Bitcoin Retreats 20% From All-Time High as Risk Assets Slump (Dow Retreats Almost 1,000 Points, Gold Advances)

It has been a grim Friday. The Dow fell 900 points, 10Y Treasury yields fell 16.1 basis points and West Texas Crude fell to $68.17.

Bitcoin tumbled 20% from record highs notched earlier this month as a new variant of the coronavirus spurred traders to dump risk assets across the globe.

The world’s largest cryptocurrency fell as much as 8.9% to $53,624 on Friday during London trading hours. Ethereum, the second-largest digital currency, dropped more than 12%, while the wider Bloomberg Galaxy Crypto Index declined as much as 7.5%.  On the other hand, gold rose as cryptos fell, then retreated as cryptos rebounded.

A new variant identified in southern Africa spurred liquidations across markets, with European stocks falling the most since July and emerging markets also slumping.

The Dow is down around 900 points … and look at Europe!

The 10-year Treasury yield is down 16.1 basis points. Most of Europe is down around 8-9 basis points while the UK is down 14.5 BPS.

And West Texas Intermediate crude futures are down to 68.17 from 78.39. No Jen Paski, this isn’t due to Cousin Eddie (Biden) releasing the Strategic Petroleum Reserve (SPR).

Maybe it was all the tryptophan released by eating turkey.

A day to remember.

The Fed’s Gilded Age: A Tale of Today’s Housing Market (REAL Home Prices Rising At 14.6% YoY As REAL Hourly Earnings Fall (-0.41% YoY)

Welcome to The Fed’s Gilded Age … for housing! The gilded age refers to the thin-veneer of gold covering up problems in the late 1800s.

Today’s gilded age is largely fueled by The Federal Reserve’s uber-easy monetary policies combined with absurd Federal government policies. The result? Thanks to inflation, REAL home prices are growing at 14.6% YoY while REAL hourly earnings are declining (-0.41% YoY).

Redfin predicts a more balanced housing market in 2022. Part of their rationale is that they predict mortgage rates will rise to 3.6%. This growth in the mortgage rate is predicted to slow home price growth to 3.2% from double digit growth currently.

While this scenario is plausible, it will require a change in direction of the 10-year Treasury yield which has been declining since 1981. 5.39% YoY inflation may encourage The Fed to raise rates.

Today’s REAL 30-year mortgage rate is -3.08% while the REAL 10-year Treasury yield is -4.67%. It will require a reduction in inflation AND an increase in the nominal rate to get to 3.6%.

With the Freddie Mac 30-year survey rate at 3.10, will a 50 basis point increase in mortgage rates send the market crashing? Not likely.

After all, the US economy is under the thumb of The Federal Reserve.

Reverse Repos Parked Overnight At Fed Remain Near $1,418 BILLION As UBS Warns Of Stagflation And 50% Stock Plunge

When something is wrong with the economy.

Banks park funds at The Federal Reserve in an attempt to soothe themselves.

Nothing has been the same since the housing bubble of the 2000s, the resulting banking meltdown and the takeover of the economy by The Federal Reserve.

And since the 2000s housing bubble and financial crisis, The Federal Reserve has taken control of the economy resulting in M2 Money Velocity crashing to historic lows.

UBS ran a simulation that shows stocks could lose up to 50% under rare stagflation scenario.

And The Fed says “Hold on, we’re coming!”

My reaction to Biden’s Build Back Better spending spree and The Fed keeping rates repressed.

US Dollar, Gold, Ethereum SOARING As Fed Loses Control Of Inflation

As inflation seems unstoppable by The Federal Reserve, we are seeing the US Dollar, Gold and Ethereum soaring in price.

Persistent inflation is here to stay.

Yup, The Fed is firing blanks.

JOLT! Job Openings Changed Little (10.4 Million In September) As UMich House Buying Sentiment Declines Even Further (To 62 From 144 Last Year On This Date)

The Federal Reserve continues to JOLT markets with excessive monetary stimulus despite numerous reasons why they should back off.

For example, today’s JOLT report (US job openings) revealed that 10.4 million jobs were open in September. This is the fourth consecutive month of 1 million plus job openings, yet The Fed refuses to raise their target rate.

At the same time, the University of Michigan survey revealed that buying conditions for houses dropped to 66 (baseline of 100). To show how bad this is, buying conditions for houses was at 144 this time last year.

UPDATE: UMich revised their number downward to 62, the lowest since 1981.

In The Fed’s mind, they are still chasing at least 3.5% unemployment, the lowest rate under President Trump prior to COVID. But with perpetual million plus job openings GOING UNFILLED, trying to get to pre-COVID unemployment rate of 3.5% is a fool’s errand.

Of course, with The Fed helping to pump up house prices to largely unaffordable levels, it makes sense that enthusiasm for buying expensive homes has crashed.

Meanwhile, The Fed continues to JOLT the economy with excess stimulus.

Overall inflation fears are leading to lowest consumer confidence since 2011.

PLEASE stop JOLTING US!!

The Shadow Knows! The Xu-Xia Fed Shadow Rate Is -1.7021% (US Effectively Has Negative Interest Rates And Inflation Is Expected To Continue And NOT Be Transitory)

The Shadow Knows!

Wu-Xia employs an approximation that makes a nonlinear term structure model extremely tractable for analysis of an economy operating near the zero lower bound for interest rates. It can be used to summarize the macroeconomic effects of unconventional monetary policy (ZIRP + QE). The Shadow Rate is now -1.7021%.

And you wonder why we have inflation and house prices going into orbit?

With inflation also going into orbit, we see that breakeven 10 year inflation rate rising above the 5Y5Y (nominal forward 5 years minus US inflation-linked bonds forward 5 years). In other words, the US has abnormally high inflation and is expected to grow and NOT be transitory.

The Shadow knows … that the US is hyperstimulated. And inflation isn’t going away anytime soon.

Stimulypto! Red-Hot US Inflation Of 6.2% Implies That Fed Funds Target Rate Should Be … 14.94%! (11.10% If We Use Core Inflation)

How insanely overstimulated in the US economy by The Federal Reserve? Today’s red-hot inflation report of 6.2% YoY implies a Fed Funds Target rate of … 14.94%!! According to the Taylor Rule model, The Fed Funds Target rate should be almost 15%.

If we use CORE inflation (that is, CPI less food and energy), The Fed’s Target rate should be “only” 11.10%.

I feel like I am watching re-runs of Gilligan’s Island with Biden as the Skipper and Powell as Gilligan. Thurston Howell III and his wife lovey are the US Congress and Janet Yellen is the Professor. Case in point? REAL average hourly earnings YoY fell to -1.2% under the Gilligan’s Island leadership in DC.

Biden Starts To Freak Out About Soaring Inflation, Orders Economic Council To “Reduce Energy Costs”

This economic council?

Ethereum Is A Runaway Train! $4,358 Versus $129 On April 1, 2020 When COVID And The Fed Struck

Cryptocurrencies are a runaway train. In particular, Ethereum has gone from $129 on April 1, 2020 to $4,358 today.

Yes. March 2020 is when Covid struck and The Federal Reserve counterattacked.

Has volatility increased for the cryptos? Of course. The skew to the upside is steep on Bitcoin.

What To Expect Today From The Fed Open Market Committee (No Rate Change, Slight Decrease In Asset Purchases As M2 Money Velocity Collapses And Real Hourly Earnings Growth Is Negative)

From The Land of 1,000 Excuses, The Federal Reserve Open Market Committee (FOMC) will announce … no rate increases and a slight reduction in their assets purchases (Treasuries and Agency MBS). The announcement will be at 2pm EST (not at The Midnight Hour).

The Federal Open Market Committee is all but certain to hold rates near zero after a two-day policy meeting and announce a $15 billion monthly reduction in bond buying from the current $120 billion pace, judging that the test for tapering has been met as the economy heals from Covid-19.

There are two rate increases baked into the Fed Funds futures data as of today.

But a troubling aspect of The Fed’s monetary policy is that M2 Money Velocity is near the lowest in history and The Fed has been binge printing. What this means is that money printing has had little impact on GDP growth.

When The Fed mentions the post-COVID recovery, I hope they mention that REAL hourly wage growth is NEGATIVE.

And REAL S&P 500 earnings yield is also negative.

The Fed will likely to blame TRANSITORY effects such as the backed-up port traffic in Long Beach for rising prices rather than their flooding the markets with too much money.

But The Fed will continue to print, even though they will blame bottlenecks for inflation rather than their haphazard drowning of the economy in money.

Given that The Fed is monetizing the reckless spending by The Federal government, particularly Pelosi’s latest budget, we will see coordination between Chairman Powell and Treasury Secretary Janet Yellen (aka, Mustang Sally).

Call Jerome at 634-5789 to tell him to raise rate to normal levels.

Ethereum Jumps to Record High As People Lose Faith In Central Banks To Control Inflation

Instead of Bonjovi singing “Keeping the faith,” they should sing “Losing the faith” with regard to central banks and inflation.

Ethererum, the cryptocurrency, is now at $4,298. It under $200 as the Covid crisis took shape in March 2020. Since Covid, The Federal Reserve went loco and massively increased their money supply and asset purchases. With that response (and economic bottlenecks), inflation has increased to 5.4% YoY.

The Fed’s new moto should be “Policy errors ARE our business!”

No, we don’t look to President Beavis to do much of anything positive about inflation.