerome Powell is really “slowhand,” not Eric Clapton. Bostic is now a member of The Fed’s “Slowhand” strategy.

Fear The Talking Fed! Mortgage Payments Rise 43.4% YoY As Fed Jawbones Monetary Tightening (But Still Has Not Shrunk Balance Sheet Yet)

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.