US Paid $853 BILLION In Interest On Its $31 TRILLION Debt In 2022 (More Than The US Defense Budget)

I was interviewed by James Rosen at Fox News on the exploding US debt and whether it is a problem. I said “Yes, the sheer size of the US debt load in unsustainable and will get worse if interest rates rise.” Well, here we are!

The US paid $853 billion in interest for the $31 trillion in debt in 2022.

That is more than the US Defense budget in 2023.

If the Fed keeps rates at at these levels (or higher), the US we will be at $1.2 trillion to $1.5 trillion in interest paid on the debt.

The US govt collects about $4.9 trillion in taxes.

Thanks for this, Biden, Pelosi, Schumer! Aka, The Spend Squad!

Kansas City Fed Services Survey Tanks To -11 In January As Fed Withdraws Monetary Punch Bowl (US Real GDP Was Only 0.959% YoY In 2022)

Kansas City is a wonderful city. But the KC Fed’s Services Survey is not. In fact, it plunged to -11 for January. Rough start to the new year.

The decline in the KC Fed survery mirrors that of other regional Fed indices, indicating a slowdown in the US economy as The Fed withdraws the monetary punch bowl,

Despite the hoopla, remember that US Real GDP growth only grew at less than 1% on a year-over-year basis in 2022.

Apparently, The Federal Reserve doesn’t have a whole lotta love for middle class America.

US Pending Home Sales Decline For 13th Straight Month, Down -34.3% YoY As Fed Tightens (UMich Housing Sentiment At 44, Well Below 100)

The US housing market continues to struggle as The Federal Reserve continues to fight inflation. Today’s pending home sales are another nail in housing casket.

Pending home sales declined -34.4% year-over-year (YoY) as M2 Money growth went negative (-1.3% YoY).

At least UMich buying conditions for housing increased … to 44, well below 100.

Good News, Bad News! US New Home Sales Rise 2.3% In December, But DOWN -23% YoY (Median Price UP 7.8% YoY While M2 Money Growth Goes Negative)

The December new home sales report is good news and bad news.

The good news? US new home sales rose by 2.3% in December from November to 616k units sold SAAR. That is the good news.

The bad news? Since December of 2021, new home sales fell -23% year-over-year (YoY).

The median price of new home sales rose 7.8% YoY, but the trend as The Fed withdraws monetary stimulus (orange line) is not good.

Perhaps there is a communications breakdown between the Biden Administration and The Federal Reserve.

Is That All There Is? US GDP Expands At Only 2.9% Pace While Slowdown Signs Mount (Like M2 Money Slowing To -1.31% YoY And PCE Growth Less Than Forecast)

Today’s GDP report from the BEA reminds me of the Peggy Lee song “Is That All There Is?” Between the massive Fed monetary stimulus since late 2008 (and particularly since Covid in 2020) and all the Federal spending (Covid relief, Inflation reduction, Omnipork spending bill, etc.), US real GDP rose by only 2.9% in Q4 from Q3.

But signs of slowing underlying demand mounted as the steepest interest-rate hikes in decades threaten growth this year.

Gross domestic product increased at a 2.9% annualized rate in final three months of 2022 after a 3.2% gain in the third quarter, the Commerce Department’s initial estimate showed Thursday. 

Personal consumption, the biggest part of the economy, climbed at a below-forecast 2.1% pace (forecast was for 2.9%). Again,

The report also showed some signs of stress for American consumers whose wages have failed to keep up with inflation and continued to encourage them to draw down savings accumulated from government pandemic-relief programs. The burden of elevated prices and higher borrowing costs is mounting, pointing to a tenuous outlook for the economy.

A key gauge of underlying demand that strips out the trade and inventories components — inflation-adjusted final sales to domestic purchasers — rose an annualized 0.8% in the fourth quarter after a 1.5% gain.

Core PCE growth grew at 3.9%, but is slowing already as M2 Money growth dies.

Stock-index futures and Treasury yields remained higher and the dollar was little changed after the GDP report and better-than-expected weekly jobless claims. Applications for unemployment insurance dropped to 186,000 last week, the lowest since April.

Recent data show cracks are developing more broadly. Retail and motor vehicle sales data showed households are starting to retrench, the housing market continues to weaken and some businesses are reconsidering capital spending plans. 

As the Federal Reserve continues to hike interest rates to ensure inflation is extinguished, housing and manufacturing have deteriorated quickly while industries including banking and technology are carrying out mass layoffs.

The GDP report showed the personal consumption expenditures price index, a key inflation metric for the Fed, rose at an annualized 3.2% rate in the fourth quarter, down from a 4.3% pace in the prior three months. The core index that excludes food and energy climbed at a 3.9% rate compared with 4.7% paces in the prior two quarters. Monthly data for December will be released Friday.

The moderation in price pressures is consistent with forecasts that the Fed will further scale back its tightening campaign next week, when it’s expected to raise rates by 25 basis points. Policymakers boosted the benchmark rate by 50 points in December after 75 basis-point hikes at their previous four meetings.

The world’s largest economy expanded 2.1% last year. In 2021, when demand snapped back from pandemic-related shutdowns, the economy grew 5.9% — the best performance since 1984.

The GDP data showed services spending increased at 2.6% annualized rate in the October-December period, the slowest since last year’s first quarter. Outlays on goods rose at a 1.1% pace, the first advance since 2021.

Business investment slowed sharply after a third-quarter surge. Spending on equipment declined an annualized 3.7%, the most since the second quarter of 2020. Outlays for structures rose at a 0.4% pace.

Let’s hope the BEA isn’t padding the numbers like the BLS was caught doing in the first half of 2022.

Lastly, US Real GDP growth YoY FELL to only 0.95925% as M2 Money growth disappears.

Gas Prices Set To Soar As Crack Spread Jumps On Tightening Fuel Supplies (Gasoline Prices UP 45% Under Biden, Diesel Prices UP 77%, Strategic Petroleum Reserve DOWN -47%)

U.S. oil refining margins, also known as the 3-2-1 crack spread, jumped to a three-month high on Tuesday — and that’s an indication the country faces an ongoing product shortage that might lead to higher gasoline and diesel prices at the pump

The 3-2-1 crack spread is a great indicator to gauge fuel product tightness. High spreads indicate gasoline, diesel, jet fuel, and other petroleum products are in short supply, while low spreads mean an abundance of supply. Spread direction is also important — if rising, it would mean fuel inventories are declining. 

The simple calculation of refining margins is for every three barrels of crude oil the refinery processes — it makes two barrels of gasoline and one barrel of distillates like diesel and jet fuel.

On Tuesday, the crack spread hit a three-month high of $42 a barrel. For some context, the five-year January average is $15.56.  

Reuters pointed out that refinery outages exacerbate fuel supply tightness. 

A diesel producing unit at PBF Energy’s (PBF.N) Chalmette, Louisiana, refinery was shut following a fire on Saturday. It could be out for at least a month. Exxon Mobil (XOM.N) said Monday it will perform planned maintenance on several units at its Baytown, Texas, petrochemical complex.

The ongoing refinery maintenance season could be much lengthier than usual, with many U.S. Gulf Coast refineries still running below capacity after Winter Storm Elliott knocked out some 1.5 million barrels per day of refining capacity in December. A Suncor refinery in Commerce City, Colorado, has remained offline since the storm.

Also, the number of refinery overhauls is double the amount this spring. Many of these overhauls were postponed due to the pandemic. Some are due to record-high margins driving increased profitability for oil companies. 

There are at least 15 oil refineries plan maintenance ranging from two to 11 weeks through May, tallies by Reuters and refining intelligence firm IIR Energy show. By mid-February, U.S. refiners will drop some 1.4 million barrels per day of processing capacity, double the five-year average. 

“A lot of plants didn’t want to shut down last year when margins were strong, but they have to get this work done,” said John Auers, refining analyst with Refined Fuels Analytics.

Nine U.S. refineries operated by Marathon Petroleum, Valero Energy, Exxon Mobil, Phillips 66, and BP will shutter some of their fuel-producing units this spring, according to IIR and Reuters sources.

All of the outages and planned overhauls are going to make it difficult for refiners to catch up with demand as inventories are relative to historical levels. 

“If we aren’t hearing the alarm bells, it’s because we’re deaf after refining margins reached eye-watering levels in 2022, when the 3-2-1 crack spread briefly surged above $60. But from a historical perspective, current margins are sky-high, as well,” Bloomberg Opinion’s Javier Blas said. 

According to AAA data, gasoline and diesel prices at the pump are starting to move higher after months of declines following the rise in the 3:2:1 crack spread. 

And the ‘raw materials’ for the refining process are rising rapidly…

Perhaps the victory lap was a little premature? 

Mission Accomplished 2.0?

Not really. US gasoline prices are UP 45% under Biden, diesel prices (the lifeblood of the shipping industry) are UP 77 under Clueless Joe and the Strategic Petroleum Reserve is DOWN -47% under China Joe.

Winter Is Coming! Richmond Fed Outlook Declines To -11 As Philly Fed Outlook Down To -8.9 And NY Empire State Outlook Down To -32.9 (US 10Y-3M Yield Curve Inverts To -126.5 Basis Points)

Three regional Fed reports I like to watch are New York’s Empire State Outlook, Philly Fed’s Outlook and Richmond Fed’s outlook. Today, The Richmond Fed released their manufacturing outlook and … it declined to -11.

So the big three are all down (Philly down to -8.9 while NY’s Empire State outlook is down to -32.9.

On the Treasury front, the US 10Y-3M yield curve inverted further (a signal of impending recession) just tanked to -126.462 basis points.

Winter is coming!

The Secret Panel? US Yield Curve Inversion, CDS Default Price, SOFR Signals More Rate Increases Then Rate Cuts

Ah, the start of a new week with Treasury Secretary Janet Yellen arguing (with a straight face) that there is no room in the Federal budget for cuts. Apparenly, Yellen never read any of the massive, pork-laden spending bills signed by Biden (no one else did in Congress either, nor did Biden).

Let’s start with the US credit default swap (1 year). It remains high at 68.72 (the price of insuring against a US default). And the US Treasury yield curve (10Y-3M)? It remains deeply inverted at -114 basis points this morning signaling an impending US recession.

Then we have SOFR (Secured Overnight Financing Rate). SOFR futures are pricing for the Federal Reserve to hike rates a few more times and to start cutting before the end of this year. The pricing for the 2023 rate path is little changed from a month ago, but this year the market has priced in deeper cuts in 2024, with SOFR now seen below 3% by early 2025 before stabilizing. The implication is that hedging recession and significant rate cuts in 2024 now seems to be fully priced in, yet there’s a risk that the Fed cuts even deeper than the market is factoring in.

We think the market is partially preparing for the risk of even deeper rate cuts than linear instruments are pricing. To see how dramatic those are, we can look at options on SOFR futures and model what’s being priced by the volatility surface.

We are seeing the same story if we look at Fed Funds Futures data. Fed rate hikes until June, then rate cuts to follow.

How did Biden’s lawyers and now the DOJ figure out that Biden has classified documents all over the place? Probably from reading “The Hardy Boys.” Except that Biden didn’t cleverly hide classifed documents. Rather, he carelessly left them lying around at The Penn Biden Center and his home in Wilmington Delaware that he shared with his son, Hunter. And probably on the Amtrak train he would take from Wilmington to Union Station in DC. And probably at Chinatown Garden, a short walk from The White House.

United States Yield Curve 3M10Y Most Inverted In 30+ Years! (But Other Assets Signaling Cooling Odds Of Recession)

The first headline I saw when I turned on Bloomberg.com was “DOJ Officials Find More Classified Documents at President Biden’s Home.” This is an improvement! So far, the task has been handled by Biden’s private attorneys who don’t have proper security clearance; at least the Justice Department is finally getting involved!

But back to the US yield curve. It is now the most inverted in 30+ years as M2 Money growth stalls. Inverted yield curves have preceded recessions in the past.

But as China reopens and Europe is experiencing a warmer winter than expected (meaning that Europe has sufficient natural gas reserves) and US inflation cooling,

we are seeing market-implied odds of a recession falling in January.

I am still betting on a recession in the second half of 2023.

The Great Biden/Pelosi/Schumer Powell (4 Horsemen) Inflation Tax In One Chart (Personal Savings DOWN -64.8%, Consumer Credit UP, Real Weekly Earnings Growth NEGATIVE For 21 Straight Weeks)

I must admit, Joe Biden has a horribly misleading nickname “Middle Class Joe.” Between Biden’s horrible energy policies and Pelosi’s/Schumer’s spending binges, the US middle class and low wage workers have suffered mightely with the inflation tax. Throw in Jerome Powell and The Federal Reserve’s manic money printing and the American middle class has a problem.

US inflation peaked at 9.1% year-over-year (YoY), but has declined to a still painful 7.1% YoY as The Fed removes it aggressive monetary stimulus. But to cope with persistent US inflation, consumers have had to dip into savings and use more credit cards. As a consequence, personal savings plunged -64.8% YoY while consumer credit rose 7.9% YoY.

The other tax on the middle class and low-wage workers is the 21 straight months of negative REAL weekly earnings growth.

On the housing front, REAL home prices are growing at 1.5% YoY while REAL weekly wage growth is still NEGATIVE at -3.13% YoY.

Make no mistake, inflation caused by The Fed and Federal governments spending is a tax on the middle class and low wage workers.

Biden, Pelosi, Schumer and Powell are the 4 Horseman of the Inflation Apocalypse.